Why I Used to Scalp, What it Taught Me, and Why I Don’t Anymore.

I think a majority of traders, specifically Foreign Exchange traders, start off with some sort of strategy that looks like scalping.

For those that don’t know, see the definition below from Investopedia.com –

A trading strategy that attempts to make many profits on small price changes. Traders who implement this strategy will place anywhere from 10 to a couple hundred trades in a single day in the belief that small moves in stock price are easier to catch than large ones.

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Several reasons for this are because 1. it’s fun, 2. you get the most action, 3. it satisfies your initial desire to be in front of a chart 24/7, and 4. you think it will make you $$.

How this differs from actually trading 1. I hate scalping, it’s miserable, 2. too much action is usually not a good sign or trading strategy, 3. I don’t want to be in front of a chart more than 15 mins/every 2 or 3 hours, and 4. the realization that you can make money 1000 different ways in the markets.

I will say that scalping gave me the desire to learn how to trade.  It also let me make 1000 mistakes and not damage my account too much, so long as I kept my trades size small (which I didn’t always and it resulted in me blowing up a few or 5 accounts.) But even looking back, I wouldn’t trade (no pun intended) blowing up those accounts. I learned so much, perhaps more, from loosing money, I actually recommend it to new traders. If I have someone who asks me to show them how I trade, I have a few questions I ask and then a challenge.

Question 1. “Are you trading live or demo?” (I think trading demo is a waste of time unless you are still learning what a pip is.)
Question 2. “How much have you lost/gained?” (This is to give me a gauge of their pain/pleasure tolerance)
Question 3. “How  long have you been trading?” (This question is last because I don’t think that time is too relevant, but shows dedication)

Challenge. “Take $500, using no more than .050 lots ($0.50/pip)/trade, and trade to lose every penny of it.  Really TRY to lose $500.  I will show you how I trade once you lose all of it intentionally, and if you can’t lose it intentionally, then you don’t need me.”

“WHAT?”, you may say.  The reason/answer to that question is another blog post.  Enjoy for now! Happy Trading.

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