Forex Trading Strategies

Scalping in the forex

Scalping is a term that basically means,  a trader is in a trade for a very short period of time and takes a very minimal amount of profit.  Often the trader has stop loss or a losing amount that is equal to the amount they are willing to take profit on.
For example.  In the FAP Turbo system, the scalping part of the system is generally designed to take profits at about 6 pips.  In order for a scalping system to work well, they must have a very high strike rate.  It must be in the vicinity of 50% or higher as the system’s take profits are generally as much as their losses.

You must first overcome the spread

As  most  forex brokers have spreads in their metatrader platforms, one must also overcome the cost of the spread first then make their profit as well.
All trades within the metatrader forex environment have a spread.  That is the difference between the bid and the ask.  This spread is displayed as a two numbers as per below.  1.3910/12

The first number, 1.3910 is the bid or the price at which you can sell or go short the eur/usd.

The second number 1.3912 is the ask or the price at which you buy or go long the eur/usd.  The difference between the two numbers which is .0002 or 2 pips is the spread.  This is the how the broker will make their money.  The value of the pips will determine how much the broker earns in the spread.  This will be determined by your lot size or the how large you want to trade.

One average lot size is equal  to 100,000 units in a eur/usd transaction.  To calculate the cost of the spread you would multiply 100,000 x 0.002, which equals $10.  So if there is a 2 pip spread, the broker will be making $20 USD.

So when using a scalping strategy, one must also take the cost of the spread into account when trading.  In smaller take profit targets like the instance of a 6 pip take profit, a 2 pip spread can constitute a large percentage of profits so a system must have a very good strike rate to do well.

For more information on a system that makes fantastic profits using a scalping system, visit here.

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This entry was posted on Thursday, January 1st, 2009 at 11:17 pm and is filed under Associated Info. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.