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There are numerous ways of approaching the forex market. All the traders have different trading styles which take different shapes and sizes. Scalping is one of the most common trading strategies used by traders.

Scalping differs from other trading strategies in terms of frequency and number of trades placed in a single day. Scalping is mostly undervalued in effectiveness even though it is the most used common trading strategy.

What is Scalping in the Forex?

Scalping is a short-term strategy that involves real-time analysis of the currency pairs and aims at making profits from the smallest changes in the currency prices. As the strategy is short-term which means traders frequently buy and sell countless times throughout the day. Scalping is the opposite of any long-term, position-driven trading strategy, and avoids holding positions overnight.

The most profitable scalp trading strategy involves leveraged trading which enables traders to borrow capital from brokers to increase their exposure to the market by using comparatively less money than the real value of the deposit.

Risks of Forex Scalping:

Like Other Trading Strategies, Scalping Comes With Certain Risks Like:

  1. Scalpers may have a tendency to put emphasis on a single trade which can throw away time and the sole idea of scalping.
  2. The purpose of scalping is to make trades quickly and frequently and any trade open for a longer period of time can impact the trade adversely. Involvement of emotions can lead to casual sequences that can disrupt the whole trading strategy. 
  3. Another risk can be caused by any Economic news releases that can increase the volatility of the market in no time and the prices of the active trades can be influenced significantly. 

Advantages of Using Scalp Trading Strategy:

  1. Traders can work considerably during day time as the trade in scalping is not carried out overnight which means there are no risks carried to the next day. This also avoids swap charges.
  2. Traders have the flexibility of trading. They can actively trade for a few hours and spend the rest of the time at ease.
  3. Scalping can help traders to grow their accounts in a small period of time as compared to any other trading strategy. 

Disadvantages of Using Scalp Trading Strategy:

  1. Scalping requires consistent concentration while scalping which might not be easy for everyone and can cause problems in trading.
  2. As the trades in scalping are rigorously placed which requires traders to maintain the right trading psychology. Most traders are not able to balance their emotions which makes them feel frustrated or stressed. 
  3. Any changes in the ask price or bid price of the scalper can lead to significant losses. These losses can be in the form of slippage or wide spreads. 

Is Scalping a Good Strategy for You?

This is a noteworthy question as scalping might not be profitable for everyone. Traders who like to trade forex in the longer time-frames through position trading approach are not much likely to handle scalping. But those who find the idea of holding small positions and in shorter time-frames, scalping might hold more interest in them. 

This approach might not suit traders who are over analyzers or overthinkers at the core of their personalities. Quick entries/exits and witty are the personality traits of scalpers.  

In many cases, scalping might appear easy and basic superficially but the reality is notably different. Scalping has minimal room for any mistakes which means that traders need to have a high level of concentration along with a good trading system.

How Can a Trader Benefit From Scalping:

  1. Scalping is mostly dependent on technical analysis which requires traders to have a good understanding of technical tools. They should know how to read charts and use appropriate indicators to identify the right entry/exit point. Scalping involves real-time analysis of the currency pairs and any kind of lag can lead to losses.
  2. Follow the idea of scalping. Scalping is aimed at making profits by placing small but frequent trades and benefits from the small fluctuations in market prices. Placing and executing the trades aggressively requires traders to have the right trading psychology. So, traders should develop the skills to maintain the right balance of emotions.
  3. Using a platform that has high execution speed and tight spreads. As discussed above any changes in the ask or bid prices can affect the trade, traders should opt for ECN forex brokers that provide low latency and tight spreads. Some of the ECN brokers that you can refer to are:
  • Avatrade
  • IC Markets
  • XTB
  • HotForex
  • FBS
  • Exness

Conclusion:

Scalping is an aggressive form of trading strategy that requires a good amount of trading knowledge and concentration level. It is important to consider both technical and fundamental analysis while scalping as any economic news event that increases the volatility of the market can throw you out.

Scalping: Ins And Outs Of One Of This Popular Forex Trading Strategy
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