So you want to Scalp the Forex Market?
In this weekly video:
00:24 – The high paced action of the 1 and 5 minute charts
01:20 – The reality is much different
02:18 – The spread becomes such a big part of your trade
03:30 – The Reward:Risk of Scalping is not good
02:57 – The Price can change so quickly against you
04:24 – My Suggestions to help you
So you want to be a scalper in the Forex market, do you? Let’s talk about that and more right now.
Hey Forex traders, it’s Andrew Mitchem here. The Forex Trading Coach video and podcast number 273.
The high paced action of the 1 and 5 minute charts
And I want to talk about the high paced action, where all the action happens in the one and five minute charts. Because that’s what you need to trade if you want to be a scalper, don’t you. And do you want to be a scalper? Well, that’s what I get told by so many people. I had another email just this morning saying, “Hey Andrew. Please, can you teach me strategies so I can be a scalper?”
I’m going to talk about the pros and cons of scalping. And by the end of this video and podcast, you can make your own decisions. But let’s talk about it. What is it? It’s trading five minute charts, maybe one minute charts. And it’s looking for small, incremental gains all the time. Sounds real cool. Sounds amazing, because as Forex traders, we think that we need to be sat there watching the charts all the time, taking every little pip up and down. And that’s unfortunately what so many new traders think.
Look, I did the same, 15 years ago. All I wanted to do was to take little trades, watching every pip move up and down.
The reality is much different
I can promise you the reality is that, on those shorter time frame charts, the probability of you using a really high quality trade set up on that pair that you’re trading at that time that you happen to be looking at your charts is quite slim. And with hindsight, with the benefit of hindsight, I can go back through on five minute charts and go, “Oh look, that was a great set up here and there’s a perfect set up there.” But the chances of me being at the computer at that time, is quite slim.
So, the reality is that most people then start to force trades to happen. Because I’m sat there ready at my computer. So I’m ready, so where’s the trade? And that’s what most people think. The reality is that the market will show the right set ups when the market is ready. Not when you’re sat there ready. And that’s quite a hard thing to understand for many new traders. So therefore, what you start to do is you take trades that are not really that great a set up.
The spread becomes such a big part of your trade
Then the problem being is the spread becomes such a big part of your trade. So let’s say as an example, you are wanting to take a 10 pip profit target. Now, I don’t know who you pick 10 pips, but most people seem to think 10 pips is because it’s an easy round number. The problem is, let’s say you’re trading British pounds, US dollar, and you’ve just paid two pips on the spread, the difference between the big and the [inaudible 00:02:32] cost of taking the trade. So now, your 10 pip profit target, is that 12 pips away? Because you’ve already paid two pips, so you’re basically minus two. So to get to 10, you have to actually make 12. That’s not quite so exciting. If you make 10 pips and you’ve just paid two as a spread, well haven’t you just, and let’s say hit the profit, haven’t you just lost 20% of your total profit to the cost of the spread.
The reverse of that is the stop loss. You want a 10 pip stop loss. So, does that mean that once you’ve taken your trade, you’re now minus two, let’s say effectively, that means you’re only eight pips away from the stop loss. So, there becomes another problem. So it doesn’t really work in your favour.
The Reward:Risk of Scalping is not good
And that’s, when you start talking reward to risk trades, you’re now a one to one at very best. So that means that you actually need to make probably 60 if not 70% winning trades. And that is very, very difficult to do, especially when you bring the emotions in of almost feeling like I have to take a trade because I’m ready. So you can see all the difficulties now starting to match up.
The Price can change so quickly against you
The reality also is that it doesn’t take a lot in the Forex market for a 10 pip reversal or change in direction. It could be just a spike, it could be a new announcement, it could just be simply that the market retraces against where you think it’s going to go. And 10 pips just stops you time after time after time. Very, very difficult to get high win rates when you’re starting to do those type of trades.
My Suggestions to help you
So, my suggestion after all of this is to look at, at least the one hour charts. Don’t go any lower. Especially when you’re new. It’s very, very difficult to do. Look at the one hour charts as the absolutes of lowest, shortest time frame, look at the end of a candle. Don’t even bother looking at the chart in the middle of a candle. If it’s, say, half past or a quarter to, don’t even bother. Wait until a couple minutes before the one hour chart closes, then make your analysis when you’ve got time. Emotions are easier to control. You can look for your profit targets and your stop losses and then place your trade, if you see a suitable set up.
So that’s the way that I would go. It makes life a lot easier. Takes the stress, the emotions out of things. It takes, the cost of spread becomes a smaller factor. And the overall profitability and your enjoyment and your longevity of trading will massively increase.
So I hope that helps. Once again, this is Andrew Mitchem, The Forex Trading Coach. I’ll see you this time next week with some more great trading tips and information. See you then. Bye.