Intro

    One of the most productive forms of trading the Forex markets is "scalping". A scalp can be defined as a rapidly executed trade seizing on an opportunity that often produces a fast profit, usually between 3 and 15 pips depending on market volatility.

    Scalping opportunities can emerge suddenly as either "long" or "short" trades when there is sudden price movement upward or downward. The markets by nature often exaggerate their movements in both directions. It is this characteristic of the markets that makes scalping a high-percentage, reliable form of trading. Scalping relies on the market to quickly correct imbalances created by reactions to news events, or sudden movements occurring even during "quiet" trading hours. This correction or "reversal" takes place when the market moves in the direction opposite the initial reaction. Using precise entries, the objective of trading a scalp is to enter at or near the end of the initial market reaction, that is, as close as possible the "bottom" or the "top" of the move just before reversal.

Precision 

    For scalpers, a precise, cautious entry is crucial, and for this reason it is important to allow market moves to play out before entering. Support and resistance levels as indicated on the chart should be closely anticipated in order to optimize entry. Although traders should always be aware of broader market trends, the 1-minute and 5-minute charts are the most useful for gauging scalp entry and exit. Generally, the faster and more "extreme" the market reaction, the better and more profitable will be the reversal. In addition, control of size as well as the use of stops is equally important in order to limit risk. In scalping, the difference between the bid and ask price of a currency pair or "spread" is key, and can sometimes mean the difference between profit and loss. For this reason many Forex traders often scalp the eur/usd which usually has a relatively small 3-pip spread. Beginning Forex traders should not attempt to scalp during news announcements, as the movements at this time are highly unpredictable and often extreme. Rather, scalping should be learned during quiet market hours using a demo account and small position size.

Experience

    Initially, scalping can be treated like more "conventional" forms of forex trading that rely heavily on the confluence of technical indicators and "signals". In time, however, scalping should become largely instinctive relying more on a trader's familiarity with typical market movements and chart formations as well as on his ability to react quickly to frequent opportunities presented by the Forex market. Scalping, if done skillfully, can be highly profitable for traders often producing between 75 and 120 pips of profit in a single day. There is, however, risk associated with this "rapid-fire" form of trading. Traders should be aware of this risk and act accordingly. Scalping is not for everyone. And like all forms of Forex trading, scalping is a skill that requires diligent practice and good familiarity with technical analysis, charts and prevailing market sentiment. With time and practice, typical market movements will become familiar, as will situations with potential for opportunity. Much can be written on the fine art of scalping, and this is meant only as a brief introduction to a complex and interesting topic.

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