Forex Scalping - A Dangerous Game

Catching The Spread

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Learn How to Short-Term Trade in the FX Market. Tetra Images / Getty

When I first started trading forex, I thought that scalping was a fast, easy way to make money. Put on a trade at high leverage, aim for a pip or two, and collect the money.

Sounds plausible right? Until you lose a couple of times in a row and find that your losses are so much bigger than your wins that you easily end up in a hole that you can't dig your way out of. So, what is the answer if you want to use scalping as your trading method?

Unfortunately, the answer is to set your sights lower as far as how much you want to make per trade, and probably set your targets higher.

I don't recommend scalping as a trading method, most traders using this method don't have a solid reason for their trades, and it creates a knee jerk type of trading that ends up not serving anyone well. If you've ever heard of position trading, this is what I would recommend if you want to make some money scalping. When you position trade, you put multiple trades on in a currency pair and end up with an average price. What type of position and the risk levels are up to you. I prefer to do position trading over weeks, and take scalps here and there in my existing trading direction. However, if you wanted to try to be creative with that, you could take the same approach on an intraday basis and do smaller positions.

About now, you're probably saying, this doesn't sound like the new fast money method that you heard about on a forex trading forum.

It isn't, it also wouldn't be the road to blowing up an account.

Trading forex is really about controlling your emotions and managing forex risk. That is it. There are various things you can do to decide your trades, but if you don't control your emotions or manage your risk, you'll be finished before you can start.

If you want to scalp, you can't just pick an arbitrary direction and put on a large trade. That is what we like to call the trade and pray, and if you're doing it, it's only a matter of time before you end up laying by the wayside with an empty trading account. There is a saying that says "You can try to scalp the forex market, but eventually it will scalp you." Scalping seems fun when you're winning, but as soon as you start losing, it's not fun anymore. Most of the time traders will eat up most of their capital before they call the experiment a failure. It's human nature. We want to feel smarter than the market. The truth is that the market is just the market, all we can do is follow it. There isn't a "beat the market" method.

If you must scalp, you should follow these rules:

First
Trade small. I know that it's tempting to trade big for fast money, but it's a definite road to ruins. Keep your trades small and give yourself some room to get out without going broke if you make a mistake.

Second
Trade with stops.

Scalping can so easily go wrong. It's not one of those things that use a wonderful risk-reward ratio typically. Set a stop that is your maximum loss, and leave it alone. If you get stopped out, accept the loss and move on.

Third
Learn to trade. This seems silly to say, but overall, scalping is not a viable trading method. It can sometimes be used in combination with other methods, but it isn't a method that should be used by itself. If you are scalping, instead of really trading, learn to trade forex.

Do you have a success story that involves scalping? If so, please email me at forextrading@aboutguide.com and tell me about it.

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