Forex Scalping: 3 Large Mistakes To Avoid
November 27th, 2009
Foreign exchange scalping can be a rewarding business but it is also terribly risky. A large amount of folk are drawn into forex scalping secrets by hearing about folks who make a large amount of cash that way, but beginners frequently get their fingers badly burned.
The reason? There are several traps in this kind of currency trading system and most of the people fall into one or another of them terribly fast. So here are 5 common mistakes courtesy of Correlation Code, that you should avoid if you would like to earn income with scalper systems.
1. Leverage too high
The high quantity of leverage available to currency exchange traders is one of the reasons why you can make so much money from a small investment balance, but at the same time, it’s essential to avoid over leveraging. Forget getting the biggest possible position on each trade for a minute, and concentrate 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 appropriately.
Here’s a good way to work out your risk per trade. Rate how badly you would feel if you lost your entire fund balance according to this scale: 1 = devastated; 2 = really bad; 3 = bad; 4 = not too bad; five = cool, it’s all part of the game. Then check the end of the article for the results of the quiz.
2. Shortage of patience
Patience is one of the most vital qualities that any foreign exchange trader needs to develop and it is especially 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 leap in thinking you will maximise your profits by getting in early. You didn’t have the patience to hang around for the signal set by your system. Over trading in this manner nearly always leads to losses in the long run.
Patience is also needed in another situation : when you missed a trading opportunity. May 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 leap in and chase after the price, but it can simply rebound on you. Better to attend patiently for the subsequent real trading opportunity.
3. Trying for more
Many people believe that forex scalping strategies will bring them huge profits really fast. This isn’t true. Most scalping systems don’t make many pips on each trade. Many newbs are disappointed by this and quickly start trying for more.
It is tempting to let a trade run when you should be closing out, expecting to get bigger profits than your system allows for, but doing this could possibly just leave you losing the small profit that you almost gained. The target should be to make comparatively steady profits, accepting some losses but avoid the mistakes that lead to large losses. That way you have a chance of ending up with a profit on the final analysis. So remember, any profit is good profit.
Quiz results: whatever number you checked, that’s’s your percentage risk per trade. So if you checked option 2, you shouldn’t risk more than 2% of your total funds per trade in currency exchange scalping.