A Critical Analysis of Forex Scalping

Sep 25 • Forex Trading Articles • 2213 Views • Comments Off on A Critical Analysis of Forex Scalping

By definition, forex scalping is a trading technique used by short-term traders.  It is characterized by buy-and-sell transactions that can only last one to five minutes.  Traders who do scalping usually open a lot of trading positions and a higher amount of currency pair to trade.  For years now, the forex trading business is divided in terms of acknowledging the benefits of scalping.  Some traders are critical about it while some are open to it.  In this regard, let us take a look at some of the disadvantages of scalping.

  • It is not for beginners: If you are new to the forex trading scene, forex scalping is not for you.  Because you need a lot of experience to help establish trading strategies, you need to focus on acquiring the skills needed to get comfortable first.  This experience allows you to venture on more advanced levels of strategies like scalping.
  • You have to be time-sensitive: This can also be a disadvantage as some forex traders cannot withstand the pressure of waiting.  A high level of technical analysis is employed in forex scalping and the right decision should be made on whether to enter or to exit a trading transaction once the market indicators show favorability.  In this case, a trader cannot afford to lose focus.
  • It discounts risk management: When it comes to forex scalping, the risk of losses is totally ignored in favor of the prospect of gaining profit.  This means that a trader enters a trading transaction when the market indicators are favorable and makes an exit as quickly as possible when the market exhibits a down trend.  Then again, because of volatility, a trader is prone to huge losses if he enters a trading decision just as when the market indicators start manifesting a pullback.
  • Some brokers do not allow it: Remember that not all of those who are active in the trading scene entertain the idea of forex scalping.  With some criticality, some brokers may not allow you to do it.  For some reasons, a few of them still hold the customary way of trading.  This may be because scalping can lead to a lot of noise in the market and enough concentration to make a trading decision is not being facilitated.  Perhaps you can picture how noisy it is in the trading market that if everyone is into scalping, there is a lot of commotion going on.  So before you even start doing scalping, make sure that you get your broker’s cooperation.

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For clarification, this article does not put forex scalping into a bad light.  It aims to make you think critically on the things that are at stake if you want to give it a try.  And if you do, you need to be aware of the concepts on whether you should be trading or not.  You also need to consider what type of goals you have.  Then again, it is entirely up to your perspectives as a trader.

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