There are different Forex trading strategies and it depends on the one that you feel best suits you. The bottom line remains that you have to have a trading strategy whenever you are trading forex. Most importantly the trading strategy should make more profits than losses. If not so, you should look for another trading strategy that is profitable.
To avoid noticing that the trading strategy is unprofitable after losing some of your invested funds, you should have a demo account where you can test the trading strategy before using it on your real trading account. With the demo account, the funds are virtual so even if the strategy ends up making losses, you don’t lose your real hard earned money.
One of the most commonly used trading strategy is scalping. Although it is at times not viewed as a trading strategy, scalping is a strategy used by very many Forex trader ranging from beginners to experts. It does not involve much defined rules of when to enter and close trades. The trader is the one who decides when to place an order and also when to close the trades. And the trades are very short lived. The trades are closed within minutes if not seconds.
Who is best suited for scalping?
Scalping is very involving and you will need to stay in front of your computer o trading device most of the time. You have to monitor every trade that you place so as to make the decision of when to close it. Therefore, to be a Forex scalper, you will have to have the time. Scalping is not for people with busy schedules; it requires full time traders.
Also, scalping involves very quick executions. You have to be very precise since the slightest delay in placing or closing trades will result to a change of the targeted profits. Therefore, you have to very quick it executing trades. You have to have a good eye to hard co-ordination just like a surgeon.
In addition, scalping is very risky. It is actually the riskiest trading strategy there is in Forex trading and it requires very good instincts to help in risk management. To begin with, you should have a large capital if you want to do scalping. The larger the trade the more profitable it is in scalping. However, you should remember that if the trade goes against you and it is larger, then the losses will also end up being very huge and you will require to have a large investment for you to survive. Actually, to place the large trades, you must have a substantial amount of funds in your trading account.
Tips of becoming a successful scalper
- Only trade the most liquid currency pair
Since scalping involves very short term trades, you will have to trade a currency pair that is liquid enough to make significant changes with short time intervals. You can’t manage to scalp a currency pair which takes 30 minutes to make a 2 pip change.
The most liquid Forex currency pairs are EURUSD, AUDUSD, NZDUSD, USDCAD, USD/JPY, and GBP/USD, USD/CHF. With this currency pairs, you are quarantined that your trade will have gained something even in seconds.
- Look for the least spreads
Different brokers have different spreads for different currency pairs. If you want to do scalping, you will have to start by choosing a broker who offers the least spreads on the most liquid currency pairs especially the ones that we have mentioned above. You don’t want to spend 10 minutes with your trade trying to cover the spread before starting to make profits. The spread should be small so that it is covered quickly and the trade starts making profits almost instantly.
- Learn to minimize the number of open trades
If possible you should only have one open trade per time. This is because, scalping requires very active monitoring of the market and you will be required to actively look at the market that you are trading to see how it is behaving so that you can get a good exit point. With many trades, you will get late on closing on some trades as you peruse from one currency pair chart to the next.
It would be good if you traded one currency pair at a time.
- Choose the least timeframe
You should choose a very tight time frame preferably the 5minutes timeframe. This magnifies the trend and enable you to fit in. You could choose to close after the candlesticks close.
- Never leave a trade to stay too long in the losses in hopes it will turn to profits
Remember in scalping, the only thing that you probably looked at was the prevailing market trend and you could be wrong since at the time you are using the least time frame. Therefore, you should not let a trade to run for too long since you could end up making huge losses and especially if you had placed trade with a bigger lot size.
If you open a scalp trade and it turns out to be a loss close it as soon as possible and open another.