If you truly believe that “slow and steady wins the race,” then you have to highly consider learning the most effective trading strategy yet: Scalping. Before we begin discussing this technique, you have to go back into the topic “The Trading Tasks That A Forex Newbie Must Undergo,” so you’ll be refreshed with the technicalities that this discussion will show you.
So what is scalping? As the root word suggests, it is a technique in which you will scrape some earnings little by little, usually just a small percentage of the capital you’re trading. Most traders who are fond of using it have a 10% rule – They make it a habit to put in 10% of their capital, make a trade, take the 10% increase of their profit, and get out. They do it 9 more times and by adding all of the profits, they would then evaluate and calculate if they got the winnings they hope for.
Some trading experts say that the risks involved with scalping are very high, while some view it as a means of attaining the best stream of income because the rewards are quite high too. Whenever you consider applying this technique to yourself, you should weigh it carefully from your own perspective.
But many traders are getting some decent success with it, that’s why you should give it time to try it out to see if it works for you.
Steps to take in using scalping
Observing pivot points – Knowing exactly where a currency begins to drop or where it starts to rise is highly important, that’s one of the key factors that make many Forex investors successful. There is no definitive way of predicting when exactly a pivot point happens. However, understanding the highs and lows for the previous days is really helpful in making a good trading decision.
A pivot point can be viewed as an indicator coined by floor traders so it will be much easier to determine possible turning points of whether a certain price will go up or go down. By understanding pivot points, you can easily detect if the market’s sentiment can go from bullish to bearish – bullish meaning green candlesticks and bearish meaning red.
They are the means of determining the exact “support and resistance levels,” of a chart. We will have to draw lines in the chart the levels of the rise and fall of the market so we can know exactly when to get in and when to get out.
Observing yesterday’s chart movements – This is also important so we can have the idea of the market’s direction for the present day, and in the next days. Because 2 of the elements that make Forex function are tourism and product exporting/importing, they are among the chief reasons why charts show some rising and falling of currencies. And the thing about such events is that most of them happen for days, which means that yesterday’s trend could just be the same today.
If you are to ask any Forex expert, you'd have an idea about these things called "pips" which could determine your profit. Knowing the average pips of yesterday’s charts would be a good move to choose. For instance, if you entered a trading act using a currency pair that’s equivalent to “1.6400” and it can be seen that most of the pips during the previous days are around 50 to 75 (that’s today’s common range for the EUR/USD pair), it would mean that you’d get an estimated earning of “1.6450”
You have to take into account that the value of a pip can be calculated this way: 1 divided by 10,000. That would give us an exchange rate of 0.0001. Remember, 50 to 75 pips are just the typical rise or fall of candlestick movements; they are not always exact not accurate, that’s why it is essential to observe yesterday's chart movements. If you’ve clearly understood yesterday’s chart visuals, it should be safe to do some scalping trading for today.
Scalping is actually done as a series since we will just be scraping little earnings and gathering them all together to assess our winnings. For that, it would be wise to have a money management strategy as you get on with it.
Money Management With Scalping
For this example, let’s work with a capital of $100 for a beginner, that is not a small amount. But let’s just use the number for now so the Mathematics behind our following analogies would be a bit easier to follow. And also, it would be profitable for you anyway, as long as you already got the logistics right. Bear in mind that small capitals will also result in small profits.
If you want to take some considerably high profit as a beginner, it would be good to start with a hundred bucks. Now, in using scalping with that amount, let’s say we engage in a trading series comprised of 10 trading moves. For each move, we will put in 10 bucks so we can attain that 10% rule which should be the goal too.
The ultimate objective of scalping is to attain a tenth of our capital each time, to maximize our winning trading potential. Just think of this strategy as making a 10% risk, which should also result in an estimated 10% result of profit.
For this example, let us use the EUR/USD pair as they are obviously the most popular currency pairing in existence. Let us set the number “5” as our “take profit” point and “50” as our “stop-loss” point. This means that once our earnings have equaled 5 pips, we should already take that as a win, and take our earnings already. If we see that the pips have gone down to 50 pips, then it would be time to stop since we are apparently losing.
You might begin to think that if our possible win is just 5 points and our possible loss is based at 50, does it mean that we will lose more than we could win? Actually, we shouldn’t view it as such. Why we set 5 as already a win is because it is a good amount already. If we wait for it to rise higher, we could lose – it is a good practice to take the win even though it’s just a small one. By habitually doing that, your “little earnings” will pile up and become “big earnings in the long run.”
About that 50-point stop loss, it means that even though the values are getting lower, it means that we’re not giving up just yet. It implies we need to wait for a while because the values could rise higher in the next moments. If it goes lower than 50 though, it would be wise to call it day and wait for greener opportunities in our next trading sessions.
