Broker to Trading

It is possible to define scalping not on the time taken to trade but partly on the potential for a move defined by its extent in pips. Pips are the units by which a Forex pair moves and which can have different values per unit depending on such factors as the trade size and the Forex pair. It might be suggested that to achieve 20-30 pips for a scalping trade is really to trade in a way which is not scalping. A Forex pair will only occasionally move 20-30 pips in a shorter term time frame. In general it will retrace and while retracting can continue moving in the opposite direction, turning a retracement into a reversal. So while there may be a 20-30 pips move, it may require a more complex approach to trading than scalping.

Scalping is essentially scalping a slice of a move, without it becoming a more drawn out trade. The issue with Forex trading is that slices tend to be shallow rather than deep. Overall the move may have greater height, but within a complex set of moves which may require a different strategy. Indeed the very core of Forex trading is staying with a move which looks like it is doing the opposite of what is expected. A reason for using automated trading is precisely to overcome this issue, as human traders may want to exit the trade, when it may work out in the end. Robots can and will incur drawdown, which captures the tendency of a market to move in complex ways against the traded position even if it works out in the end and the robot's tenacity in sticking with the move.

So for the human scalper, it may be more realistic to look for moves which are considerably smaller than 30 pips. 3-5 pips or so is not a bad figure to choose for a Forex scalping trade. On way to approach this kind of scalping method is to look for a Forex pair which has range in its moves, but is not too volatile. The trader can look for the current characteristics of Forex pairs by trading major pairs on a demo account, but characteristics can change. However even 3-5 pip trades will not necessarily be quick and can take longer than a minute or so.

So to further approach this kind of scalping, the trader can look for market conditions where the Forex pair may have an added tendency to move. The problem with this, is that volatility will wreak havoc with scalping as it can produce rapid irregular moves. So the trader can look for market structure, such as the way a Forex pair behaves around significant value levels. For example USD/JPY at its big figure. The reason to do this is that patterns emerge around big figures which tend to be repeated. These patterns are based around the tendency of a big figure to structure moves and retracements, with the pair cutting through and bouncing off similar value levels. In these the trader can look for scalping trades.

Because a move does not necessarily repeat itself and may have different outcomes (with opposite directions) then looking for 3-5 pips can potentially be a way to grasp an achievable distance from these kinds of moves, over a series of trades. Another approach to a 3-5 pip scalp is to look for patterns which tend to have drops down. These can include the end of a pattern, where there is a sharp drop which itself may not continue in that direction, but for a 3-5 pip trade might offer some potential. The downside of 3-5 pip trades is that the trader can also have one (or more) losses which wipe out any gathered pips. But this is an inherent instability in all trades, however amplified by trades aiming for trades with shorter ranges.