n this article you will find 6 essential hints scalpers use in order to end up with profitable trading sessions. As it is the second episode of our trading strategy guide, we invite you to read the first article on forex scalping.
In the previous article we defined forex scalping as being a small steps strategy, in which short opened transactions are meant to bring profit. However, it is important to know that a good scalper will not manage to be profitable only by using his/her intuition and that luck is not enough for maintaining long term positive results.
Furthermore we are going to give you some hints in order not to restrict your trading strategy, but to improve it by giving evidence of some main untold secrets.
Tip #1: Analysis, Forecast and Money management are the key
In order to have a positive outcome and to constantly maintain the incomes, scalpers use strategies and analyses that attract the probability on their side. For this purpose technical and fundamental analysis techniques are used, together with money management. Of course personal intuition and scalper’s flair is important but always guided by strong analysis and long term strategies.
Tip #2: Learn about the instrument you are trading
It is mandatory for the scalper to be acquainted with the characteristics of the instrument that is traded. Knowing its volatility, its movement force, the conditions that facilitate the moves and the factors that contribute to the movements of the traded instrument are some basic notions that a good investor must know.
Tip #3: Hunt sharp price movements
It is recommended to base your trading sessions on sharp movements and not on slow movements that happen in the markets. This is not only the case of the currency market, but also of the commodities and equities markets and is directly related to volatility. The challenge is to be aware of the trade opportunities created by the shortages of liquidity that lead to imbalances in the market.
Tip #4: Use Leverage
Leverage is a mechanism through which a brokerage house offers to the investor the opportunity to use a bigger amount of money than the initial investment. It depends on the broker you work with, but normally it is of 50:1, 100:1, 200:1 or even 800:1 and more, but these values are not quite recommendable. In relations with our strategy, this mechanism of leverage has been proven as being useful in order to overcome small profits obtained with little amount of money and repeated short transactions. The level of leverage remains a tender spot of the discussion, because the risks increase proportionally with the leverage amount.
Tip #5: Use fundamental analysis
It is often said that fundamental analysis is not useful for scalpers. We can only partially agree with this affirmation and we are to explain why. Indeed, fundamental analysis at a global level offers a general image on what can happen to an economy and with the evolution of a financial instrument over a longer period of time. However, it is proven to be useful for the scalper in the sense that it can be used also on isolated events such as the release of some macro-economical indicators, that lead to sudden moves, often fairly powerful of the market. Therefore, together with technical analysis, fundamental analysis can offer to the scalper a strategy with high probability of success.
Tip #6: Correctly choose the strategy that suits you
Even though is considered a trading strategy good for the beginners and novices, we want you to know that it is a complex method of trading. It is very important to know that there are some auxiliary tools and automated systems that ca contribute to successful transactions. Only by having a complete image on all the possibilities offered by a trading strategy you are going to be able to choose the one that fits you. Of course, experimented investors can also choose to trade only manually, without using other tools.