I tried scalping when I was a newbie in 2008. It looked easy and I could get into some pairs like the Eur/USD with a low spread. Brokers love traders who scalp because most of us give them a lot of money until we give all of our account to them by slow attrition. How can this be? Do some math? Remember that you have spread costs going in and out of a trade (although the spread going out is hidden by the broker by showing you the net) So if you scalp for a few pips you have to figure in the spread costs. (5 pips minus 2 pips +3 pips gain.) It doesn't matter if you are trading minis, micros, or standard lots, the math is the same, right?
It looks good---until you figure in some losing trades. How far behind your trade is your stop loss? It seems to me that any trade you enter is subject to what I call the 'market wobble', eg the natural movement of the price at a short time frame within a small range. I know I used to watch my trades on a 10 second time frame and could see the 'wobble' occur on most trades. Is that 'wobble' two or three pips? How do you account for the 'wobble'? If your goal is 5 pips and the spread is 2 pips in and out, you have to take it into account by placing a stop loss at 5 pips or more to keep from getting stopped out almost immediately. So now you are faced with a decision as to what ratio of potential loss to potential gain you want to put into place. Do you place your stop loss at 10 pips? 20? 30?
Perhaps you can see what the math is telling you. You have to be right on your scalp entry at a high rate of accuracy or the 'wobble' and the spread, plus your bad trades are going to eat your account up. If you have one loss that is stopped out at 30 pips, it takes a lot of 5 pip trades which net out 3 pips to make up for it. And it is even more difficult to make the math work if you shorten the stop loss to give yourself a 1 to 1 ratio. It took me a while of watching the slow attrition of my account before I realized that I would have to trade at a success rate of 80-90% winning trades to be profitable over the long term by scalping. You have to learn what professional traders know: They trade price action and have learned the 'secrets' of reading the agenda of the Big Boys. It takes work to educate yourself, but if you want to succeed in any business, you have to learn the rules. Find a good mentor on price action trading and go to work.
Akasuki posted: @marcusobrien Yes every strategy has its weakness and strength. But to me, new traders should not go for scalping as it leads them to overtrading habit.
I am with you on this , I have always felt that scalping should be left with experienced traders (who can make better predictions) and new traders should always begin with a swing trading strategy , which would teach them patience.
@SteveHanks indeed, without discipline and commitment traders can never execute successful trades. Many young traders lose their path in forex trading because they are in a rush to make quick bucks all the time.
I think that scalping can be a good Avenue for traders to profit, however, it can also cause losses if one does make the mistake of overtrading. Fortunately, there are many other strategies to choose from if one doesn’t do well as a scalper.
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