Advantages of scalping strategies:
1) In successful trades, profit may be between 10-30% from a daily deposit. The amount of profit depends on the degree of risk
2) It's not necessary to learn about technical and fundamental analysis The scalping opening and closing rules are all that's needed.
3) There are no barriers to entry as it's free You can trade at any time of day and on any type of trend so you don't need to wait for a trend.
2) It's not necessary to learn about technical and fundamental analysis The scalping opening and closing rules are all that's needed.
3) There are no barriers to entry as it's free You can trade at any time of day and on any type of trend so you don't need to wait for a trend.
Scalping strategies - the disadvantages
1) Trading on real accounts is very stressful and this is heightened as you don't know how trends will behave.
2) Randomly opening a position when using a large leverage only needs a dramatic market reversal to destroy a deposit.
3) Manual trading needs opened positions to be constantly monitored meaning you have little free time.
4) Spread. If the profit is to go beyond the zero mark then the price needs to increase by the spread amount, i.e. at the initial stage the trade will have a drawback of 1-2 points. You should get more specific information about spread sizes from your broker.
5) Commission charges. Instead of using the spread, some brokers take a specific percentage from opened transactions. Or to put it another way, they charge commission. In these circumstances, commission charges should be covered.
6) There is a large risk attached to low levels of profit. All your deposit is on the line yet each transaction will only yield $1 - $2. With many profitable trades, the level of profit could become 10% to 30% for one trading day. The level of profit depends on such criteria as the amount on deposit and the volume of trades. That said, any small movement may 'kill' your deposit
7) Many brokers overrate the values of orders such as take-profit and stop-loss. Most brokers will prevent any stop orders being placed any closer than 5 points to the price. You simply don't have the time when you are trading manually to place a stop order. For those traders who use scalping strategies that are founded within the mechanical trading systems this is important.
We should first of all review the rules of the strategy before we can make a decision about whether or not to use scalping for trading on real accounts.
1) The level of profit should cover the level of spread. If the spread is 2 points, you should close orders only at 3-5 points rate increase. The trader will make the final choice. Generally, scalpers will use 5 points.
2) Minute charts (M1) should be optimized. The perfect charts for scalping are the minute charts as they will illustrate the fluctuation rate a lot quicker than a lot of other charts.
3) Use maximum leverage. For a small deposit a large leverage is an effective tool for extending the opportunities for a trader. As an example, $20 can open a position with a 0.1 lot volume if a leverage of 1:500 is used.
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