What is Scalping in Forex Trading?
Basically you can trade forex as a short term trader or a long term trader. In short term your time horizon will only be one day, most of the time you will trade intraday; opening and closing position within one day. In long term, you will open a trade for 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 takes advantage of the fact that most of the time the market is ranging. Ranging means there is no significant price movements or volatility. The aim of a scalper is 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.
But scalpers have to make more pips per trade than the pip spread offered by brokers in order to break even. For example if the broker is giving a 4 pips spread to you than you will have to make more than 4 pips per trade to start making profits. Dont forget the spread is your cost of trading.
In order to become successful at scalping you need thorough understanding of technical analysis. You should have an idea of how to determine over/under brought, support and resistance levels, trendlines, trading channels etc before entering into a trade.
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.