We continue to consider the pros and cons of various types of strategies. Recall that in the last review we reviewed the advantages and disadvantages of intraday trading and focused on the fact that there is no ideal, the best option is a combination of diverse strategies. In this review, we will do the same analysis of scalping strategies in Forex.
Forex Scalping Strategies: Making the Choice
Scalping is a set of short-term transactions that open in the direction of the trend. The duration of the transaction directly depends on the spread (the price should have time to rise to such a level as to pay back at least the broker’s commission) and on the goals of the trader. For scalping strategies, volatile pairs are selected in Forex, which can show a relatively large wave amplitude in a short period of time. As a rule, the spread for volatile pairs is narrower than for exotic ones, which explains their high liquidity and large turnover. Not all brokers allow scalping, justifying a transaction limit of at least 1–3 minutes because requests overload the server. However, this is one of the signs of “kitchen”.
Advantages of Forex Scalping Strategies:
- Trading by fundamental analysis. Many technical analysis seems to be something supernatural. But in scalping his role is reduced – the trader simply will not have time to keep track of all the signals also by indicators.
- High earnings. Everything is relative, but high-frequency trading, along with professionalism, can give a lot more income compared to day-to-day tactics. The secret is in volatility.
- A small deposit. The speed of transactions allows you to accelerate the deposit much faster than in other types of strategies.
Disadvantages of Forex scalping strategies:
- Slippage. This problem is common to all volatile markets. An order to close an unprofitable transaction is triggered with a big delay, which is why a loss from one transaction covers profits from several successful ones.
- Price noise. Scalping involves working on short timeframes, where anomalies and inexplicable fluctuations in quotes are often observed, which can close a stop loss or stop out transaction. Therefore, the risks in scalping are much higher than in intraday strategies.
- Emotional stress. In order to recoup time on deals with minimal profits, a trader must open a large number of them (how many – all concepts are relative). And all of them need to watch that overloads the brain and disperses consciousness. Partially solve the problem of bots and scripts, but only partially.
- Limited choice. Only some currency pairs are suitable for scalping and not every time. The problem is partially solved by a rebate, which allows the use of pairs with a slightly larger spread.
- Technical limitation. Scalping requires a great platform, internet, order execution, etc. Not all brokers and traders have this.
Scalping is a complex strategy. And despite the seeming simplicity of earnings (to catch the trend on the news and quickly “bite off a piece of the pie”), it is not recommended for beginners. The trader should be able to instantly assess the situation and take into account all factors, including the fundamental ones. And this is not always possible even with professionals. If you still decide to try yourself as a scalper, we recommend to get acquainted with trade advisors (for example, this one) or strategies. Successful trade!