Home Business, Personal Finances, Money and Investing Tips

Home Business Small Business Art of Marketing Negotiating Skills Selling Tips Office Furniture Employment Credit Cards Personal Finances Forex Trading Money
 

Explaining Scalping and Position Trading

How does scalping compare with position trading in forex

Scalping as a trading method is a highly active and energetic style of day trading whereby a trader buys and sells throughout each definitive trading session.

Scalpers in forex are looking to benefit from the smallest of intraday Forex price movements, their objective is to rely on frequent but relatively small gains in order to build profits. For example; scalpers may look for a gain of 2-5 pips (Pip - "Price Interest Point"). Take profit limit orders and the constant use of stops, are employed to manage positions, which are usually held over periods of time from seconds, to minutes.

Due to the prospective gains being extremely small on individual trades, scalpers will often place tens of trades throughout each trading session, it's therefore essential that scalpers have access to the lowest possible trading commissions.

In the much anticipated Forex Scalping Strategy Course, Vic & Sarid show you short-term focused techniques and strategies to make quicker profits while reducing market exposure.

Scalping in forex involves a constant price watch
The idea behind scalping in forex is to profit from small gains, over and over again, which sounds good in theory but it's highly speculative and very risky in practice. (Image by Pixabay.com)

Scalping in forex is very risky

Scalping is considered to be a risky proposition for many reasons, primarily because it requires a high positive expectancy; registering a high percentage of winning trades. Precision is absolutely crucial with this style of trading, scalping also requires constant vigilance.

Whilst not wishing to discourage novices from trading through a scalping method, it's vital that traders recognize what a challenge scalping represents, due to its many different issues. Even when trading through a straight through processing, electronic configured network method, the challenges to banking profit remain high. Not only must scalpers constantly obtain the best spreads to trade effectively, slippage can become an issue and in an incredibly fast moving marketplace, which becomes more challenging when trading off lower time frames, slight mistakes or minor adjustments, can render an individual trade completely redundant, shortly after the very second it's placed.

Scalping and pipsing

For example; a scalper sees EUR/USD at 1.1400, and decides to go long aiming for a five pip profit with a ten pip stop, they pull the trigger but the market has moved by 3 pips and they're filled at the new price. Now it only requires a 7 pip retrace of price and they'll be closed/stopped out at a loss. Such a minor movement in price, which has often been referred to as "noise" can take seconds, and before our novice traders knows, they're closed out and left nursing a loss in seconds.

The example illustrates that precision alone and a well crafted trading plan with tight money management at its core, is often not enough to prevent losses when attempting to scalp the market. An argument could be put forward that the example could be reversed; you may experience as many fills in your favour as against you, however, the unpredictable and often erratic nature of market movements are accentuated the lower down the time frames you operate from. A fill 3 pips away from your prediction, when you have a 100 pip stop and are aiming for 100 pips, is only a 3% adjustment. When aiming for 10 pips, it's a 30% margin of adjustment, a huge difference when you're aiming for relatively small pip gains.

Position Trading

Position trading involves trading over the longer term and generally trading off the longest time frames/charts, such as the daily, the weekly and even monthly charts. Position trading is often considered to be a form of medium term investing in currencies. The phrase relates to "taking a position" in the market place, as opposed to engaging in short term speculation.

Position traders' trades can often last periods from months even through to years. Position traders will use a combination of technical and fundamental analysis to make trading decisions. Not only will they reference: daily, weekly and monthly price charts when evaluating the markets and analyze the medium to high impact economic calendar events, they may trade in line with the a long term investment report known as the "COT report"; the commitment of traders.

This key report which is published each week, lists the net long and short positions key institutional investors, such as banks and hedge funds have taken in the market place. Any sudden change in sentiment may correspond with a high impact event. For example; if the USA announce a larger interest rate rise than expected, then the dollar will become a more attractive investment target as it'll achieve better returns versus its peers if simply left to gain interest. Therefore institutional invests may increase their "net long" positions in the dollar.

In conclusion, scalping in forex is often risky, short-term speculation, whereas position trading is a form of a serious, medium-term investment in currencies.

   Forex Trading Tips and Advice
Affordable Trading Options
Affordable Trading Options
Beginner Forex Traders
Beginner Forex Traders
Best Days for Forex
Best Days for Forex Market
Binary Options Strategies
Binary Options Strategies
Donchian Channel Indicator
Donchian Channel Indicator
Forex is Not Gambling
Forex Is Not Gambling
Forex Market Explained
Forex Market Explained
Forex Tips for Newbies
Forex Tips for Newbies
Forex Trading as Business - Part 1
Forex Trading as Business - Part 1
Forex Trading as Business - Part 2
Forex Trading as Business - Part 2
Forex Trading Beginners
Forex Trading Beginners
Elliott Wave Principle
The Elliott Wave Principle
Fundamental Analysis
Fundamental Analysis
Head and Shoulders Pattern
Head and Shoulders Pattern
India Based Trading
India Based Trading
Main Approaches to Forex
Main Approaches to Forex
Moving Averages Trading
Moving Averages Trading
Picking a Forex Robot
Picking a Forex Robot
Safe Forex Trading
Safe Forex Trading
Scalping vs Position Trading
Scalping vs Position Trading
Trade GBP USD Pair
Trade GBP/USD Currency Pair
Trading Outside Comfort Zone
Trading Outside Your Comfort Zone
Understanding Correlations
Understanding Correlations
Using Forex Calendar
Using Forex Calendar
Zero Bound Interest Rate
Zero Bound Interest Rate