Scalping under the Forex Trade market entails the criteria used by traders in making transactions a currency pair. This criterion involves holding on the currency pair for a preferred period to make a profit. A currency pair, in this case, involves the comparison of one type of currency to another. This process of Scalping is done by a Forex Scalper whose purpose is to search for a big number of trade prospects and get small profits from those trades each time the trades are transacted.
Scalping Charts and Pips
Numerous trades are transacted with the help of charting tools; these charting tools are technical forms of analyses that are used to form a decision when several signals point to the same endpoint.
The scalpers use one-minute charts and tick charts in the forex trade. Tick charts are charts that define a new bar after a set number of trades have been met. Essentially one tick equals to one trade. A one-minute chart, on the other hand, indicates the price change for every one minute that has transpired.
Scalpers also use a certain number of pips, ranging from five to ten pips, from each trade conducted to gain profits on their trade transactions. This process is usually repeated throughout the trading day. Pip is an abbreviation for percentage in point and it is defined as the smallest change in price that a currency pair can make.
The Scalping Ideology
Before getting to the best method of scalping one needs to know all the stages in a scalping process. These include the setup process, the broker to be picked and the platform of the broker, the aspect of liquidity, redundancy in the market, and choosing the charting time frame. All these stages give an enhanced detail on the scalping process and help gauge the best scalping strategy that would guide the trader in achieving profit.
· The Setup process
This stage requires the scalper to have a remarkable level of access to the market markers having a platform that necessitates the quick transaction of currency pairs. Numerous platforms will normally have a buy section and sell section for every currency pair; this makes it easy and quick for the scalper to place a transaction.
· Picking of the Broker and understanding the Brokers Platform
The scalper should have the right expertise in researching and get to know explicitly about the broker agreement and the roles the scalper would play regarding the broker. These roles include being keen towards the market margin and hence what action the broker will do suppose the currency trade does not favor the scalper’s position.
A scalper is expected to do all of the trades in the market with the highest liquidity. Highest liquidity usually occurs in the major currency pairs such as the Euro and the US Dollar or the Japanese Yen and the US Dollar. A point to note is that certain sessions may be more liquid than other sessions depending on the individual currency pair.
· Guaranteed Executions
The scalpers are expected to be sure about their trades and their outcome should be at the intended output. This necessitates having a deep understanding of the terms and broker agreements. Doing negative of this can result in a slippage which entails placing a currency trade at a particular position but the output occurs a few pips out of the intended outcome.
Redundancy has a cross-relation to insurance as it involves the process of securing oneself from a catastrophe. This means that the scalper needs to have more than one way of transacting the currency pair trades. Strategies such as having a direct line to a trade dealer desk and the speed with which one can get through is an example pf a redundancy.
- Choosing the Charting Time frame
The scalper is intended to have and efficiently use a trade style and system that can be executed with pure confidence. This system accomplishes the repetitive execution of trading the currency pairs. This system will require a tick chart or one minute chart to successfully to trade repeatedly with a constant profit margin.
The Scalping Strategy Preparation
The accurate way of scalping involves two steps: the first involves the scalper having to understand the sense of the trading direction, and lastly the scalper needs to efficiently prepare the trading charts.
1. Understand the sense of direction
Trading with a particular trend is usually advantageous especially for an amateur scalper. To familiarize with the trend, the scalper needs to put up a day to day as well as weekly trade chart. This trade chart can be incorporated with trend lines, moving averages and Fibonacci levels which are market indicators that help identify the trend in that particular market.
In a scenario that the charts indicate a rising trend and bias then the scalper will be expected to purchase all of the support levels should they be reached. A rising trend entails the prices of the currency pairs sloping from the bottom left of the chart to the top right. A support level is price level in which a downtrend can be expected to pause due to an increase in demand.
In the scenario of a falling trend, the reverse is done as the scalper is expected to sell the trade currencies each time the resistance levels are reached. A falling trend is a scenario seen on the chart as a drop from the top left of the chart to the bottom right. A resistance level occurs due to a sale when prices have increased.
2. Preparing trading charts
The chart in play could be a manual system in which the scalper deciphers the indices or automatic where the trader essentially sets up an algorithm that interprets the indices in a manner deemed perfect. Either way, the analysis of these trading charts represents the tools with which scalpers use to trade. Another solution to predict the price movement perfectly, you may use Forex Pin indicator created by Dennis Buchholz. By using Forex Pin trading system, you may expect high success rate of up to 80% on your scalping trades.
The best scalping strategy will incorporate all the mentioned stages in the scalping process and the preparation of the scalping strategy. It is better to cease one's losses as fast as possible when the number of pips exceeds seven.
Too much emphasis on analysis does not result in the required profit gain hence practicing the trading criteria until mastery is achieved helps in succeeding in this trade. This trade is all about the calculation of risk and ascertaining the right time to make a trade to gain profit.
Scalping needs a lot of liquidity to ensure fast trade executions; this means that trading in major currencies is the preferred criterion as the liquidity is the highest.