Forex scalpers have a tough road to profits.
Many forex traders love the idea of quick profits. Scalping seems like a wonderful idea. Who wants to make some money in a few minutes? Well, unfortunately, scalping is a bit difficult for many traders. There are three reasons why scalping is often a bad idea for traders.
- Scalping is expensive: Traders pay more in transaction costs when scalping. A successful trade on the EUR/JPY daily chart may net 150 pips. If the spread on the EUR/JPY is 3 pips, the transaction cost for this daily trade is 2% of the profits. A successful scalp on the EUR/JPY 5 minute chart may net 15 pips. Since the spread is 3 pips, the transaction cost for this trade is 20%, a big difference. Simply put, scalping costs forex traders more. Scalpers pay a huge fee on each trade, and over the long run scalpers must be better traders than those traders who trade the longer term charts.
- Scalping encourages over trading: A scalper can take a trade over the course of a few minutes. A scalper can take many trades over the course of an hour. If a few trades do not work out well, a scalper might be tempted to take revenge trades. Revenge trades are emotional trades meant to recapture lost profits and these trades do not fit within the rules of the trading system. Revenge trades can lead to even more losses for many traders.
- Scalping is psychologically difficult: Scalpers often have a difficult time watching their account balance bounce up and down. Hundreds, even thousands of dollars can be made and lost over a few seconds. Many scalpers end up taking profits too quickly, and then have a difficult time watching the market move hundreds of pips without them.
So, the next time you consider scalping, remember that you will have to pay more money to scalp, you must be extremely disciplined to stick to your trading system, and you will have to be psychologically strong to withstand the difficulties of scalping.
