What is scalping in Forex?

What is scalping in Forex?


Scalping is fast, exciting and challenging. This is a trading style that usually involves holding an asset for a few seconds, or at the most a few minutes.

24 Oct 2018

Summary

Definition of scalping
Is scalping right for you?
A few points to consider if you decide to venture into scalping
The advantages of scalping
The disadvantages of scalping
The operation of scalping
How to scalp in practice?
Why scalp with Libertex?

Definition of scalping

Scalping is fast, exciting and challenging. This is a trading style that usually involves holding an asset for a few seconds, or at the most a few minutes.

In the language of trading, scalping means buying and selling positions several times within the same day, generating a small profit on each.

Traders find scalping opportunities when they look for extreme prices in the market. When scalping, we can buy at a lower price and sell it at a higher price or vice versa. We prefer to sell primarily high-end assets, although it is also possible to sell futures contracts in low category IV environments to stay active.

The most important aspect of scalping is liquidity. We will not focus on a position that is not liquid as our goal is to enter and exit our transactions several times a day. Ensuring liquidity also ensures that we get the best possible price when entering and exiting transactions. Scalping is purely subjective and there is no rule as to when to enter or exit trading. When scalping, we trade with very little money and accept the profits when they arrive. Using this technique, we think that greed and the chain of negotiations can be adverse and quickly lead to a large loss of money.

Is scalping right for you?

The main objective for Forex scalpers is to trade as much as possible at very low volumes during daily peak hours. As scalpers need to be glued to the charts, this style is particularly suitable for those who can devote hours of attention to their transactions. To achieve the best results, scalping requires intense concentration and quick thinking. It is not for those who are always looking for large profits, but for those who want to make small profits in order to profit over the long term.

A Forex scalper needs to have the following qualities:

  • You should enjoy rapid trading and emotions
  • You're not bothered by having to focus on your charts for hours every day
  • You are impatient and do not like to wait too long
  • Think fast and turn the steering wheel or change direction at a glance

You can NOT be a Forex scalper if:

  • You get stressed easily in competitive environments
  • You cannot focus on your charts for hours
  • You prefer to trade less for higher profit
  • You like to take your time to analyse the general market trends

A few points to consider if you decide to venture into scalping:

Only swap the most liquid pairs. Pairs such as EUR/USD, GBP/USD, USD/CHF et USD/JPY offer the tightest spreads as they generally have the highest trading volume. You want your discrepancies to be as tight as possible, as you enter the market frequently.

Only trade during the most active hours of the day. The most liquid hours of the day occur during the overlapping sessions. Find the trading hours.

Be sure to account for discrepancies. If you enter the market often, discrepancies will be an important factor in your overall revenue. Ensure your goals are at least twice your margin so you can count the number of times the market moves against you.

First try to focus on a single pair. Scalping is very intense. If you can put all of your energy on one pair, you will have a better chance to succeed. As a beginner, scalping on multiple pairs is suicidal. If you start to catch up with the market's pace, try adding another pair and see how it works.

Minimise the risks. Whichever style you choose, remember that currency trading carries risk. Before risking your own capital, it is best to gain experience. Practice scalping with our demo account.

The advantages of scalping

Before embarking on a scalping activity, you need to be aware of the advantages and disadvantages of this style of trading. Scalp trading is a stock investment method that is used by many experienced people. As such, it has 4 main advantages:

  • Firstly, the scalper will sleep well. Financial assets never stay long on your portfolio; at the most a few minutes. So you have peace of mind outside of trading periods, and see your performance immediately.
  • By adopting a simple scalping strategy, you can multiply your profits. Certainly, profits from scalping are never very significant, but once accumulated, you can achieve a very interesting overall performance. It's all about finding the best technique to multiply your profits. Unlike swing traders, you will never wait for your portfolio to regain value after a significant decline.
  • You can practice scalping on any type of market. Whether it's the stock market, or Forex for scalping currencies, an effective scalping method will be accessible on all terrains. The only constraint that you will need to respect in order to scalp effectively is to check the liquidity of your market. As you will only hold a value for a few minutes, you need to be certain that you can resell your financial assets easily when you decide to.
  • Finally, scalping is very simple to practice in terms of strategy. Unlike swing trading, the scalper simply needs to learn how to manage the risks they take. It generally only takes one indicator to make decisions and program low margin stop losses.

The disadvantages of scalping

Among the disadvantages of scalping in finance, we must mention the small profits made by traders first. Indeed, the trader never earns huge sums: it is the accumulation of small amounts throughout the day that builds performance. Moreover, the sums played being significant, and the recovered profits being low, the scalper is subject to very significant commissions. The latter will have to pay the spread for each transaction, which will decrease their overall performance.

To achieve a correct performance, it is necessary to spend a lot of time scalping. Very many transactions are performed every day by scalping on forex. In each position, the scalper must keep a keen eye on market developments, and cannot devote himself to other activities. Scalping, therefore, requires a high capacity for concentration. By using a large leverage effect, the mind is in the right place to take a winning position.

The operation of the scalping

By definition, scalp trading works over a very short period of time. The scalper must juggle between numerous positions during the same session. The scalper is to Forex what day trading is to the stock market. During a scalping session, the duration of the trade ranges from a few seconds to a few minutes. The trader then plays on the PIPS (the fourth decimal place after the decimal point) to maintain or close his position.

The scalper must, therefore, be particularly attentive and organised. The positions adopted within the same day are multiple and require the trader's eyes to be constantly riveted on the rates of the currencies on which they have taken a position.

How to scalp in practice?

How to scalp in practice?

As in a traditional trading session, scalping follows different methods and strategies. The use of scalping pivot points can give an indication, presenting values at which forex values are more likely to stabilise or rebound. Nevertheless, these pivot points can sometimes prove to be defective in a scalping strategy, as they justify their reliability on positions of a usually longer duration.

However, scalpers are not unresourceful when it comes to different trading methods. The different indicators are not lacking. Thanks to the latter, the scalper can easily determine a stop loss and take profit (SL / TP) value.

Ichimoku trading

This is certainly the most famous scalping method. We owe the latter to a Japanese financial journalist who lived in the 40s. The latter is based on an eponymous technical analysis tool, which allows the scalper to see the levels of supports and resistances, the direction, the trend, and the strength of the different signals. The latter is almost infallible, both in scalp trading and day trading.

Trade the "inside bar"

The inside bar trade is based on a technical analysis made from three figures using Japanese candlesticks. From the orientation of the previous two, and the beginning of the third, the scalper can bet on the market trend in the next few seconds. However, this analysis must be confirmed by other indicators, as a market can completely reverse its trend within a few seconds. For this reason, the scalp trader must find a relevant stop loss in order to not become deficient.

T-line Scalping

T-line scalping is based on a trend analysis tool. Based on the analysis of 5, 8, 13 or 21 ticks, the trader has a tool that colours the candles according to the market trend. The trader can then deduce his purchase strategy. However, in the case of an inversion of the trend, the scalp trader must be particularly responsive. T-line trading and the use of Heikin Ashi require that your eyes never leave the market.

Scalping forex in 1-minute segments

Forex presents interesting characteristics for scalping inside of seconds, even within a single minute. The trader then opens a position powerful enough to cover the costs of the transaction and management fees. In just a few seconds, the market changes on a few PIPs (Price Interest Points), the trader then closes his position right after this development.

It is this accumulation of winning trades that will enhance the trader's performance and generate profit as and when. Scalp trading, or micro-trading, will allow the scalper to grow their capital very quickly, and obtain a certain performance at the end of the day.

Trend trading

Trader on trend for a few minutes

Another method of scalping, trend trading is probably the simplest and most accessible for beginners. The trader who has identified the market trend will open up a position for a few seconds or minutes, in the hope that the market moves in the direction of the trend. The bet is a little risky here: even in a very strong uptrend, it can happen that the trader is confronted with periods of consolidation that create a depreciation in the market. In this case, a scalping trader may be losing where a swing trader would be winning. Here as elsewhere, it is risk management and the initiation of a stop loss (SL) that will allow the trader to limit their losses.

Why scalp with Libertex?

Scalping is a trading method that allows for a rational but steady performance. Thus, the scalping trader limits the risk of losses by programming a reflected stop loss, but can also accumulate profit, which allows him to increase his overall performance.

Libertex is a trading platform that allows scalp trading, in a way that is suited to beginners, as well as experienced traders. The platform is, therefore, the ideal partner to achieve significant performance and to train over the days.

The platform offers several levels of learning. The different methods of scalp trading are detailed so that everyone can find what to improve on and increase their profits. Providing hundreds of tools to traders, both experienced and beginner, allows you to determine the best strategy to grow your savings. 

  • Increase your performance with Libertex leverage

Libertex offers you access to a leverage effect that increases your profits. You can thus scalp trade on positions much higher than the amount of your equity. This allows you to multiply the PIPS increase of your position and to quickly re-enter your expenses. Be sure, however, to be aware of the dangers of misuse of a leverage effect. 

  • Practice scalp trading on a simulator

Libertex offers you a simulator allowing you to refine your scalping trading strategy before investing your own funds. You can trade tens of thousands of euro in a virtual way in order to train before taking much more serious positions.

In addition to these advantages, Libertex offers you the latest technical analysis technology that will offer you the best of scalp trading. You can refine your strategy and increase your performance with some of the lowest trading fees on the market.

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