Scalping the forex can be very lucrative, if done right. However scalping can also be very risky and costly if not done right. Avoid the trading mistakes discussed below to increase your scalping profits and limit your losses.
Trading Mistake #1 – Limiting yourself to lower time frames only
Even though your approach is to trade short term, to scalp, you don’t want to ignore what the higher timer frames are telling you.
While you don’t have to look at monthly or weekly charts for direction (you may want to), at least pay attention to the next higher time frame so you can avoid this deadly trading mistake. For example, if you are trading the 5 minute chart, look at the 15minute and also the 1hr chart.
The higher time frame charts will alarm you to key price levels and reveal price patterns you cannot identify on the lower time frames alone.
Regardless if you scalp with the trend or counter trend, the higher time frame charts will give you important information, vital to making sound trading decisions. Too many traders get stuck on low time frames without ever referencing the higher time frames, which amounts to a major trading mistake. Don’t get caught in this trap!
Solution – Make it a habit to include higher time frame charts in your analysis.
Trading Mistake #2 – Ignoring the news
Often traders think they don’t need to pay attention to news while they’re trading because they’re scalping. This couldn’t be further from the truth and is another deadly trading mistake!
Regardless if you scalp the forex or use a different strategy, you always need to pay attention to news. You also must know what news is scheduled to be released during the time you trade; this is particularly true for trading the forex.
The forex market can be particularly volatile during major news releases and can move hundreds of pips. If you don’t know when and what news items are to be released, you’re asking for trouble.
While true for all types of trading, this may be twice as painful when trading the forex. Tighter stops commonly used in scalping will stop you out before you can blink your eye. So don’t fall for this trading mistake and pay attention to the world around you.
If you want to learn more about what drives the news, you might be interested in Chris Lori’s course “Understanding Global Events for Forex Trading” (it sure has helped me). But regardless, keep the following in mind:
Solution – Make it a habit to know scheduled news releases and pay attention to other markets, such as stocks, futures and bonds.
Trading Mistake #3 – Ignoring key support and resistance levels
Price seems to have a memory (or at least the people trading the markets do!). Over and over again, price comes back to previous levels of support and resistance. Therefore if you don’t know where those levels are or don’t pay attention to those levels you are making another big trading mistake.
This brings me back to mistake #1: not looking at higher time frames. When you look at higher time frames you will see levels of prior support and resistance. As a matter of fact, these price levels will jump out at you and it will become easy to incorporate them into your trading strategies.
Look for price to react at or around those levels. Look for price to stop, bounce or turn around. Don’t make the trading mistake and spend all of your time on the smaller time frames, you won’t see key levels and hence they can’t help you.
Solution – Make it a habit to look for prior levels of price support and price resistance.
Avoiding these 3 trading mistakes will help you stay on the right side of the market and make a profit scalping the forex.