Pipsing and Scalping
Forex trading has exploded in popularity over the past decade. One of the biggest reasons behind this growth is how profitable Forex trading can be. Here are some of the advantages Forex offers that allow it to be so profitable:
- Currency markets can be volatile and depend on a great deal of different market indicators. This gives you lots of opportunities to gather relevant information.
- Trading on margin allows you to speculate in quantities much larger than your bankroll could afford.
- Forex fees and commissions are unusually low. The only cost of trading on Forex is the spread set by your trading firm.
- The Forex marketplace is open Monday to Friday, 24 hours a day. This gives you more opportunities to trade than on the stock or futures markets.
Of course, you can't begin speculating on Forex and make money immediately. You need to take the time and effort to develop an effective strategy. One especially popular Forex trading strategy is known as scalping, which we will discuss below.
What Exactly is a Pip?
Pip stands for 'percentage in point' and is the absolute smallest amount that a currency pair may move. It's the standard on which Forex gains and losses are based on. Typically, currency pairs trade for between two and four decimal places, although some pairs may differ. If, for example, a currency pair is traded on four decimal places, a pip would be equal to .0001.
While pip movements are quite small, you must make sure to adjust them for leverage. When you're trading in much larger quantities than your investment, any movement at all is magnified. The ability to make a great deal of money on small pip movements is the concept behind the Forex trading strategy known as scalping.
The Basics of Scalping
Scalping is a Forex trading strategy where a trader makes a high-volume of trades in a very tight window of time. These trades will play off of 1 and 5-minute charts. Anything over 15 minutes is no longer consider scalping.
A scalper spends their time carefully analyzing these extremely short-term charts, looking for temporary highs and lows. Because trends tend to be relatively steady unless the market is especially volatile, a price should usually regress to the mean quickly in the short-term. Astute traders will be able to spot these temporary outliers and pounce by making incredibly short-term trades.
Advanced Scalping Tips
One of the first things you need to look for when you're about to engage in scalping is the spread. A spread is the difference between the price that your trading firm is willing to sell and buy a currency at. Usually, a spread is several pips. This means that you need to think that a currency pair is going to move more than several pips in the short-term to profit. If you're noticing short-term peaks and valleys of only two or three pips, scalping will not be a profitable strategy against the spread.
Many Forex scalpers like to use Forex box or algorithms to let them know when a profitable scalping situation is available. Many of these robots are even able to make the transactions automatically. This is advantageous since the robot can buy and sell much quicker than a human ever will. If you do decide to use a scalping bot, make sure to test that it works the way you like. Register a test account and give it a whirl there before moving to the live market.
Finally, you need to pay special attention to the resistance and support levels of a currency pair. These are the levels that a pair consistently does not move above or below. If you find a price nearing the support level, for example, there's nowhere to go but up for the price. This is where you will usually find your biggest sources of scalping profit. You will need to be careful about setting a stop loss, however, as once a price moves beyond a support or resistance, the trend usually continues very rapidly.
Now that you have the basics of Forex pips and the concept of scalping down, you're ready to give the live market a shot. Make sure to create an account with us to get started right away!