One of the concepts most popular of the last years in the world of trading is scalping.
Thousands and thousands of traders around the World expect to find the secret to riches by this trading style.
With the advent of forex retail trading, scalping has become available to the public.
As nearly everybody who enters the forex arena is looking for big profits in a short time, the chance that a lot of traders will end up trying scalping is very high.
What is scalping?
I am going to talk about the forex retail industry scalping. Not the real one, which is done by dealers, brokers, market makers, prop firms and specialists.
When people try to scalp the market in forex, they are looking for short moves that sometimes last a few minutes. Scalpers try to catch those “predictable” little moves many times per day.
A lot of “wanna” be traders think that it is the key to achieve great daily and monthly returns in forex.
This method is also tried in futures, shares and CFDs with similar success: good results for the market makers and awful performance for the average trader.
Scalping forex for a living
Scalping is what most forex signal providers and forex robots use. You just need to go and check some of the most famous systems available everywhere.
You will find out that those systems have an average win of just a few pips (5, 10, 20), and, quite often, huge losses.
I have always been skeptical of these things.
Why would anyone having a great day trading system want to sell it?
Why do not use it himself?
Scalping futures for a living
There was a time when I tried some scalping systems trading futures and currencies. It did not matter if it was the SP500, or oil, or gold, or Natural Gas, or Russell, or €$ futures, or forex currencies.
At the end of the day I would end up losing every time I tried.
No matter the system I had studied “told” me that with proper leverage I could win 50% some months and a great yearly return.
After hundreds and thousands of operations, I realized that a great deal of my loss was due to commissions and slippage.
What I mean is that the majority of scalping systems that are promoted on the Internet, are no more than empty promises. At best, this sort of systems will work for a certain period, sometimes years, but eventually they will end up in disaster.
Forex scalping indicators
Besides, you should never really trust what a demo system says. The real market conditions are not the same as the demo ones.
If there is a system that has been having good results over five or ten years of real market data, why would you want to sell it?
The vast majority of scalping systems that are sold are useless. Well, worse than useless since many guys will go bust using them.
Is scalping wrong?
There are people who say that some of the best performing signal providers around the red are associated with the brokers, which use that to cover fake trading.
The brokers show an outstanding performance. Then, those systems are promoted throughout the Internet.
When people see systems that are returning 1.000% per year doing scalping they buy the systems or the signals. Some time after that, the system, mysteriously, stops working and everybody has big losses.
The vendor says he does not understand what has happened and goodbye. And, then repeat it over again with new victims.
Anyhow, this process is done all the time without the need of brokerages cooperation.
The number of systems is so big that there will always be some of them outperforming the markets. But none of them will work out in the long run.
You should beware of “easy money” schemes.
Those systems that promise 10 or 50% monthly use scalping methods and buying and selling several times per day.
Real scalper Forex system
But the real scalpers are not the ones by this side of the trade, but the ones at the other side. In other words, those who provide liquidity: the market makers. Those are the genuine scalpers that “trade” using the order flow by buying cheap and selling expensive.
Brokers are, consequently, very happy when they see people trying to do scalping.
Prop firms that work on volume are very happy as well to “hire” traders to do a lot of scalping.
Binary options are a sort of scalping venue for people wanting to become the new Jesse Livermore.
Scalper vs broker
I do not want to say that there are not traders who can do a successful scalping strategy for the long run. But if there are some, they will not sell you their system in any way. However, I tend to think that they not really exist: that the “scalpers” are the ones at the other side of the bid/ask spread.
Vendors love scalping because the public likes the stories of easy money. And, easy money is “brought” by scalping. Brought to the vendors and brokers, of course.
Thanks for reading and sharing.