Trading The Forex Markets
There is a question that every scalper should answer before jumping into real trading. Why scalp the forex markets instead of trading the long time frames or hold positions for days or weeks for bigger profits? Its an important question to answer, because without knowing the ‘why’ its almost pointless to chose a certain path over the other.
In this post I will try to answer the very question.
The foremost reason to scalp the markets is the low risk. I don’t mean percentages or risk to reward ratios. I mean real capital risk per trade. See, when you scalp your stop loss is just few pips away so is your take profit. Yes, your potential reward is somewhat small. But your risk in pips and monetary value is too. Although it can add up to a substantial amount with number of trades you place. Given that you have a solid strategy and experience you can maintain a scalping account with very low drawdown. This brings to my next point – unexpected drawdown of swing trades.
Holding positions overnight
If I have open trades carried forward overnight, I have to expect the worst for the next day. You never know what and when somethings gonna happen. Some news, calamity or corporate jargon can turn around a positive trade into deep negative territory in a split second (yeah, that explains gaps in the market too, right?) Although its not totally eliminated, the unexpected sudden changes are less likely to affect your trades when you are actively scalping the markets, at least you would have enough time to reduce your exposure or close all trades. Whereas if you have swing positions, you might be away from your trading terminal or perhaps asleep, while some bad news unravels in the market.
Peace of mind
Peace of mind is another reason why I personally favor day trading, regardless of how the day has been – good, bad or average, you can have a good nights sleep. If you treat trading as a profession or a business, you are effectively managing risk during the day, and at the end of each day you know exactly what your equity levels are. For the day trader the equity level in the morning is exactly the same as previous trading days closing equity.
Don’t get me wrong, trading is really boring. Its not even close to what they make it sound in those trading documentaries and movies. It would have been exciting to trade in the pits, back then. If we are still in the age of pits, then only a handful would be actual retail traders, compared to the number of online retail traders that there are globally in this day and age. However, trading can be little more exciting when you make do with the shorter timeframes. By no means do I encourage scalping, just for the excitement of it. The name for that kind of approach would be ‘gambling.’ No no. All I wanted to say was that if you happen to be a scalper, then you are lucky to have a bit more excitement off actual trading than long term traders.
Just to clarify a point, this post is for the sole purpose of discussing a few advantages that scalping has over long term trading. But it must be emphasized that the main objective of a good trader is to make good trading decisions consistantly and make a profit on the long run, nothing more. At the end of the day, it does not matter whatsoever, whether you are a scalper, day trader or a swing trader. All that matters is your balance sheet. So its not bad advice, if I say “explore different markets and different timeframes.” But make sure you chose precisely what to trade and whats right for you.
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