Forex is a very volatile market: a currency pair looking bearish can go bullish before you say “Jack Robinson.” Interestingly, a certain set of forex traders have taken advantage of this volatility, going in and out of the market as quickly as possible. They are called scalpers.
As a newbie trader, scalping trading can be very enticing. And the truth is, yes, it is profitable, especially if you are confident in your trading setup and have implemented an airtight risk management strategy.
Newbies shouldn’t just jump into scalping; there are certain factors to consider before scalping trading. These factors will help you determine if scalping is right for you or if you should focus on day trading.
6 Factors to Consider Before Scalping Trading
1. Your Trading Personality
Like I like to tell my students at the Forex Academy, scalping isn’t for everyone. If it doesn’t fit your trading personality and you try it, it might burn you really hard.
Not to scare you, but scalping trading is very risky. More importantly, it leaves you staring at your monitors for several hours, trying to identify the best entry point for the highest earning potential. Once you take your eyes off, your money might be gone, too! Do you have the mind to handle this?
2. The Capital
Beyond your personality type, do you have the money to scalp? Because of the high risk involved, you need considerable capital to scalp successfully.
You wouldn’t want to borrow money to start scalping trading. This creates even greater pressure on you while trading, which might affect your trading psychology. Remember, an unhealthy trading mindset is a major prerequisite to becoming a failed trader.
As a scalping trader, you have zero tolerance for redundancy. By redundancy, I mean anything that may prevent you from monitoring the market in real-time. This factor is particularly important if you trade from within Africa. As a third-world country, lacking these (basic) amenities may affect how much you thrive as a scalper.
How stable is your internet connection? What’s electricity like in your environment? Etc. Find answers to these questions and determine how prepared you are to start scalping trading.
4. Risk Management
What is your risk management strategy? As I mentioned earlier in this article, scalping trading is very risky, and to stay afloat in the market, you need a solid trading strategy alongside a tried and true way to manage your risks.
If you don’t manage your risks, they can swallow you. As a scalper, the chances of these risks “swallowing” you are even larger. Here are the best 5 ways to manage your risks as a forex trader.
5. Knowledge and Experience Level
Scalping occurs quickly; therefore, you must be prepared to make on-the-spot decisions and executions. Can you do this? Do not confuse this with impulsive trading. No. Decisions you need to make here are, although quick, precalculated and based on your existing trading strategy/setup. Nothing foreign.
And to achieve this, you need to know and understand the market perfectly. As a newbie scalper, I recommend you demo trade first before risking your money with a live account.
6. Knowledge of Technical Analysis
Elements of technical analysis, such as indicators, price action, support, resistance, etc., are instrumental in identifying quick market price movements. Identifying and trading these quick movements is how you make money in scalping trading.
Thanks to the forex market’s volatility, you can make a shitload of money and lose as much, too as a scalper. That is why there are a few factors to consider before scalping trading to know if it’s the right trading approach for you or otherwise.
Have more questions? Don’t hesitate to ask via the comment section below!