The Forex Scalping Mistake – Not Exactly the Road to Vegas

Why Scalping Could Get You Broke?

Scalping is the road to jail. I never really understood why trading in the equity or forex markets by holding a position for a very short period of time in an attempt to profit from the bid-ask spread has the same name as an ancient practice of removing the scalp, or a portion of the scalp, either from a dead body or living person, as a trophy of battle or portable proof of a combatant’s prowess in war. Personally, I don’t see any connection between the two acts. What I do see though, is the trader removing a portion of his equity by trying to profit in a very short period of time.

 

Is Scalping A Good Way To Make Money In FX?

I have never been to Las Vegas but for me sounds like a place where you make bad decisions. I never scalped (anyone) but for me sounds like a trading technique where you make bad decisions also. Scalping is a bit like a casino roulette machine. You know it but you just keep placing trades and every once in a while there’s some juicy little titbit of reward, like the pennies that pop down on a one-armed bandit. And that keeps you coming back for more. Walker England, a Forex Trading Instructor at DailyFx might not be on the same path with me. According to his piece of work [1], his view is that “scalping can be a viable short term trading methodology for anyone”. I guess you are wondering why do I think that scalping is not the best trading technique.First of all, because scalping can be very difficult because there is very little room (read as no room) for error and if you are a newbie or don’t really master the technical analysis, the errors cannot be avoided. Sometimes even the perfect technical pattern can give you a fake signal [2]. Second, scalping is most suitable for a specific type of trading personality as the traders who chose to scalp must be able to make decisions without any hesitation and without questioning their decisions once they have been made.

 

Scalping = Gambling?

When you speak about Las Vegas, you cannot help but think about the casinos and how you could get rich in one single night. I have more or less the same impression about the traders who chose to scalp: they want to get rich with a few trades only that scalping is not exactly the road to Vegas if you are not a professional trader with cold blood and who masters the technical analysis. And this is not enough. In my opinion, you need a good hand of luck also. Speaking about luck, let me tell you a small joke. One guy decides to go to casino and play a little because he was feeling lucky. He decides to play at the roulette and plays all-in on number 22. The croupier asks him if he is sure and our guy answers that he’s never been sure like that in his life. The roulette spins around and the ball falls on….22. The guy makes the same move for the second and third time too. For all three consecutive times the ball falls on 22. The casino’s director comes to the guy to congratulate him and asks what his secret is. The guy’s answer: What day is today? The director: the 7th. The guy: you see, today is the 7th, it is my son’s birthday and he makes 7 years and it was 7PM when I sat to that table. The director: I still don’t see the connection with 22. The guy: how silly you are. What is 7 X 3?

 

Is Scalping Suitable For Everyone?

With all the respect for Walker England, I do not think that scalping can be a viable short-term trading methodology for everyone. What I do think though is that every trader can try it and betting on 22 (thinking that is the result of 7 X 3) can make money for that day. I am sure though that in the next days he will not be so lucky anymore. As I said, you need to be a professional trader who masters the technical analysis, who knows what news comes out and when that news will produce higher volatility in the market and mostly who trades with cold blood.

 

Editor’s Note – Tip to Avoid Going Broke Scalping

I trade and I tried them all (or at least I think I did). Scalping is very difficult and you have no chance to make it work unless you are an experienced trader (with cold blood, experience and a very good knowledge of how the market works), but not even that will guarantee success. Personally, I really have a hard time to scalp and I do not like this trading strategy. Is simply not suitable for my personality and I also think that is not suitable for a newbie or for traders who do not master the technical analysis. As for the experienced traders, they have some chances but slim though. This is not a trading strategy that I recommend but if you think that this is the trading style that suits your personality and you can’t stay away of scalping, here are a few tips for you to keep your trading account alive:

  • You definitely need a trading plan more than any other trader does. Build it, use it and stick with it no matter what.
  • If the average recommended risk management is 2%, for a scalper should be 1% or even lower due to the high number of trades that he is supposed to take.
  • Make sure that you first scalp on demo accounts until you are consistently profitable.
  • If a day-trader or long-term trader can only increase the loss by not exiting a trade when moving against him, in a scalper’s case this could be fatal. You have to accept the loss and exit the trades. While a day-trader can make 4 to 5 trades per day a scalper can make 20 or 30 trades per day. Imagine what 10-15 big losses could mean for your account.
  • Using the trailing stop loss could be the best way to lock your profits or/and reduce the losses.
  • While mastering the technical analysis is the base of scalping, you should not disregard the fundamentals. Knowing when a CB press conference is taking place, could keep you away of losing money on scalping on huge volatility moments.

 

References

  1. Scalping on DailyFX
  2. Double Bottom Patterns Review

 

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