Pipsing and scalping

Scalping is a trading style intended for gaining profits from intraday currency fluctuations on the market. Traders employing this strategy close their trades shortly after they make any small profit. However, one scalping trade would not provide you with much profit, that is why the main principle of this trading style is having as many positions closed as possible. The number of deals carried out by scalpers is usually rather high. However not all the deals prove to be profitable. The result to strive for is a positive balance by the end of a trading day. To accomplish this aim one needs to set a Stop Loss level close to an opening price. This will help to minimise a loss in case the price moves in the opposite direction.

As widely known, liquidity on Forex is very high. Prices rise and fall all the time, following a cycle. If a price moves by 60 pips a day, the gap between its high and low is rather substantial. Forex beginners may think that scalping trading can bring incredible results. But this assumption is hardly true. In fact, this strategy cannot guarantee you any success. Let us investigate the reason for this. 

First, a Stop Loss level approaching a price rate increases a possibility to suffer losses at the slightest fluctuation if the strength of bulls and bears has been misestimated, even though a further trend has been foreseen. It is far too easy to make a mistake in defining a direction for a short period of time (1-2 hours), than to define a price direction for the whole day. The simplest way to escape the execution of the order with a risk of loss is not to have such an order, but then, there appears a risk of losing money if the strong movement is against you. This happens when the price moves far and is not likely to return to its expected levels in the nearest future. If a trader keeps the greater part of his deposit as a margin and does not set any stop loss levels, he may well get a margin call.

Secondly, most traders grow nervous and anxious when dealing with real money. As a rule, such a type of trading is tested on a demo account first, since there is no real money involved. Consequently there is no risk. Thus, the emotional state of a trader working on a real account worsens with each pip should the price move in the wrong direction. The scalping strategy implies that a trader is to be on the market constantly, which is a stress of course. This can lead to hasty and ill-considered actions.

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