Forex scalping and Day Trading
Forex scalping is the most controversial style of trading in the forex world. Mainly because forex scalping bears more similarities to gambling and addictive in nature. Hopefully, this post will clarify some of the misconceptions surrounding forex scalping. One might think that I’m promoting low R:R, highly risky short term amateur style trading. Absolutely not! First of all forex scalping is not defined by low R:R, high stakes or trading style of amateurs. On the other hand I want to clear exactly those misconceptions about forex scalping.
1. Scalping is a different style from Day Trading
Hell no. Scalping IS day trading as much as any other day trading strategy out there. Simply because the idea is to realize profits within the same trading day and not have open positions held overnight. Its not to say that if you hold onto open positions overnight, you suddenly become a swing trader. As a scalper and a day trader you must always look to realize profits within the same trading day and start each day on a clean slate. So scalping is yet another form of day trading.
2. Scalping is defined by Smaller Time Frames or Tick Charts confined by a smaller number of ticks
I attended a forex workshop some time ago and the lecturer went onto say that he preferred and recommended all his students to analyze the H4 chart and zoom into H1 only to pinpoint entries and exits. Nothing wrong with that, but what he said afterwards got me thinking that all trading styles are totally subjective. Here’re the exact words – “All time frames below H1 are used by scalpers; and scalping is a dangerous method to trade.” What’s more interesting is that he labelled all the traders who use lower time frames. I think only you can define your trading style as day trading, swing trading or scalping. I know day traders who trade on 5Min charts and scalpers who trade on even daily charts.
3. Forex scalping is riskier than day trading
What load of bs. Ok, you might be exposed to the market many number of times and trade many number of positions within a single trading day. But that does not mean its riskier than day trading or swing trading. Lets say you traded 10 different positions with 1 lot each. If you spread those 10 trades over 10 days its only a trade a day. Does that make any difference to the risk or exposure. It only averages out the risk taken per day. Nonetheless the same amount of risk has to be taken in order complete the 10 trading opportunities. All I say is that if opportunity presents itself and a signal occurs according to whatever the strategy you trade, you just take the trade.
By this I don’t intend to encourage ‘Overtrading.’ Overtrading is opening positions for the sake of trading without a proper trading plan or a strategy. Novicee traders fall victim to this kind of psychological stranglehold, because they can’t accept a losing trade or two. Often they look to get back at the market the moment a SL is hit and obviously a losing trade or two soon becomes a losing streak.
This segment has another scope, because when a trader says riskier, he often means the Reward to Risk ratio. It all comes down to trade and risk management, doesn’t it? It always does. It is an important factor for success in forex regardless of your trading approach. If you happen to have a forex scalping strategy that has been backtested and forward tested on demo accounts for a considerable period of time and you are confident of making profits if you trade with discipline, don’t let anyone spoil your confidence with baseless statements.
4. Too many False Signals
Let’s face it. False signals are an inevitable part of trading. By saying false signals I mean both fundamental and technical aspects of it. I’ve seen too many times the market move viciously to the wrong direction while important news that had just been announced suggested otherwise. The myth here is that forex scalping is presented with too many false signals compared to other trading approaches.
Yes the statement is true, but its out of context. I mean, to see a real comparison you have to average out with the total number of trades within a certain period of time. Forex scalping strategies produce too many signals by comparison. So its naturally produces too many false signals as well as too many good signals. So as a fact its true, but as a negative implication on forex scalping strategies I’d say all types of trading has a proportionately similar amount of false signals.
5. Scalpers are amateur traders
In the good old days, what was the pit traders’ style? Quite obviously scalping. So forex scalping is not a style of trading employed by the amateurs. In fact its the opposite. Even the new world of algorithmic trading, high speed trading and those black boxes are all geared towards the short term trades. Forex scalping is not new.
It is however true that most novice traders try forex scalping when they first start trading forex and fail at it miserably. So does it mean that its a more riskier method adopted by amateurs only. I will let you be the judge on this one.
I am in the game to make money. It does not matter if I trade the 1Min, 5Min or Daily chart. And it does not matter whatsoever what my trading style is. Only thing that matters is that forex scalping works for me.
Does forex scalping work for you?