scalping forex

“Scalping” is an approach to forex trading that has a dangerous attraction for many beginners. Dangerous, because they are attracted to it for all the wrong reasons. Dangerous, because while they won’t lose their hair, they could well end up losing their shirts.

Scalping as a tactic implies taking very small profits very quickly. Most successful scalpers (and there are many – but not many of them are beginners!) look for a maximum of about three times the spread – the difference between the buying and selling price.

This means the trades happen very quickly; sometimes the trade is closed out within seconds of being opened.

Beginners are tempted into scalping because:

Everything happens very quickly and if you get it right you see profits almost immediately;

Speed is attractive for another reason – many beginners are nervous about leaving contracts open for any length of time. They worry about not watching their positions all time, and they particularly worry about leaving positions open overnight or even for a day or two;

Most scalping trades are very short term, so it is easy to feel that “it doesn’t really matter if I miss this one”, which makes the average beginner feel much more comfortable about the inevitable mistakes.

But some of those perceived benefits in fact hide substantial downsides.

The most important adverse factor is probably the stress comes with the speed aspect.

Because of the need to make very quick decisions, stress levels in scalping are even higher than in normal forex trading – which is not the calmest of activities at the best of times. The stress level is magnified because scalpers typically make numerous buy and sell decisions in any one trading day.

Add this extra stress to the stress that the beginner already feels because he or she is now trading real time, with real money, and a mistake will result in real losses – and you have a seriously sweaty-palmed and dry-mouthed beginning trader on your hands, who will certainly make more mistakes than would be the case if there was time for considered decisions.

So as the number of errors increases, suddenly it does really matter “if I miss this one”.

The need for speed brings with it another problem. Scalpers need to be completely at home with their technical tools and the platform on which they are trading – attributes that the average beginner has not yet had the time to acquire. Fumbling with charts and software leads to slower decisions – the very thing that a scalper must avoid at all costs.

While many scalpers are self-employed, the odds are that the average beginner does not yet have the luxury of working full time on forex trading. And probably also does not have the luxury of a quite, distraction-free space in which to work. Result – more stress, less concentration, more mistakes, more losses.

The small profit that is made on the average scalping trade is the obverse of the “quick profits” attraction, because it tempts impatient beginners into using more leverage in an effort to force more profits. Too much leverage is bad risk management and a serious danger to working capital.

Finally, some brokers (particularly those who are not ECN brokers) do not like/will not allow scalping because the very fast trade does not allow those brokers who are market makers to cover the trade, so they are exposed to increased risk. Ironically, those brokers who are most likely to disallow scalping are the very ones more likely to be helpful to beginners by offering worthwhile technical analysis, a nice trading platform, news updates and demo and micro accounts.

On balance, beginners should approach scalping with a great deal of caution, at least until they have built up some experience and have some profits in the bank to show for it.

Darrell van Zyl writes for pleasure and builds websites when the markets close. If you need to organize and label a DVD or CD collection, find out how to print directly on to a disc with a CD/DVD Label Printer or a DVD Thermal printer and turn a messy heap of discs into a beautiful and organized collection.

Will Scalping Forex Make You Rich?