Forex Scalping: 3 Big Mistakes To Avoid
Forex scalping can be a lucrative business but it is also very riskly. A lot of people are drawn into forex scalping strategies by hearing about people who make a lot of money that way, but beginners often get their fingers badly burned.
The reason? There are many traps in this type of currency trading system and most people fall into one or another of them very fast. So here are five common mistakes that you must avoid if you want to make money with scalper strategies.
1. Leverage too high
The high amount of leverage available to forex traders is one of the reasons why you can make so much money from a small investment balance, but at the same time, it is vital to avoid over leveraging. Forget about getting the biggest possible position on every trade for a moment, and focus instead on risk management. Be sure that whatever stop loss you are using does not involve you in an unacceptable risk per trade, and adjust your position size accordingly.
Here’s a good way to work out your risk per trade. Rate how badly you would feel if you lost your whole fund balance according to this scale: 1 = devastated; 2 = very bad; 3 = bad; 4 = not too bad; 5 = cool, it’s all part of the game. Then check the end of the article for the results of the quiz.
2. Lack of patience
Patience is one of the most important qualities that any forex trader needs to develop and it is particularly true of scalpers who sit watching the market, sometimes for hours at a time. It is very easy to think that you see the conditions coming right and then to jump in thinking you will maximize your profits by getting in early. You did not have the patience to wait for the signal set by your system. Over trading in this way almost always leads to losses in the long term.
Patience is also required in another situation: when you missed a trading opportunity. Could be that you went to grab a coffee and when you get back, your ideal trading situation has come and gone. The temptation is to jump in and chase after the price, but it can easily rebound on you. Better to wait patiently for the next real trading opportunity.
3. Trying for more
Many people believe that forex scalping strategies will bring them huge profits very fast. This is not true. Most scalping systems do not make many pips on each trade. Many beginners are disappointed by this and quickly start trying for more.
It is tempting to let a trade run when you should be closing out, hoping to get bigger profits than your system allows for, but doing this will probably just leave you losing the little profit that you almost gained. The aim should be to make relatively steady profits, accepting some losses but avoid the mistakes that lead to big losses. That way you have a chance of ending up with a profit on the bottom line. So remember, any profit is good profit.
Quiz results: whatever number you checked, that’s your percentage risk per trade. So if you checked option 2, you should not risk more than 2% of your total funds per trade in forex scalping.
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October 25th, 2009 at 5:04 pm
You’ve certainly hit on the big three here. The current liquidity in the EUR/USD and the nasty spreads offered by the big traders has really hurt a lot of scalpers who were once doing some very profitable scalps.
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