Scalping to Success?
Forex traders tend to favorite trading signals due as it eases the process of researching the markets to determine which currency to buy or sell. One of the most popular methods among forex signals providers is scalping.
Scalping is a trading technique where several pips are targeted in a trade, often between 3 pips to 10 pips. The main benefit of scalping is that there is a greater possibility of noting numerous entries in the market on a daily basis.
Scalpers do not roll their positions to the next day (on most occasions). Tight stops are used as scalpers do not remain in the trade for a significant period of time. When scalpers do roll their trade to the next trading day on almost all occasions it is done to avoid losses, which is alarming as it may suggest the trader is unwilling to accept a loss.
The trading strategy that is used for scalping is often based on technical analysis. Many scalpers (but not all) are not paying full attention to the fundamental-end of the market. The time frame that is used to generate trades is often short such as 5-min, 15min and even 30min. These are called inraday time frames.
Scalpers are likely to opt for currency pairs with the tightest spreads as only several pips are targeted. Euro Dollar or EURUSD is therefore the most preferred currency pair in he Forex market by scalpers. There are trading sessions that are more appropriate for scalping.
Scalping in Forex Signals
The vast majority of automated signals are based on scalping and for a fairly ambiguous reason. Many platforms commission the trader based on trading volume, meaning, the more trades that are initiated the higher the commission would be.
Rather than opening a single trade targeting 15 pips for example the trader would open 3 trades targeting 5 pips per trade, which will increase his commissions. Since the coronavirus outbreak the price range of many currency pairs is narrow, which are good conditions for scalping.
Some platforms will only commission the trader if he ends the month with a profit, which can lead to devastating scenarios. If the trader is in a loss as he nears the end of the month he may attempt to initiate trades in order to receive the commission.
The risks that are associated is that the trader will pay less attention to the what is considered as conservative entries and opt for high-risk entries, which may only inflate the loss. We therefore suggest adopting a greater caution with scalping systems.
One of the greatest psychological pressures in scalping are consecutive losses. As scalpers do not roll their trades to the next day the trader may face consecutive losses within several hours. It may increase the pressure to end the day with a profit, which may cloud his judgement and entries.
In most scenarios incurred losses may increase, which may dent the trader’s confidence and affect his trading the next day. When scalping forex signals are issued the vast majority of traders will loosen the stop loss order to prevent losses at any costs and are willing to float in a drawdown until a profit is realized, giving in to the psychological pressures in trading.
Scalping systems will attempt to remain attractive by only realizing profits to lure new traders to their systems and of course it will be verified as it only attract a greater number of people that are mesmerized by the track record.
As we are at the beginning of 2020 little appears to have changed. Scalping is a popular trading strategy but when it comes to forex signals it is fairy challenging.
Our preference is holding onto trades for several days, sometimes even weeks by basing the entries on longer time frames that contain the intraday noise. When consecutive losses are incurred as evident from our signals performance from 2014 to 2020 we take a step back to ensure we are not forcing trades in the market in an effort to recover.
We also not commissioned by trading volume, which eliminates the pressure of ending the month with a profit at any costs. As we do not scalp we are not limiting ourselves to a single currency pair but focus on all the majors and crosses in the market.
Trading is not for appropriate for all. It requires an in-depth understanding of global markets. Relying on pure technical analysis may have been more appropriate several years ago but at the current market conditions fundamental insights may also be required.
Read more about how we handle our trade alerts in the Forex market.