The word scalping is one of the most understood words and concepts in our industry. Ask the majority of retail traders what the concept of scalping means to them and they’ll generally cite that it’s a method to aim to take a small amount of pips out of the forex market, in a short period of time. The origins of the word actually refer to a pip gain equivalent to the spread on a currency pair, but this was at a time when spreads might have been two or more pips. As the industry has now moved on, it’s not uncommon for STP/ECN brokers to provide spreads of 0.5 pips or less, therefore aiming for such small pip gains, in relation to the spread only, is impossible.
Scalping as a trading method was always fraught with danger, given the tendency for currency pairs to constantly move; it’s not uncommon for a pair to rise and fall by, for example, five pips at a time inside seconds, whilst still maintaining its overall direction and developing a daily trend. Finding yourself on the wrong side of what could be termed “trading noise” and small spikes, is a natural occurring phenomenon. If you’re aiming for five pips and have a stop of five pips, then it’s quite common to be stopped out of a trade, despite predicting the overall trend direction correctly.
Since the origination of scalping in our online trading world, it’s not just spreads that have tightened in our favour, we’ve witnessed the forex industry make massive improvements in many areas. Our trading platforms today are now unrecognisable from the clunky, lagging efforts, we tried to cope with back in, for example, the year 2000. And the development of trading environments such as our ECN model (electronic configured networks), have improved our retail industry and as a consequence our opportunities, beyond all recognition. Perhaps our description of scalping now also needs to advance, should we redefine its position in our markets and its possible applications? Moreover, given the advance in trading platforms and trading environments over recent years, are we missing a trick with regards to the efficiency of scalping, in our modern day trading world?
Many retail traders adopt automation into their trading early on in their careers, others will prefer to remain trading manually, some will find a middle ground and introduce a form of semi automation, but there’s one style of trading which is absolutely suited to full automation, scalping, however, it requires an adjustment to both our method and mindset.
If we’re going to attempt to scalp the markets then using automation is the logical choice, for one key reason; our platform will react far more quickly than we can. If we input a level at which we intend to enter the market and a level at which we’re prepared to exit with a (relatively) small pip gain, then we can be assured that automation will react far more quickly than we can, our platform’s reaction will generally surpass human reaction and interaction.
Sure, there’ll be exceptions to any rule, but allowing your platform to do the heavy lifting, wherever and whenever possible, is an essential step towards proficiency and profitability. Deciding where to place our entry and take profit limit orders, is obviously the crucial aspect regarding the efficiency of a scalping strategy, which is an entirely different discussion for another day.
