Understanding how Forex Scalping Works

While there are many different forex scalping strategies that are available, one of the most popular and easy ways to scalp forex is trading during significant economic news releases. The fact that the currencies tend to fluctuate quite a bit during such economic releases, makes it one of the easiest ways to scalp the forex markets even for complete beginners to forex.

One of the important aspects of scalping forex during economic news releases is that it involves the use of technical market analysis as well as identifying how the particular markets tend to move as a result of the news, be it positive or negative. The volatility in the pricing arises out of the fact that the news which is being released very rarely comes out to meet the market expectations. This is due to the many variables that come into play which is quite hard for the average economist, let alone a forex analyst to take into account.

The discrepancy thus gives rise for traders to take advantage of the situation and thus set up a robust scalping strategy.

Often, during economic news releases, the prices that fluctuate is largely on account of trader sentiment and the initial reaction. If you observe closely, there are three stages during economic news releases. The first being the instant reaction where the prices tend to fluctuate quite a bit. This is usually triggered by too much buying or selling immediately upon the news that is being released. The second stage is when the markets tend to correct itself and close the discrepancy. Most often, traders with an eye for trading opportunities tend to take advantage in the first step as it usually results in a breakout of the trends and thus placing a proper buy or sell order alongside a stop loss can be quite beneficial.

The third stage is usually when investors digest the information and take into account the news from a larger perspective. In most cases, it is during this stage that the right trends come into play. For example, upon releasing a certain economic news, it could trigger a panic selling, which is later corrected by the markets itself and eventually when the dust settles, traders make the right choice, which is either to buy or sell or hold on to the currency.

The ideal way to scalp the forex markets during news releases is to take up your positions 10 or 15 minutes ahead of the news releases with the right stop losses in place so as to minimize your trading losses in the event the market goes against you. Following a 15 minute chart is ideal in such cases as it enables you to properly monitor the trends in the pricing and place your trades accordingly.

There are many automated systems that tend to scalp the forex markets on your behalf. Such tools, indicators or even EA's does the same job of analyzing the markets and identifying potential trading opportunities. Bear in mind that not all forex brokers allow you to scalp the markets. In fact some brokers do not encourage trading during news releases. For a list of brokers that allow forex scalping, click here.

Scalping itself does not yield instant returns but once you find a discipline and a pattern it can become almost second nature to scalp the forex markets for a few minutes in order to gain a few pips in profits.