FX Scalping refers to taking a position and holding it for a very short time period, generally less than 5 minutes and sometimes less than a few seconds. Those that use the forex scalping methodology nearly always base their trades on chart simple chart patterns based on technical analysis rather than any underlying fundamentals.

Since scalping relies on making profits from very small movements in foreign exchange rates, it’s only really feasible if you trade on high leverage since you need to invest a significant amount to make any serious money. For example, if you take a $400,000 position for each pip movement you profit $40. Generally speaking, you will be lucky to get 2 or 3 pip movements in a minutes trading. The advantage of scalping is that any 1 position is not going to cause you significant grief as losses or gains are limited due to the short time frames involved. In short FX scalpers take from anywhere between 10 to 100 positions a day looking to hit a profit about 55 per cent of the time.

FX Scalpers often will trade stocks that are in a trading range hoping to profit on fluctuations in supply and demand. Usually they will use 1 minute data as their time frame of interest, but might look at longer term chart patterns to get a feel for general supply and demand.

More sophisticated scalping techniques involve the use of automated algorithms based on statistical analysis of large datasets. These programs trade automatically usually via an interface that a FX Trading platform will provide. Note most scalpers use online platforms rather than traditional brokers, as scalpers drive brokers nuts with the volume of trades.

Published on 22nd of May 2011
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