Forex Scalping Strategy

The term 'Forex', is basically an abbreviation of the words, 'foreign exchange'. The Forex is a securities market where different currencies of nations is the subject of trade. Like any other market, Forex market works on the buy and sell basis and is more like a barter exchange system, where currency for currency becomes the medium through which the exchange takes place. The Forex market works on the simple principle that there is a difference between the prices of two currencies. For example if you want to sell off 50 USD (United States Dollars) in the Forex market you will get back about 37 Euros. The rate of conversion changes every day and in many cases, it also changes almost after every hour. In fact, Forex scalping is based on this short term changes on the rate of currency exchange.

Conventional Forex Strategies

There are some strategies of Forex market trading that been successfully tried and tested by traders in the past. The simple principle, that is applicable goes as follows.

The basic code that traders follow is, 'buy when cheap, sell when expensive'. Confused? Here's an explanation. Suppose that you buy foreign currency at a price X. Due to the economic conditions, the market value of that currency drastically shoots in an upward direction. In such a situation, you will be able to sell that currency for a price, Y, which is of course, greater than X. The difference is your profit and the investment is the initial low price X. The key to become successful is to understand the rise and fall in the trend of the currency, that you are dealing in. A severe drawback in such cases that there is a high risk of the trend falling down and people losing money in the process. Since the Forex market is an international market, a trend that enters falling cycle, takes time to recover and the trader might end up losing a lot of money or the liquidity (in case if he decides to stay put). The Forex scalping techniques, are preferred in almost any business model or market, as the main emphasis is given on short term buys and sells. Thus, the risk of any dicey trend crashing down is eliminated.

Forex Scalping Strategy

There are two basic types of trading policies that can be followed, namely the long term and short term. The long term policy involves observation and investing for a longer time period, and selling the currency when the trend reaches the pinnacle. As opposed this long term policy, traders also often take up the short term policy that is nicknamed as scalping. While implementing this scalping policy, traders emphasize upon the smallest possible fluctuations and deviations in the market. A small rise or fall is used to make profit when a trader is in a scalping mode. The only drawback of scalping is that the trader has to keep a tab on a large number of transactions at the same time.

The greater the number of transactions, the greater is the profit. The simplest mechanism that is followed in such a case is to buy at rise and sell before fall. The difference between the buy and sell price can be also as low as 50+ pip (also known as points or percentage in point). There have also been cases where the people have purchased and sold at an almost same cost, in order to avoid losses. Market opening cost, closing cost and highest, lowest levels, are the Forex scalping indicators, that are used by investors. Often investors also keep their eyes open for economic news of the currency that they are dealing in as news tends to fluctuate the trends. There are several different Forex scalping methods such as following the trend of a particular set of economies, such as the BRIC economies or only European capitalist economies, or even only North American economies, etc.

On the whole, Forex scalping is not at all an easy, and it involves some serious trend analysis. Some investors are under the false impression that people trading with the help of scalping get lucky and does not have to undertake much of a risk. This is not exactly true as people using this strategy need to put in equally hard efforts in analyzing a large number of trends.