Foreign Exchange Scalping: 3 Large Errors To Watch Out For

Posted on December 20, 2009
Filed Under Day Online Trading, Forex | Leave a Comment

Forex scalping can be a rewarding business but it’s also very risky. A large amount of folk are drawn into forex scalping methods by hearing about people who make plenty of money that way, but noobs often get their fingers badly burned.

The reason? There are numerous traps in this type of foreign exchange trading system and most of the people fall into one or another of them very fast. So here are five common mistakes as pointed out by Correlation Code, that you should avoid if you want to earn income with scalper systems.

1. Leverage too high

The high amount of leverage available to forex traders is one of the reasons why you can make so much money from a tiny investment balance, but at the same time, it is vital to avoid over leveraging. Forget getting the most important possible position on each trade for a second, and concentrate instead on risk management. Be sure that whatever stop loss you are using does not involve you in an unsatisfactory risk per trade, and adjust your position size accordingly .

Here’s a good way to work out your risk per trade. Rate how badly you would feel if you lost your whole fund balance according to this scale: one = devastated; two = extremely bad; 3 = bad; four = not so bad; five = cool, it’s all part of the game. Then check the end of the article for the outcome of the quiz.

2. Absence of patience

Patience is one of the most important qualities that any currency exchange trader wishes to develop and it is especially so of scalpers who sit watching the market, often for hours at a time. It is easy to suspect that you see the conditions coming right and then to leap in thinking you’ll 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 fashion almost always leads to losses in the long run.

Patience is also needed in another situation : when you missed and opportunity for a trade. Might be that you went to snatch a coffee and when you get back, your perfect trading situation has been and gone. The enticement is to jump in and chase after the price, but it can easily rebound on you. Better to wait patiently for the next real trading opportunity.

3. Trying for more

Many folks believe that currency exchange scalping strategies will bring them big profits really fast. This isn’t true. Most scalping systems don’t make many pips on each trade. Many amateurs are unsatisfied by this and quickly start trying for more.

It is tempting to let a trade run when you should be closing out, hoping to get bigger profits than your system allows for, but doing this could potentially just leave you losing the small profit that you virtually gained. The aim should be to make relatively steady profits, accepting some losses but avoid the mistakes that lead to big losses. That way you’ve got a chance of ending up with a profit on the bottom line. 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 percent of your total funds per trade in currency exchange scalping.