What is Short Term Trading in the Forex Market?
Short term forex trading, or “scalping” as it is sometimes referred to, is the act of entering and exiting the forex market in within a small timeframe. The definition of what would constitute a “small timeframe” varies between different traders. Some consider that this is no more than a few seconds up to a few minutes while others consider even being in the market for an hour scalping.
It is therefore probably better to determine what short term trading is in terms of targets as opposed to time scales. Generally speaking, the targets are small, sometimes just a few pips up to 15 or 20 pips. With small targets the objectives must be to get in and out of the market as swiftly as possible, but clearly this will often depend on the requisite price action.
A quiet market can prolong a trade even for just a few pips. When short term trading time in market does present risk as when targeting such small amounts. A minor move against you can ruin your trade. That being said if you get your system right then it can be an extremely profitable way to trade
Short Term Forex Trading: The Keys to Success
To become a proficient and profitable short term forex trader there are several aspects that have to be mastered.
Recognizing the Right Trades
The first and most obvious element is being able to pick your trades correctly. There are various different strategies that can be employed with the three main themes that these strategies can be loosely categorised as:
- Support and Resistance
Each of the above categories have numerous strategies within and in future articles we will look at each of the above in detail. The important point is that there are many different opportunities presented to the scalper. Sometimes this can be a problem. It is important to narrow down the strategies you will employ to just two or three and master these.
Daily Due Diligence
We mentioned above that for short term forex trading “time in market” is risk. Much of this risk can be mitigated through daily due diligence. Simple things like looking for scheduled news releases and looking in advance at how these might affect the pairs you are targeting.
Studying your charts, looking for places were there might be potential stops that could be triggered
Getting Risk Reward Right
When targeting small gains, the risk profile must be right. If you are looking to make 6 or 7 pips then you can’t run 15 pip stops as your risk profile will blow your account. Most short trading strategies must have a good strike rate, 60% or more, to be successful. However, if you then run greater risk than potential profits you are in jeopardy of blowing your account. To successfully scalp you must have a risk reward of a minimum of 1 to 1 and then the strike rate will take care of your profit.
Tying the above elements together is effective trade management. Executing the rules of your strategies, running acceptable risk profiles ultimately comes down to trading discipline. If you don’t have this or effective trade management, then you will probably fail. If you do have good discipline, then you are likely to become a very profitable trader.