In the Foreign exchange market, there are a lot of methods to trade and one of these is scalping. Scalpers make small frequent trades and out of those small trades, they acquire small profits throughout the entire Forex trading day. In this type of trading, traders tend to look for as many trading opportunities as possible. They use different indicators and technical analysis to make profitable trades.
Understanding Forex Scalping
FX trading is an act of profiting out of the exchange rates of two currencies. The two most commonly traded currency pairs are the EUR/USD. It stands for Euro and United States Dollar. The exchange rate of this pair changes throughout the day, which depends on different circumstances.
As the price of the currency pair changes, scalpers try to buy and sell according to the price movement. They take advantage of small returns in every trade they make throughout the day. There’s a difference between Forex traders and scalpers. Forex traders are the ones eager to get larger returns and tend to stay in the market much longer compared to scalpers. Scalpers, on the other hand, pounce in every good opportunity they see, trade and simply move on to the next target.
How Scalping Works
As mentioned above, scalpers tend to pounce on every good opportunity that they see. When scalpers see that a certain price meets their criteria of purchase, they buy it immediately and sell it otherwise when a price reaches a certain point. The main point in scalping is to make as many transactions as possible and gain small returns in every transaction they make.
Position trading is when a trader trades in small price movements. When you do position trading, you make a lot of trades in a single currency pair. Later, you end up getting an average price. For you to create a position, you have to identify a currency pair, think about whether to go long or short, and know the position’s size.
There are two types of positions in Forex trading, the long position and the short position. In a long position, you buy an asset when there is an upward price trend. You also hope that its value will increase later on. Meanwhile, in a short position, a trader buys an asset when it is in a downward price trend and you hope that the asset will gain value later on.
Your position’s size varies depending on the number of lots that you bought. Lots can appear as micro, mini and standard. You can then determine the perfect position type, size, and risk levels depending on the fund present in your account, risk tolerance, and preferences.
Forex Scalping Must-Haves
There are some things that you need to have before you enter scalp trading. This includes technical analysis, chart patterns, candlesticks, trading stops, and emotional control.
Technical Analysis – this is the use of patterns, charts, and other indicators that analyze the possible price movement in the market.
Chart Patterns – are indicators of different day’s prices.
Candlesticks – are charts following a visual indicator of either high, low, opening, and closing of prices.
Trading Stops – this pertains to a certain amount that you are willing to lose in every trade.
Emotional Control – these are your reactions to every rise and fall of prices.