| Closely Examining Risk Management in Forex Scalping |
 Aside from the act of literally removing one's scalp, we may think of ticket scalpers, or getting scalped at the car dealership when he hear the word “scalping.” The term “scalping” clearly has a negative connotation, but it is a connotation that is misapplied to traders in the Forex market. The successful scalper has a deep understanding of price action in the Forex market, and he/she sees the market for what it is. The very act of Forex scalping requires the scalping trader to do so. Objectivity and risk management are necessary traits of any trader or investor. The scalper has a built-in advantage in this respect due to the demand for precision in a high frequency trading system. Forex scalping also serves as a natural hedge by limiting exposure to market fluctuations.Forex scalping requires the trader identify quantifiable entry, sell and stop loss levels. The term “buy low sell high” is immeasurable and reeks of lack of planning. However, the scalper will interpret a chart on multiple time frames, and identify precise entry and exit levels. “Low” and “high” are given numerical values, and an objective trading plan is formed from there. Successful Forex scalping systems have a clear value of where to take profit, and when to exit the trade should price move in the opposite direction. This frequent opening of closing of trades reduces trader risk from the unexpected. The likelihood of being caught in a market “head fake” (a situation where price appears to break out in one direction, but only to reverse and head in the other) is reduced by diligently taking profit often. The Forex market has a deserved reputation of ruthless volatility, but short term Forex scalping defends the trader of those seemingly unpredictable phases. Major news events are often the culprit of these swings. With some pre-planning, the scalper can avoid such turbulence. Forex scalping minimizes risk and forces the trader to plan a trade and trade the plan. So why the negative connotation? Complacent institutional investors liken frequent trading to gambling. In reality, there is no comparison to the frequent pulling of a slot machine arm and to frequent trading. The Forex scalper is not at the whim of dice rolls or the cards in their hand. The Forex scalper understands risk, manages that risk, and is at no time at the whim of the market. |
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