Risk Management
As opposed to other forex trading strategies such as a trend following strategy where you can afford to lose more times than you win because you are trying to catch large moves, as scalping strategy has a well-defined risk-reward profile.
Most successful scalpers use a 1-1 risk-reward profile which means that they are willing to lose $1 for every $1 they gain. The concept of scalping focuses on a short time frame where the move comes within the day you initiate the trade, and you would definitely avoid holding the position for an extended period. Novice traders who change the profile on the fly are bound to lose money.
The Costs of Scalping
A scalping strategy requires multiple trades that are executed quickly with little time to contemplate the opportunity. When your strategy alerts you to a signal you need to move fast and execute quickly. Scalpers might purchase a currency pair such as the EUR/USD at 1.1805 and immediately sell at 1.1825.
The costs to enter and exit the market need to be minimal as higher costs can eat into your gains. For example, a trade that generates a profit of 20 pips would need to cover commissions and potentially other costs such as financing for leverage. Finding a forex broker that provides tight spreads around the clock is pertinent to a successful scalping strategy.
Conclusion
By combining a prudent technical strategy with a robust risk-reward management technique and a forex broker that provides tight bid-offer spreads and an excellent platform, you are on your way to executing a successful scalping strategy.
