5 Reasons Not to Scalp
Posted on December 16, 2011 at 4:09 PM
5 Reasons Not to Scalp
Special thanks to our friends at Pipsologie, original report in German.
First, a brief definition: scalping is a trading strategy that seeks to achieve small gains in short time periods. Traders who use this method are known as scalpers, and often open about 10 to about 100 trades per day. Main theory or belief is that many small gains are easier to implement than to capture a few big moves.
An important prerequisite for a successful scalping strategy is liquidity. The greatest liquidity in the financial market, we find in the Forex Market, and that is why Forex scalping is just very popular.
I would have thought that scalping is the pinnacle of all trading styles, similar to the downhill skiing the 100-meter sprint. Almost every amateur trader dreams of becoming a scalper, but few are successful. Over 99% of the hobby scalpers loose and so I have a very unpopular job to write articles against scalping:
- Banks and Dealers scalp. That is why one must be aware that hobby scalpers are against the pros at their best discipline. Bankers and dealers have to have an important advantage over the amateur scalpers - they have more information about the market and the market sentiment.
- When scalping one needs extremely quick reflexes and must make many decisions in the shortest possible time: entrances, exits, money management, and momentum. To make these decisions, you need a lot of experience, good instincts and quick calculation skills. Whoever has not got a minimum of 3 years experience in scalping is to stay away!
- It is very difficult scalping keeping good risk / reward ratio gains. A good risk / reward ratio for example is 2/1. This means that if your T/P is at 10 pips, then must have your S/L at 5 pips. When the broker has been paid the EURUSD 3 pips spread, then your S / L will be 2 pips away from entry, which is too close to not get stopped out all the time.
- Whoever scalps must spend many hours in front of the computer, and thereby remain fully concentrated. Those who are not in control of, and consciously compensate for their body and mind, lives very unhealthy and under a lot of stress.
- Scalping is hard work. Like the Masons, to be paid for work per meter, is rewarded for his scalps of quantitative work. The more scalping, the more he wins. Is that the independence you dreamed of for so long? Do you want to spend 12 or 14 hours a day in front of the computer?
I recommend that traders who do not act professionally, or less than three years experience to adopt a slightly slower trading style. Try it once with swing trading a 4-hour chart or the daily chart. I have seen many traders make major improvements, as they have opted for slower trading styles, myself included.