Forex Scalping

Forex Scalping can also be called a quick trading. It is a method where traders allow their positions to last only for a matter of seconds, to a full minute and rarely longer than that.
(As a rule if a trader holds to a position for more than a minute or two it is considered no longer a scalping, but rather a regular trading.)

The purpose of scalping is making small profits while exposing a trading account to a very limited risk, which is due to a quick open/close trading mode.

There wouldn’t be any point in scalping for many traders if they weren’t offered to trade with highly leveraged accounts. Only ability to operate with large funds of, actually, still virtual money, empowers traders to profit from even a 2-3 pip move.

How do they do it? Suppose a scalper opens a trading position of 100 000 units with EUR/USD. For each pip he will now earn $10… Closing in with only a 3 pip profit brings it up to $30 — not bad for less than a minute of work.

Now, you would probably ask what Forex brokers think about it, because if a scalper constantly wins, the broker would obviously sustain some losses.
That is why the other popular discussion topic is always at scalpers’ attention: What Forex broker would allow you to scalp the market?

Obviously, dealing desk brokers would not agree with scalpers’ trading style and most likely will ask a trader to change his/her trading habits or to find another broker. But, even if a scalper stays in, there is another method to slow scalper's performance down and it is to set delays between an initiation of the order and its actual filling. The reason behind it is that dealing desk brokers need time to countertrade/process each order to prevent own losses in case a trader closes in profit.

The broker that will not object to scalping is the one that has the best trades processing automated platform. Using straight through processing there is no intervention between a trader and a market maker — the software is taking care of the whole business process. So, it’s more likely a broker with a “slow” business processing platform would object to scalper’s trading style.

Related Posts :

1. Tips and Facts about Scalping in Forex

Sources :

1. Forex Scalping | by Edward Revy on April 22, 2007 - 09:28.

Tips and Facts about Scalping in Forex

The only way to make small account big in a short period of time is through the use of really high leverage. But wait, do not jump of the cliff right away. Start with reasonable leverage for scalping, for example 20:1 or at most 50:1, then move on as you see scalping skills improve. But even before that do not be lazy to demo trade your scalping system – make sure it will not disappoint you later.

The only way to trade with high leverage without risking blowing up an entire account in only 10-15 trades is by trading with a tight stop loss. Trading without stop loss will "kill" your investment in no time.

It is wise to decide on the size of the trading lot and exposed risk in advance. Do a simple math: calculate the worst possible situation, e.g. 10 consecutive losses in a row; then see if your account will survive and if there be something left to move on. And, although 10 losses in a row is a very unlikely scenario, you cannot deny it.

Although Forex is active 24/7, not every hour is suitable for scalping. No scalper wants to sit in front of the monitor for numerous hours bored and disappointed with the "sleeping" price as it literally moves nowhere.Scalpers hunt for volatile, liquid market. There are 4 major market sessions: London, New York, Sydney and Tokyo session. To trade effectively scalper needs to learn behavior of a chosen currency pair and define most active sessions, even particular hours for this pair to be able to catch good price moves.

Another thing to keep in mind is spread which brokers charge for different currencies. The higher the spread the harder it will be to collect desired pips (because once trading position is opened, trader must cover spread cost – earn pips for broker first – and only then collect own pips). And, of course, the lower the spread the easier/faster it is to accumulate pips.

Another factor to consider is an average daily range of the price for chosen currency. The wider it is the more realistic is an opportunity to profit from price moves. One of the scalpers’ favorite currency pair is EUR/USD with its low spread and good daily price range.

While using high leverage combined with high frequency trading, scalpers should be very cautious about the cost of actual trading, as each pip here makes a dramatic difference after a large number of trades. This means being very careful with entries and exits, stops and limit orders, and also be very realistic about profit targets.

Once in the trade, scalpers should manage trading risks by:

1. Moving stops to break-even as soon as situation permits;
2. Taking profits at a logical levels: at round market price numbers: 00, 10, 20, 50 etc., at previous support/resistance levels, at Fibonacci levels etc.
3. Getting out of the trade if the price freezes for longer time than expected.
   

Scalp-trading is very demanding and requires a lot of concentration, constant monitoring of the price and very quick decision making. Also, short time frames used in scalping strategies, require a good grasp of trading complemented with sound technical analysis skills. It is not a place where beginners feel very comfortable as it demands from traders a good chunk of experience.

Scalping involves substantial risks
A lot of beginners have common problem when trading highly leveraged accounts – they tend to maximize profits by trading with full capital at once. Do not do that! Maximizing chances for higher profits goes hand in hand with maximizing risks! The size of positions opened must be calculated very accurately so that your entire account will not be wiped out with just one(!) very unfortunate trade.

Another factor that increases risks for scalpers is the spread traders pay when open a trade.
Each time a new trade is open, the spread cost is paid to the broker, thus opening 10 small trades instead of 1 long term trade increases the cost of trading in 10 times. If to measure risk/reward ratio of such scalping activity it may show very risky and potentially losing trading.

Example:
With GBP/USD currency pair a scalper sets profit target of 10 pips and stop loss of 10 pips. So far it is 1:1 risk/reward ratio.In the next step, when the spread is added, the picture changes. For example, the spread his broker charges for GBP/USD is 4 pips.When scalper opens a position he is -4 pips (the spread has been charged). Now in order for him to reach the target of 10 pips profit, the price has to move +4 and +10 pips = 14 pips. On the other hand, in order to trigger his stop loss the price should move -4 is already in place. So, only -6 pips and he will be stopped at total of -10 pips, the risk-reward ratio has changed in over 2:1, not very promising situation indeed.

To understand the full challenge of scalping as a trading style, consider this: hard work and small gains accumulated over a decent period of time could easily be wiped out with one large loss. Finding a balance between profit levels and size of acceptable losses presents the most difficult challenge to scalper’s strategy.


Sources :

1. Tips and Facts about Scalping in Forex | by Edward Revy on April 22, 2007 - 11:49.

Trend Following Forex - 3 Simple Steps to Catching Big Profits

If you want to catch the big profits in forex trading you need to trend follow forex trends which are longer term. Here we are going to give you a 3 step simple method which if you use it correctly, will help you catch every major forex trend and lead you to long term currency trading success.

Most novice traders don't bother trying to trend following forex longer term - instead they try forex scalping or day trading. These methods focus the trader on small moves and they hope to catch small profits however as most short term moves are random, this leads to equity wipe out.

The other choices are swing trading and long term forex trend following and this article is all about the latter method. If you look at any forex chart, you will see long term trends that last for months or years. These moves can and do yield big profits - here we will outline a simple method to catch them.

Breakouts

By far the best way of catching the big moves is to use a forex trading strategy based around breakouts. A breakout is simply a move on a forex chart where a new high or low is made and resistance or support is broken.

It's a fact that most major moves start from new highs or lows.

While it might appear that you are not buying or selling at the best level, you are in terms of the odds of the trend continuing. Most forex traders make the mistake of waiting for the breakout to come back and get in at a better price but these traders never get on board. The reason for this is if a breakout occurs, then you have a new strong trend and a pullback is not very likely to occur.

Most traders don't buy or sell breakouts and that's exactly why it's such a powerful method.

The only point to keep in mind is a support or resistance which is broken, should be valid and that means at least 3 points in at least 2 different times frames. The more tests and the wider the spacing between the tests the more valid the level is.

Confirmation

Of course not every breakout continues and some reverse, these are false and can cause losses. You therefore need to confirm each move. All you need to do to achieve this is to put a few momentum indicators in your forex trading system to confirm your trading signal.

These indicators give you an idea of the strength and velocity of price and there are many to choose from. We don't have time to discuss them here (simply look up our other articles) but two of the best are - the stochastic and Relative Strength Index RSI

Stops and Targets

Stop levels are easy with breakouts - Simply behind the breakout point.

If you have a big trend then you need to be careful you can milk it, so don't move your stop to soon and keep it outside of normal volatility. If it is a big move, trailing stops should be held a long way back and the 40 day moving average is a good level to use.

You have to keep in mind that when the trend does eventually turn you are going to give some profit back. You don't know when the trend is going to end, so don't predict.

It's ok to give a big back, as that's the nature of trading forex. Keep in mind if you got 50% of every major trend you would be very rich. When you are long term trend following you have accept giving a bit back and taking dips in open equity as the trend develops - this is noise and does not affect the long term trend.

The above is a simple way to trend follow forex and catch the high odds moves that yield the big profits. If you are learning forex trading and want a simple method that is robust and will help you catch every major move, then you should base your Trading on the above method.

Related Posts :

1. Support and Resistance Level
2. How To Identify Forex Market Trends
   

Sources :

1. Trend Following Forex - 3 Simple Steps to Catching Big Profits

10 Tips For Beginner Traders

Since I have started posting here I have received quite a few questions from readers, fans and enemies (or is that frenemies) regarding how they can make their million dollars a day. I usually tell them if they want easy money, then there is a vacancy at the Happy Ending Massage Parlour down the road, just send me your resume, im sure things will work out. Trading is not about fast money, gambling is, nor is it supposed to be easy.

The potential for enormous wealth is there granted. Look at the pure mathematics of compound interest, the most powerful force in the world (Einstein). But usually things don’t turn out that way. We are after all emotional beings with (hopefully) a life other than trading, things just don’t turn out as cleanly as the columns on an excel spreadsheet. Humans are mistake riddled beings, it’s just some know how to hide them better than others.

"You make money when you exit,
not when you enter."

As hard as it may be to believe, despite consistent trading for close to a decade, I am not a billionaire just yet. I make some nice monthly percentages, I trade actively around two hours a night, and I have a gorgeous wife, a cute child, a hairy chest and a wooden leg. I still do some programming work (my trade) and will retire (from 9-5) a month before my 35th birthday. I started with $53.60, trading will make that my retirement income.

I don’t however like being (too) rude to those starting out, and so after they strangely decline the alternate job offer, I usually provide the following 10 tips for the beginner trader;

1. There is nothing price doesn’t say, we just don’t like to listen.
2. Common sense makes uncommon cents.
3. “Most technical analysts were originally fundamental analysts, I’ve never heard of anyone who made the journey in the opposite direction.” (Brian Marber)
4. You make money when you exit, not when you enter.
5. The trend is your friend if your friend is the trend.
6. Insert the word “hopefully” before every instance of “will” in your trade idea.
7. Get out when your reason for getting in no longer exists.
8. You do not know what the market will do, the quicker you realise that, the richer you will be.
9. Most people on trading forums are there for the same reason as you.
10. Respect your trading elders (not necessarily with the first name of Alexander).
    

I could go on with more terrible proes but I will spare you the pain, there are many more that one day I may post, but let us know if you have some of your own trading laws.


Sources :

1. 10 Tips For Beginner Traders | Written by Akuma99, October 27th, 2008 at 9:47 am.

Timing is Everything With Forex Trading

The most challenging part of getting started with Forex trading is to learn this innovative way of trading. Many potential investors that try to navigate the Forex system unaided end up being frustrated and financially intimidated. There are very simple strategies to becoming successful using the foreign exchange trading system but the first step is gathering all of the necessary information surrounding this type of trading specialty. Securing a reliable Forex trading broker is likely the first and most pivotal step after learning the initial principles.

Unlike many types of trading and futures, foreign exchange trading is not designed to make the client rich quickly. Many people are frightened off by the word that Forex trading is a get rich quick scheme that in large part, doesn't work. This is a financial myth despite all the hype surrounding the foreign exchange trading system. There are steps and gains to be taken in order to secure a future in successful trading. Expect to dedicate a large portion of time to researching and understanding the market in general before setting out with your pocket book ready to invest. Learn all you can about the Forex market in the beginning in order to make the Forex trading path a smooth and triumphant one.

There is no doubt that there are numerous types of orders that can be utilized in order to open and close trades and becoming familiar with them is a must. In the foreign exchange trading business there are charts, graphs and other visuals to help you effectively analyze trends in currency trading. These charts and graphs will assist in making well-informed decisions on what currency to sell. Timing is everything and it goes without saying that when experiencing with the Forex trading system, knowing when to trade can be the pivotal difference between success and failure. Understanding the analysis tools and how to use them efficiently will put any investor on the right track.

As well as proficient trading tools, it is an absolute necessity when using the foreign exchange trading system to understand how to use the software to perform actual trades. The only way to become comfortable with using Forex trading software is to use it and learn how to plot a course through the process. Selecting a good trader is the most imperative tip at this stage because an established trader can help you with the services required as well as giving you in depth tutorials using the foreign exchange trading system.

The most critical tool that will be utilized in the Forex trading system is patience and discipline. As mentioned earlier, foreign exchange trading is not a get rich quick proposal so learning patience and discipline can help you to become profitable in a timely fashion without losing money. Most brokers offer a demo account that can be used to practice and learn the foreign exchange trading system that mimics the real account with the exception of real money being traded. This gives a client insight into the market and its behaviors before actual money is invested. Learn how to make a profit using paper trading on a regular basis before risking your capital with Forex trading.

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Troy Degarnham is the author and webmaster of http://www.forex-trading-brokers.info an informative website about Forex Trading Brokers. Extensive help and tips on systems, software, signals, forex trading, forex brokers, courses, and other secrets to help you gain financial freedom.


Sources :

1. Timing is Everything With Forex Trading | Troy Degarnham

So why does Fibonacci work in the Forex market?

Because Fibonacci ratios are a deeply ingrained part of the Forex culture. Big banks, hedge funds, and individual traders alike all pay close attention to these ratios, and frequently place their orders at Fibonacci retracement levels.

If enough orders accumulate at a particular level, the combined power of these orders can actually change the direction of the exchange rate when that level is achieved. This is the essence of the self-fulfilling prophecy that we discussed in last week's newletter.

If my assumption is correct that Fibonacci works in the Forex market not because of magic but due to a self-fulfilling prophecy, then there are certain conclusions that we can extrapolate from this premise:

Fibonacci Is More Effective on Longer-Term Charts
If we truly believe that Fibonacci is a self-fulfilling prophecy, then we should live by the credo, "the more, the merrier." In other words, the more orders that are placed at a particular level, the more likely it becomes that the level will hold as support or resistance.

What can improve the chances that there will be a large quantity of orders at a particular Fib level? Visibility is the key. If the other players can't see the Fib level, they can't place their orders accordingly.

For example, if a Fibonacci level forms on a five-minute chart during the Asian trading session, any opportunity to place a trade based on this retracement is likely to come and go before European and American traders have wiped the sleep from their eyes. Since many of these traders will never observe this opportunity, there will be fewer orders placed at that level. This makes it less likely that the level will hold when the price reaches that area.

However, if the same scenario occurs on the daily chart, traders all around the world will have the time and the opportunity to place their orders accordingly. Since Forex is truly an international market, with traders located on every part of the globe, this aspect of Fibonacci trading takes on added significance.

Fibonacci Is More Effective on Commonly Used Retracement Levels
The most commonly used Fibonacci ratios are 38.2%, 50%, and 61.8%. However, 23.6%, 78.6% and 100% are also legitimate Fib levels. Some traders even use Fibonacci "extensions" that go beyond 100%, such as a 161.8% retracement. There are also Fibonacci Arcs, Fibonacci Fans, and Fibonacci Time Zones.

Which of these techniques will be the most effective? If we truly believe that a sizable quantity of orders (or a quantity of sizable orders) will make the difference, then we must give more weight to the levels that garner the most attention - the 38.2%, 50%, and 61.8% levels. In Fibonacci, as in many aspects of trading, sometimes it's better to keep things simple.

Improving your trading by thinking less

Analysis paralysis. We’ll all heard of it. Have we all experienced it? I know I have.

My personal tendency in all aspects of life is to be very analytic. That has some nice advantages, but it also as some nasty drawbacks at times as well. I’ve been told on more than one occasion that I think too much, and while it was not normally meant to be a deragatory thing, it is indicative. I do think alot, and probably would be considered by many an intellectual - for better or worse.

The "worse" part is something I became aware of many years ago, early in my professional career as an analyst. My job required me to product commentary quite frequently. It was actually too frequently in many respects because I found that by being forced to revisit the price action I wasn’t able to allow the market moves I had previously outlined to properly develop. I was instead coming up with new analysis at each point, often to the detriment of producing quality trading ideas.

This is something which has from time to time carried over into my trading as well. There have been spells where I have allowed myself to get sucked way into the fine details of things. Sometimes I catch myself before much damage is done, but often it ends up becoming a hindsight sort of thing. Basically, the more I think about trading, the less well I tend to do, which is definitely part of why I’ve tended to perform better taking longer-term positions where the decision-making is more spread out and less at risk of turning into over-thinking.

The funny aspect to this whole situation is a bit of a paradox. I find that my gut generally gives me the right read, but if I consciously check my gut it nullifies things. In other words, I can’t think about what my gut is telling me. I just have to accept it’s influence when it chooses to speak up.

And by the way, the gut thing is something I definitely believe to be reflective of experience. It’s not something people are just born with. It’s a question of having seen the patterns of how the markets move many, many times such that your waking mind doesn’t even have to register them at all. This tends to go along the lines with how expertise comes from frequency of repetition, not time.

My point in sharing these things is to encourage you to look at your own work in the market to see whether you might be over-thinking things to your detriment at times.


Sources :

1. John Forman - The Essentials of Trading author (Improving your trading by thinking less)