Scalping

Scalping refers to a method of trading in which the trader executes quick, short term trades.

It is the quickest form of trading and the one who trades in this manner is known as a scalper.

Scalping is considered to be the most difficult form of trading, primarily due to a relatively poor risk reward ratio.

Whilst there is no exact agreed upon definition of scalping, this form of trading can be characterized as utilizing either one or both of the following attributes:

a) holding a position for a short period of time, i.e. from a few seconds to a few minutes, b) trading with the intention of profiting with a small number of pips, usually not more than ten pips per trade.

Should You Be Scalping?

As such, it follows that many scalpers seek out multiple trading opportunities throughout the day, aiming for a cumulative pip gain.

Naturally, traders will use lower time frames to scalp, such as the one-minute or five-minute charts.

Scalping differs from most other types of trading (such as swing or position trading) due to the fact that fundamentals are rarely considered.

Rather, scalpers mostly utilize classic technical analysis tools such as support and resistance and indicators such as MACD to assist in making decisions.

While scalping may seem initially attractive with the potential for quick profits on a daily basis, its poor risk reward can be exceedingly debilitating.

This especially true for novice traders due to the cost of the spread versus the profit target.

Consequently, this notion is why most forex scalpers tend to focus on the major currency pairs such as the EUR/USD, which, because of their higher liquidity, carry lower spreads.

In reality, when scalping, the spread is one of the key determining factors as to whether a trade is successful or not.