How Scalping Works in Forex Trading?

Primarily there are two trading styles in forex trading: Short term and long term. Short term trading is done when positions are opened and closed on an intraday basis. Long term trading positions may span a few weeks or a few months.

Most of the day traders are short term traders. Day traders love scalping. A position is opened and closed within minutes making a few pips per trade.

Scalping is based on the fact that most of the time the market is ranging. Ranging means there is no significant price volatility. A scalper tries to make 2-5 pips per trade.

Scalpers look for the period when the market is consolidating and ranging like when between the closing of the US currency markets and the opening of the European currency markets. During this period forex markets tend to range for hours without much movement. This is the time when scalpers like to trade.

However, the more you trade, the higher your trading cost becomes. For example if the broker is giving a 4 pips spread to you than this 4 pip is your trading cost per trade. You will have to make more than 4 pips per trade to start making profits.

In order to become a successful scalper, you need to understand technical analysis well. You should have clear idea of over/under brought, support and resistance zones, trendlines, trading channels etc.

Most of the forex brokers hate scalpers. Since the brokers are most of the time trading against you, a successful scalper can take profits away from the brokers. No doubt many brokers try to ban scalper from trading.

Scalping can be profitable if done many times every day and if the number of pips made each day is more than the number of pips lost.

Since scalpers are looking for capitalizing on very small gains like a few pips per trade, the profits obtained per trade are small. So scalping requires you to use high leverage.

Leverage is dangerous. It is a double edged sword that cuts both ways. Leverage helps you if market favors you but it will destroy you if the market does not favor you. So beware of using too much leverage while trading.

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