Scalping in Forex Trading

Tools for Analyzing the Foreign Exchange MarketnThe concept of the Wild West leads us to consider fascinating topics, namely scalping and pips trading. These are different things or the same – there is a lot of information on the internet that varies in meaning. Let’s try to figure it out together.n" />

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Scalping and Pips Trading

Let’s start. It is considered that the concept of scalping (to take a scalp) originally appeared, and later the term of pips trading emerged. The name itself refers to actions such as ‘grabbing pips (points)’ or ‘catching pips (points).’

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Pips trading refers to a narrower part of scalping. Scalping is a trading method used on various types of markets, not only on the forex market. It is used to make short-term trades, which last up to 15 minutes, 5 minutes, or even 1 minute, trading on tick charts. Trading on tick charts, where the duration of each trade does not exceed 1 minute, at most 5 minutes, is considered pips trading or pipping.

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Almost all forex scalping strategies have negative mathematical expectation, meaning that profit consists of several points, while the stop-loss can be 20 points or more, or may not exist at all.

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Additionally, some believe that scalpers are the most successful traders on the forex market. But let’s go step by step.

Advantages and Disadvantages of Scalping

If we recall Jesse Livermore and his book “The Reminiscences of a Stock Operator,” it describes what he did in gambling houses. This can be called scalping of that time, trading using the stock tape. Mr. Livermore looked at the tape, analyzed, evaluated stocks, and based on their undervaluation or overvaluation, tried to conduct short-term speculation with these securities. Of course, with the arrival of internet technologies in trading and the emergence of trading robots, we have made significant progress in this area.

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If we make a brief conclusion, scalping and pips trading can be characterized by the following criteria:

1. Short time frame (15 minutes or less);
2. Use of a volatile instrument;
3. Strong nerves;
4. Short stops.

At the same time, these forms of trading have clear advantages over traditional ‘buy and hold’ methods:

1. High profit potential, plus the possibility to quickly grow your account (low starting capital);
2. Simple strategies (practically no need to predict the market);
3. Independence from the market phase;
4. Free choice of time.

However, disadvantages of scalping and pips trading also exist:

1. Enormous psychological pressure;
2. Risks. The main role is played by capital management techniques, not the trading strategy itself;
3. Necessity to constantly monitor the market;
4. Trading without stops and profits;
5. Spreads eat into profits;
6. Additional restrictions from brokers, for example, in addition to spreads or instead of spreads, there may be an additional commission.

In this article, we will try to describe this phenomenon in more detail and dive deeper, examining the types of scalping.

Types of Scalping in Forex

So, what are the types of scalping?

1. Intuitive;
2. Indicator-based;
3. Arbitrage;
4. “Followers”;
5. Graphic;
6. Order book.

The intuitive, indicator-based, and graphic types of scalping are clear in one way or another. Intuitive scalping. Almost everyone who first comes to forex opens a demo account or the first real account – they trade using this type of scalping.

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Indicator-based or technical scalping is based on indicators and advisors. There is no need to elaborate further.

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“Followers” are highly correlated assets, roughly speaking, when gold goes up, silver follows. There are many scalping strategies based on this technique.

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Arbitrage strategies imply almost no risk, low profitability, for example, 20-30% per year.

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Trading based on the chart as a form of scalping also deserves attention. This form of scalping brings results because it allows you to create truly effective strategies.

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In exchange trading, all known traders use the “order book.” They don’t look at any indicators or charts. Most exchange traders rely on “the order book”.

Why You Should Not Rely on the Order Book Provided by Forex Companies?

The forex market is a market of interbank currency exchange, where there is no central counterparty. What is a central counterparty? It is an exchange where all orders from all brokers are consolidated into one center, where clearing and mutual accounting of orders occur. In forex, there is no single center, but there are various liquidity providers, ECN networks, which provide order books (Market Depth and Level II), but this order book is available only to a particular broker, a specific liquidity provider, or an ECN network.

nIn conclusion, I would like to say that the order book has appeared on forex, indicators measure the speed and time of tick movement, and advisors can generate a large number of trades per day. In this context, one of the conclusions of this article is that scalping practice is transforming. Make your own conclusions. Successful trading and profits!

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  FAQ

  What is scalping in forex trading?

  Scalping is a short-term trading strategy where traders aim to make small profits from price movements, often holding positions for seconds or minutes.

  What are the risks of scalping?

  Scalping involves high psychological pressure, risk of large stop-losses, and can be affected by spreads and broker restrictions.

  What are the types of scalping strategies?

  Types include intuitive, indicator-based, arbitrage, followers, graphic, and order book-based scalping, each using different methods to identify trading opportunities.