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Understanding Scalping and Pipsing in Forex
Written by: PaxForex analytics dept - Tuesday, 19 December 2017 0 comments
Scalping relates to one of the strategies used in the intraday speculative trading of stocks, currency, and commodities. Essentially it involves the closing of a transaction when there a small profit is derived from a few points (pips). The necessary conditions for implementation of this strategy pertain to high liquidity traded instruments with reasonable volatility, small spread, low fees and the ability to continuously monitor the current quote. Given these criteria and features concerning the formation of fees and additional costs, scalping is most common in the terminal markets (derivatives markets).
Scalping is one of the most popular and commonly used strategies in the forex market. Scalping means that a trader makes a large number of deals, with a significant volume (number of lots) of those deals. The main assistant in scalping is technical analysis, because the deals are opened frequently and usually last no more than 3-5 minutes, while the value of the fundamental factors tends to zero, except for the publication of important news.
There is a common misconception among novices in the forex market that pipsing and scalping are the same sort of thing that implies short-term trades kept opened only for a few minutes. Pipsers and scalpers do indeed operate on a very short time frame and share the same strategic principle. However, their targets differ. Pipsing is much smaller in size and scope than
scalping. Sometimes, pipsing may be aimed at earning just one pip, though normally pipsers try to get 3 to 5 pips on every transaction. On the upside, the pipsing strategy is quite reliable and easy-to-use; you do not have to watch charts for hours and days.
It is a well-known fact that forex is the most liquid market in the world. Prices on forex mix, fall and rise again, following the cycle. If a price passes approximately 60 points within a day, the gap between its high and low is rather substantial. Trading based on hourly price fluctuations (highs and lows) ensures even more profit. That is why pipsing and scalping are so popular with traders. The novices on forex may think that through such trading incredible profit is possible to make, the sum fancied may even go beyond any real limits, taking into account an opportunity to reinvest.
Many forex scalpers like to use forex box or algorithms to let them know when a profitable scalping situation is available. Many of these robots are even able to make the transactions automatically. This is advantageous since the robot can buy and sell much quicker than a human ever will. If you do decide to use a scalping bot, make sure to test that it works the way you like. Register a test account and give it a whirl there before moving to the live market.