Every coin has two sides to it. This is especially true for the FX market which economists describe as the only free market in the world. The free nature of the forex market means that the factors that influence it are beyond the control of any individual entity.
Resultantly, even though numerous trading styles have been proven to be highly effective in drawing out profits from the FX market, they still have flaws unique to them.
Therefore, the job of a trader is to not only perfect the system that he has chosen but also learn about his system’s weaknesses and counter them with intelligence. If your chosen system is scalping then the following list of FX factors which are holding your system back should be of great help to you.
Net Gains Are Tough to Ensure
You are most probably placing multiple trades in the FX market. According to the law of probabilities, you cannot have all trades winning and will have to deal with some losing trades as well.
The problem that you might be facing is that the single trade that you lose after winning five consecutive trades erodes all the profits that you gained from those five trades.
This is common amongst scalpers because their stop losses are looser than their profit targets. For instance, if you target 3 pips for every trade and win five in a row but lose the sixth trade with a stop loss of 20 pips then you end up losing 5 pips at the end of the whole process.
Poor Risk to Reward Ratios
You will find it very difficult to find good risk to reward ratios in scalping because the FX market in such short time periods is full of market noise that will convolute your analysis of forex rates. Keeping stop loss placements tight should be something, however, that you should not compromise on.
Physical and Emotional Limitations
Scalping is a very time intensive trading method. You probably sit through the whole day to meet your daily financial targets and open and close many positions in that period.
This can create a lot of physical and mental pressure on you. When this pressure accumulates then you would find yourself taking more risks and, hence, incurring losses. This is something that can be resolved with a stable routine that includes regular breaks to give your mind and body the time they need to recharge.
Requires A Lot Of Experience
Scalping is the most high speed trading method you can find in the FX market. Opportunities and trades would come at you thick and fast and you will have to make related decisions very quickly. In order to make the right decisions, you need to know the FX market well. For this, experience is of paramount importance.
High Costs Per Trade
Finally, because you are placing so many trades in the FX market, you are paying a lot of money to your broker for each trade. You should make sure that your profits always outstrip the spread so that you gain more from each trade.