Common Problems Encountered when Scalping the Forex Markets
Forex scalping is quick trading. It is a strategy where traders will allow their positions to last only for a matter of seconds or maybe a minute and seldom longer than that. If it goes beyond a couple of minutes, it will be considered as regular trading and not scalping.
The main purpose of forex scalping is to make small gains on a trading account when it is exposed to a limited risk due to the speed of the opening and the closing trading mode.
Forex scalping may sound easy enough as it deals in the identification of lots of small price fluctuations that are as small as a few points on each trade. The reality of the situation is that it is quite difficult, posing a whole range of problems.
Many forex brokers are not happy about the customers placing many short term trades as it creates problems and it is not very profitable for them. They try to increase their spreads to try and put people off forex scalping by giving them a friendly warning not to make it into a habit. Here, the worst possibility will be that they will cancel your account and return your funds to you. Finding brokers that will allow you to scalp frequently is a problem.
The next problem is dealing with their spreads. For example, if your broker has a spread of two or three points on the Euro/USD pair, then a possible profit target of four or five points will not be enough to give you any decent gains because the spread is going to eat into your earnings in the longer period.
If you want to become a short term forex trader and indulge in forex scalping with good profits, you have to not only find a broker that will give you the scalping facility but you will also have to come with a strategy where your system will provide enough gain points to take care of the spread. This is not going to be easy as the price fluctuations can be random besides being totally unpredictable over short term periods even if you gauge with the standard technical pointers. This is not to say that it is impossible to make good money scalping. It is possible to get good returns on the one minute chart and pick up maybe ten points from each trade if we are lucky. Yet, it is only a small percentage of people who succeed on a regular basis. People tend to prefer the four hour and daily charts because the technical analysis may come in handy there and is likely to be more up to snuff in the longer time periods.
Another downside to forex scalping is that it can create lot of stress. As there is a chance of making a good amount of money in a matter of seconds, there is also a big chance that you can lose a whole lot of money too. It can become frustrating at times.
To become experts in the forex scalping market, you have to maintain a flow of market liquidity. For this, you have to increase your knowledge of the negotiations and the actual market situation. You have to develop an ability to collect information and absorb it faster. Understanding the patterns of the currency pair can help you get considerable gains in a long run when you make such speedy trades without the element of risk and insecurities that are usually associated with large currency trading time frames.