Scalping is a popular trading strategy that is commonly used in stock trading, but is it also viable for forex? When you scalp, you hold a position for a short time and take your profit from small price movements. Scalpers may open and close several positions throughout the trading day or they may open a single position and exit it before the market closes. The trader generally uses technical analysis methods to determine trading opportunities as well as where to enter and exit trades.
The best currency pairs for scalping are those which move within a wide daily average price range; the wider the range, the better. This is why one of the most popular currency pairs for scalping is the EUR/USD since it has a wide price range as well as a low spread.
While scalping can be a viable strategy, you will need a larger amount in your trading account in order to handle the leverage you will have to take on to be profitable. Because of this, it is important that you have a risk management system in place to ensure that you don’t suffer catastrophic losses. For example, you should decide in advance how much or what percentage of your trading account you will risk per trade. One method you can try is to imagine if, based on the amount you decided to risk, you lost ten trades in a row. How much would be left in your trading account? Although this scenario is highly unlikely, it may happen. Would you be bankrupt?
You should also decide on what levels you will take your profit by closing your trade. If you are monitoring your trades in real-time, it means that you should know when to exit the trades to enjoy the maximum profit. If you are using an automated trading program (forex robot) then it means knowing where to place your take-profit and stop-loss orders.
Another thing to consider if you want to try scalping is the spread your broker takes from your trades. If your trader takes two pips per trade, would you be profitable? How many trades would you need to make to break even or make money from your trading? Keep in mind that your trade has to cover the spread cost first before you start to make money.
Reference: MTrading Education