First off, I owe you an apology.
I promised you a full report this week on a new scalping technique that I’ve been following…
There’s been a slight delay on this, as I wanted give it a bit more testing before I was prepared to put my neck out. But, I’m confident that you’ll find it’s worth the wait.
I’ll be revealing all about this brand-new scalping technique tomorrow – so please watch out for my email.
Ahead of that, though, I thought it might be helpful to look at some of the myths and misinformation that have build up about scalping…
Scalping became a bit of a trading buzzword a few years back, as home traders had more access to fast online dealing, and everyone wanted to piece of the high-paced dynamic profit action.
But also a lot of myths and misinformation built up around it.
And there was a fair degree of bravado…
“Call that scalping?”
“It’s not scalping unless you’re trading 250 times a day.”
“It’s not scalping if your trades are open for more than 5 minutes.”
“It’s not scalping unless you’re so stressed and strung out that you’re on the verge of a cardiac arrest!”
And when any kind of bravado creeps into your trading, problems won’t be far behind. As a result, a lot of people were put off scalping.
Today, though, I’d like to take a fresh look at what I’d call scalping.
But it’s a far cry from the crazy-paced, high-octane scalping you may have heard of before. In fact, you may not recognize this new look at all…
In my opinion, scalping is any strategy looking to profit from small moves in the market – it might be 3 pips, it might be 15 pips.
Trades tend to have tight stop losses, and to be closed out pretty quickly – depending on how fast that level is reached.
Now, if you’re looking for moves of 3 pips, and you’re trading at £1 a point, you’re not going to get rich fast this way, clocking up just £3 per trade. So scalpers tend to have higher stakes.
This doesn’t mean they need to have bigger risks, because they keep their stop losses as tight as their profit targets.
Big-time scalpers will be staking very high, so that each pip the market moves will be making them £hundreds.
But even with a very modest stake, because you’re in and out of a trade in such a short period of time, you could have made yourself £50 in the space of a few minutes.
And this brings us to the best thing about scalping – your funds aren’t tied up.
They are quickly released, so you can do the same thing over again.
Scalping holds great appeal to novice traders, as they can easily get in on trades on very low stakes, keeping risk really tight.
If you’ve a stop loss of just 10 pips, and you’re trading at £2 a pip – that’s just £20 risk. There’s no more worrying that your fund isn’t big enough and that you’ll have to sit out.
The other way that scalping helps with the risk side of trading is that your money tends to be left in the market for less time.
For every extra hour that your money is sitting exposed in the market, the chances of some data release or politician’s big mouth sending the markets haywire gets greater.
So, the more time your money spends doing nothing in your account the safer it is!
However, for every voice I hear telling us that scalping is low-risk, I hear another complaining that it’s high-risk. So, who’s right?
Well, there are some pitfalls that scalpers need to watch out for.
Small risks can easily lead novice traders into rather casual trading – and if you’re not careful about the strategy you use, you can gradually whittle away your trading fund a few pounds at a time – a bit like buying scratch cards!
So you need to be confident that your risk-reward balance is good. And that your success rate is sufficient to give you a winning edge over the market.
Also, there’s the thorny issue of trading costs.
Whenever you place a trade, you must pay your broker a ‘spread’. This is how your broker makes their money.
A spread on a popular currency pair might be 1 pip. On a more obscure currency, it might be 4 pips, or 6 pips.
For the sake of argument, let’s say that we’re trading a forex market with a spread of 6 pips.
If we were long-term trading, and going for a profit of 100 pips, that cost becomes almost negligible. But if we’re scalping a move of just 10 pips, we’re giving up 60% of that move to the broker.
This is where many of the high-speed scalpers came a cropper – they were tempted by exotic currencies, and just ended up making their brokers rich.
So, keep an eye on costs.
These are the kind of considerations I look at when I’m testing out a system, so please remember to watch out for my email tomorrow, where I’ll be giving my full report on a new, simple-to-use forex strategy that goes for a more low-octane scalping method. (And don’t worry – it doesn’t have you glued to your screens for hours at a time!)
