The foreign exchange market is fraught with ephemeral and short-lasting windows of opportunities. To have a truly profitable trading journey, you need to be able to benefit from all of these small windows.
This is where scalping comes in. Scalping is a special trading strategy which is also quite the crowd favorite among traders, especially the novice kind. In scalping we basically have highly frequent trades being opened and closed. In this method, trades can take anywhere between minutes to even seconds.
Although, depending on whether you are an amateur or professional trader, opting to scalp trades can have different benefits and downsides at the same time.
All You Need to Know to Start Scalping in Forex
Scalping is when traders opt to open and close positions on a high frequency trading in order to gain benefits in a small time window. Of course it might require a bit more experience for traders in order to be successful.
The reason is that for beginner traders, it might be rather difficult to properly forecast what is upcoming in the market. When the time window for trades becomes smaller and shorter, naturally, it becomes that much more challenging to pick on patterns that might exist in the market.
On the other hand, such inexperienced traders can learn a lot from scalping. Although perhaps within the confines of a safe demo account, they can learn how to open and close positions as fast as possible. Thus enabling them to increase their attention and focus and also their sleight of hand merely with regard to working in the market.
All in all, scalping can help train many essential skills for people who want to get into professional traders. And ultimately it will lead to a seasoned and skilled trader who is able to trade in any given moment.
Clearly scalping is a very demanding form of trading since a forex trader is required to carry out numerous tasks and operations within a short period of time and very quickly.
Altogether, scalpers attempt to open and close very closely to each other after a few points of change, as long as it covers the spread obviously.
Now let’s take a look at how scalping is carried out.
How to Carry Out Scalping in Various Conditions
Basically speaking, the ideal conditions for scalping is when the volatility is high in the market. There are different conditions under which volatilities are high. These different conditions of high price oscillations create the different types of scalping. In this section we will take a closer look at them.
One condition in which volatilities are expected to rise is when impactful news is expected to be announced. This would be rather similar to news trading, where traders hedge their bets in favor or against the upcoming news announcement which will impact the market. These news announcements can be anything with a potential financial outcome, but particularly the monthly or bimonthly economic metric announcements.
Another way to look at scalping type with regard to market volatilities is the time frame or time window chosen for the trade. This would give us three distinctions as follows:
- Pipsing: in this form of scalping we have the shortest time frames, where trades only last for about 1 to 2 minutes. Since the time frame is exceptionally small, in order to obtain proper benefits, it is advised that the highest possible leverage be used. Depending on the broker this leverage can be anywhere from 1:500 or even 1:1000.
- Mid-range time frame: in this kind of scalping we have time frames that could last anywhere between 5 to 15 minutes. Since the time frame is a bit longer than the previous method mentioned, the leverage would be specified according to the given conditions.
- Long-term or conservative: these could be regarded as the longest time frames for scalp trades, where positions can remain open for even a maximum of 30 minutes.
Therefore, so far we saw that factors that could impact the market with regard to increasing the volatilities are important for scalpers. They could also be divided with regard to the time frame they choose for the execution of trades.
It goes without saying that a whole array of technical analysis tools and methods can be applied by traders. Though, given the fact that time frames are at most 30 minutes, it takes a really experienced hand to deploy the analysis in time to catch the opportunity train.
One last point before we move on to the positives and negatives of scalping in forex trading is that some traders go by their intuition when scalping. This is clearly very risky and it is not recommended to novice traders at all. However, professional traders who have been in the market long enough can actually depend on their intuition most of the time in order to carry out successful scalps in the forex market.
Scalp XAU/USD with XauBot
As risky as scalp trading can be, there is one special and intelligent tool that can help you with that.
XauBot is the first forex trading bot(Gold Trading EA) developed based on artificial intelligence suited for trading the gold trading pair (XAU/USD) in the forex markets.
One key feature of XauBot that we want to mention here is the scalping capability that this bot is equipped with. The reason this scalping feature is so crucially significant for XauBot is that this trading bot is designed for trading gold.
Of course, gold denominated by any currency, in this case the US dollar, is one of the most stable commodities.
So, what do you do when the trend is near flat? That’s right, you scalp!
No matter how flat and unchanging the trend of XAU/USD may be, XauBot will be able to reap benefits from the smallest price change points.
What Are the Benefits of Scalp Trading?
As was discussed earlier, scalping should not be recommended to beginners in the forex market as it is difficult to execute without loss. But in a demo account, scalping is actually a good way for beginners to gain some quick experience. Here “quick” is the key word. Because using technical indicators and various analysis methods can be quite time consuming for beginner traders. This might discourage some from continuing to learn trading. But the fast-paced nature of scalping might give them the notion of trading that they had expected.
As for professional traders, scalping can provide the highest amount of benefits. One important benefit is that regardless of market movements, whether they are heavy and volatile or even if the market is by and large unchanged, scalping can always take place.
Are There Any Disadvantages in Scalping?
There is a notion called price noise in financial markets including forex. In simple terms, price noise refers to miniscule and small price corrections that might otherwise confuse the trader with regard to the general trends that exist in the market.
As we make the time frame smaller in the market, the price noise gets higher and more impactful. Therefore, naturally, it would be more difficult to pick on patterns when the time frame is, say, 5 minutes, rather than days or weeks in the case of position trading.
So, as we have mentioned this many times, although scalping can be very profitable and in fact among the most profitable trading styles in forex, it is also risky and traders need to exercise caution, especially those who do not have enough experience.
The trading style of scalping is one the most favorite styles among all traders in many financial markets, including of course the foreign exchange market or forex. Trading foreign currency pairs with scalping can be beneficial for many reasons. But one important distinction of scalping compared to other trading styles is that it can be used in almost all market conditions, even when the market trend is so-called flat and there is not much movement. With enough practice and experience, any forex trader can gain even the highest benefits from scalping compared to all other styles.