Scalping and Pipsing on the Forex - Advantages and Disadvantages
Those who are interested in the methods of trading at financial market may have heard such terms as scalping or pipsing. Even experienced traders who have been on the Forex market for many years have mixed feelings about these trading methods.
What is scalping in trading? - Scalping is an intraday forex strategy on minute, five-minute charts. As a rule, scalper traders try to work with the confident price movement in one direction or with a distinct flat and during important news releases.
Usually in this type of trading, orders are placed within a few minutes and the average profit is measured in multiples (pips, hence the name for this type of trading: Pips). Large profit is achieved due to a significant number of deals - up to several hundreds per day.
Of course, Forex is volatile and scalpers make a lot of losing trades, but if you trade skillfully, your total deposit balance will be in the plus. The question is how to achieve this positive result. In theory it is simple - the total number of profitable trades should exceed the number of losing trades where stop loss does not exceed 10 pips.
The scalping method in simple words The currency market is very dynamic. Looking at the daily candlestick of a currency pair, we see that on the day the asset rose or fell by, for example, 20 pips. That is, if a trader opened a position 24 hours ago and chose the right direction, he/she would earn some profit during the day. But if we look at the minute charts, we will see that the price has risen by 100 pips, then fallen by 80 pips, and then was moving in a narrow range bounded by 20 pips for several hours, i.e., if orders were opened correctly, we could have closed dozens of deals and earned about 200 pips a day. Any trader will confirm that 100-200 pips of profit a day is a grail, the life is successful! Hence the large number of supporters of this method of Forex trading.
The possibility to make several hundred percents of profit per month fascinates newbies. But, unfortunately, not everything is simple in our world - high profit automatically means high risk. Traders who have been trading by scalping method for more than a year, know very well how pipsing kills accounts, crushes dreams....
Scalping strategies of forex and pipsing are very profitable, dangerous and unpredictable - although superficially simple (which is why scalping on the stock market is usually used by either beginners or very experienced traders).
Why is scalping dangerous? Firstly, there is always market "noise" on Forex. Even if the price movement is correctly detected, a scalper trader has a high chance to get a stop loss (as we mentioned before, in this kind of trading the stop is just a few points away from the order opening price).
Secondly, it is not so easy to determine the trend on small timeframes correctly even with special indicators for scalping because of a lot of false signals.
Thirdly, beginners who have closed several times to a stop loss make a typical mistake - they either stop placing protective orders or start shifting them. The market does not forgive this - sooner or later the trader will catch a strong trend movement in the wrong direction and lose all the money on the deposit.
One more important point not considered by newbies is a heavy psychological and even physical strain when using scalping methods of trading.
Trading on demo-account and real money is very different. A beginner tries scalping on a demo account, makes a profit, goes to the real account and there it goes... A few successive stops triggered (loss of a large part of the deposit), fear and uncertainty appear and the trader appears again, but waits for additional "strong" signals of some newfangled strategies and waits for a strong movement in its direction (of course, the order does not have time to open). Then comes the anger - I won't place a stop loss and will leave the order open until morning .....
Also, scalping and pipsing at the exchange involves the constant presence of the trader in front of the monitor and a readiness to open or close transactions at any time. This is physically very difficult for many hours in a day. That is why most of the beginners leave the market or switch to other trading strategies.
To sum it up, scalping system is the only one with the highest profitability on the currency market, but only in potential. To be successful in trading, a trader should be experienced, resistant to stress, mindful of risks and work, work, work...