The basic idea behind scalping in the FOREX market is that you make several small trades during the course of the day. You find a currency pair that you like to trade, predict which way it is going to move and then place a trade. Instead of waiting around for a big trade like you do with other trading strategies, you just wait for a small movement in the direction you want and close the trade. You are aiming for a small profit target instead of a large one. This strategy usually takes place pretty fast. If you are trading during a high volume part of the trading day, the currency will usually move a few pips in a short period of time. Therefore, you may have your trade open for only 10 minutes or less. Sometimes it takes longer, but many times you can do a trade in only a few minutes.
Benefits of Scalping
Scalping can be a productive strategy if you know what you are doing. With this strategy, you are not waiting around to hit the big home run. You are just consistently hitting singles throughout the trading day. Even if the market does not move very much throughout the day, you can still net some consistent profits.
With this strategy, you can also protect your trading account better. Instead of taking a large trade with a big stop loss, you are taking several trades with a small stop loss. You are just hoping for a few pips, so you do not have to risk as much to have a successful trade as you would if you were taking big trades.
Disadvantages of Scalping
The big drawback to scalping is that in a short time frame, it is very difficult to predict the direction of the market accurately. The market jumps up and down a lot throughout the day. When you smooth out the data on a larger time frame, you can more easily see the direction of the trend.
Another disadvantage is that it is a very high-paced trading strategy. With other trading styles, it is not so crucial to get in and out at the precise second. You can be patient and trade when you want. With this method, you have to get into the market at a second's notice.