Categories: Steve Rising's Trading Success Series
Hi, this is Steve Rising with The Trading Institute. I'd like to take a couple minutes today and talk a little bit about why we use a scalping technique to trade the Forex market.
What we're looking at here today is the US dollar vs. the Japanese yen, one of the four major currency pairs, and if we look at the extent of the move from start of day here, roughly at midnight right here, to where we are currently here, moving into the afternoon, we can see that the entire move for the day here has been approximately 60 pips, keeping in mind that 10 pips of that move right here, with quick reversal was based on a news announcement.
Big Moves vs. Leverage
So often times what happens is individuals think that when they trade the Forex what they want to do is try to find the big move, but you know the old power of leverage, what's easier, to make a hundred dollars on one share of stock, or to make one dollar on a hundred shares of stock? Well obviously the latter is easier, and so we use a similar technique when trading the Forex, we look for a fixed profit objective, and we look to bundle lots. In other words we can see over the bulk of the day the average size move here were 20 pips and so for us what we look to do is w look to scalp about 10 pips or net 10 pips out of what's an average size 20 pip move, and then to make more money we simply add more lots.
The reality is more people are successful trading a scalping technique in the forex market than they are trying to find a big move or trying to hold onto a position for an extended period of time, and the reason for this is the directional bias of this market is constantly shifting. we can be bullish for 3 hours, and then bearish for the next 3 hours, and so the key to being successful in trading the Forex for the 90% is to adopt some form of scalping technique.
ThinSlice Trading - The Spirit Of Scalping
now by pure definition a scalper is someone who's going and looking for very small fractional moves throughout the day and trading very frequently. That's not what we do. In fact, most major Forex brokers will not allow that style of trading. What we do is we use the spirit of the term scalping where we go for a pre-conceived profit target prior to each trade. and there's a couple of reasons for this. one I already mentioned, was because we know that the bias is constantly shifting, and we know that based on the average size move it's far easier to go in and for instance take a section of the move, in other words, market stalled here at this point, go in and grab a piece of the move, and then expect market to stall again, or reverse, we're back on the sidelines, and then look for our next move in that fashion.
So we know that's a far easier way for people trade because of this constant shift in the direction bias, and the other is, it's psychologically much easier for most people because you're not holding positions for extended periods of time. You sleep better, you're less anxious, there's less nerves, and once again it's statistically shown, individuals who have a pre-planned profit target in this market do far better than those individuals who try to ride or look for the big move. Interestingly enough, it's been shown across all markets that the individual who has a predetermined profit objective prior to a trade will make 10 times more money over a 5 year period than the individual who tries to ride it out and see if they can take the extent of the move. Because one of my favorite sayings in trading is, we never know where the top or the bottom of the move is until after the move is over. we can forecast, but then what we want to do, is we want to just simply scalp a section of that forecasted move.
So to learn more about our scalping technique that we teach here at the Forex trading institute, please attend one of our free online seminars, which you can register for directly from our website. This is Steve Rising and have a fantastic day.
