Scalping is a trading approach used by Forex traders to take small fast profits from the currency markets. Several short time frame trades are made which are kept open for a short period of time. Often trades only last a matter of minutes and will usually have small profit targets. The central idea is that short time frame exposure to the markets reduces trading risk. Also these smaller profits can be compounded into much larger returns over longer periods.
The short trading timeframe of scalping trades tends to mean that the profits earned from each trade are small. Often a single trade will deliver only a few pips of profit. Traders who follow this approach believe that the limited market exposure on each of these trades reduces their market risk. Instead of targeting bigger returns which would lengthen their time in the markets, multiple positions are opened across the course of the trading day. This high number of trades is then compounded to generate a much larger return.
In order to build substantial profits with this approach you will need to be prepared to devote a lot of time to your Forex trading. Often this strategy will involve the opening and closing of several trades a day. This time requirement is however not the only barrier to this way of trading. Mental alertness if also required as trading sessions will last for extended periods of time. Most strategies will look to low timeframe charts where the action is fast moving.
The requirements for successfully implementing a scalping strategy make this approach particularly suited to the use of automatic trading. Automated systems can simultaneously monitor multiple markets and their speed allows them to make instant decisions in the markets. Consequently a large market in automated scalping systems has grown.
There are of course other benefits to making use of automated Forex trading systems to trade these strategies. While consistency of trade timing is important, so is trade management. Both profit taking and stop loss levels need to be managed which can prove difficult if a large number of positions are open. Of course for an automated system, Forex trading in this way is easy.
This mechanical approach to the markets makes Forex robots far better able to handle scalping strategies then most human traders. And of course importantly they can be left to generate profits on your trading account twenty four hours a day.