The only way to make small account big in a short period of time is through the use of really high leverage. But wait... do not jump of the cliff right away. Start with reasonable leverage for scalping, for example 20:1 or at most 50:1, then move on as you see scalping skills improve. But even before that do not be lazy to demo trade your scalping system – make sure it will not disappoint you later...


The only way to trade with high leverage without risking blowing up an entire account in only 10-15 trades is by trading with a tight stop loss. Trading without stop loss will “kill” your investment in no time.


It is wise to decide on the size of the trading lot and exposed risk in advance.

Do a simple math: calculate the worst possible situation, e.g. 10 consecutive losses in a row; then see if your account will survive and if there be something left to move on. And, although 10 losses in a row is a very unlikely scenario, you cannot deny it...


Although Forex is active 24/7, not every hour is suitable for scalping.

No scalper wants to sit in front of the monitor for numerous hours bored and disappointed with the “sleeping” price as it literally moves nowhere.
Scalpers hunt for volatile, liquid market. There are 4 major market sessions: London, New York, Sydney and Tokyo session. To trade effectively scalper needs to learn behavior of a chosen currency pair and define most active sessions, even particular hours for this pair to be able to catch good price moves.


Another thing to keep in mind is spread which brokers charge for different currencies.

The higher the spread the harder it will be to collect desired pips(because once trading position is opened, trader must cover spread cost – earn pips for broker first – and only then collect own pips).
And, of course, the lower the spread the easier/faster it is to accumulate pips.


Another factor to consider is an average daily range of the price for chosen currency.

The wider it is the more realistic is an opportunity to profit from price moves.
One of the scalpers’ favorite currency pair is EUR/USD with its low spread and good daily price range.


While using high leverage combined with high frequency trading, scalpers should be very cautious about the cost of actual trading, as each pip here makes a dramatic difference after a large number of trades.
This means being very careful with entries and exits, stops and limit orders, and also be very realistic about profit targets.


Once in the trade, scalpers should manage trading risks by:

1) moving stops to break-even as soon as situation permits;
2) taking profits at a logical levels: at round market price numbers: 00, 10, 20, 50 etc., at previous support/resistance levels, at Fibonacci levels etc.
3) getting out of the trade if the price freezes for longer time than expected.


Scalp-trading is very demanding and requires a lot of concentration, constant monitoring of the price and very quick decision making. Also, short time frames used in scalping strategies, require a good grasp of trading complemented with sound technical analysis skills. It is not a place where beginners feel very comfortable as it demands from traders a good chunk of experience.

Scalping involves substantial risks

A lot of beginners have common problem when trading highly leveraged accounts – they tend to maximize profits by trading with full capital at once. Do not do that! Maximizing chances for higher profits goes hand in hand with maximizing risks! The size of positions opened must be calculated very accurately so that your entire account will not be wiped out with just one(!) very unfortunate trade.


Another factor that increases risks for scalpers is the spread traders pay when open a trade.
Each time a new trade is open, the spread cost is paid to the broker, thus opening 10 small trades instead of 1 long term trade increases the cost of trading in 10 times.
If to measure risk/reward ratio of such scalping activity it may show very risky and potentially losing trading.


Example:

With GBP/USD currency pair a scalper sets profit target of 10 pips and stop loss of 10 pips. So far it is 1:1 risk/reward ratio.
In the next step, when the spread is added, the picture changes. For example, the spread his broker charges for GBP/USD is 4 pips.
When scalper opens a position he is -4 pips (the spread has been charged). Now in order for him to reach the target of 10 pips profit, the price has to move +4 and +10 pips = 14 pips.
On the other hand, in order to trigger his stop loss the price should move... -4 is already in place... so, only -6 pips and he will be stopped at total of -10 pips... the risk-reward ratio has changed in over 2:1, not very promising situation indeed...


To understand the full challenge of scalping as a trading style, consider this: hard work and small gains accumulated over a decent period of time could easily be wiped out with one large loss. Finding a balance between profit levels and size of acceptable losses presents the most difficult challenge to scalper’s strategy.

Source:forex-strategies-revealed.com

The forex has many nuances like heavy leverage and unique margin. A lack of understanding of these factors has lead many new forex traders to empty their trading accounts. Building solid rules and managing consistent trading methods are key in this market. Learn what you need to know to profit in this chapter.

There are two ways to look at asset allocation (the way you divide your investments) and diversification as a forex trader: you can invest in multiple markets and you can diversify your forex positions and pairs.

Investing in Multiple Markets

The first way to diversify is to make sure you are not exclusively invested in a single asset class. For example, being solely invested in the forex, stocks or bonds leaves you exposed to systemic risk. Systemic risk is the type of risk that you can’t get rid of. Systemic risk covers anything from your account being frozen through insolvency to catastrophic volatility in a particular market because of an unexpected unknown.

Diversify Your Forex Positions and Pairs

The second way to take advantage of diversification is by creating variety in the way that you trade or invest within an asset class. For example, if you are managing your forex positions one trade at a time, or with only a single strategy, you are exposing yourself to focused risks without any way to offset them. This creates volatility within your account, and account volatility can mess with your trading mentality and lead to losses.

Start Mixing it Up

Here are a few simple ways to start building a diversification strategy. You will find some example allocation ideas in this lesson and a little more detail in the video demonstration.

Asset Class Diversification

Investors usually try to spread their risk into other asset classes. The benefit is that when one market is not performing well, another market may be doing much better and the combined return is much smoother. For example, owning or trading bonds while some of your money is in the forex and/or equities can smooth your overall returns.

When we talk about asset-class diversification, there is a misconception that it would not be helpful for investors that are actively trading the market using a short-term time frame. This is incorrect. In fact, asset class diversification, regardless of your trading timeframe, has the following benefits:

- It spreads risk across a larger pool of investments

- It creates an awareness of the whole financial market

As a forex trader, you know that changes in equity or commodity prices may impact your forex trades and could create trading opportunities. Being active in those other markets can help create an innate awareness of what market forces are at play in the forex market.

Here is a sample asset-allocation strategy. The percentages can obviously be changed to suit your own investment preferences, but hopefully this will give you a starting place for some ideas.

25 Percent Equities: Could be the SPY (SPDR S&P 500 ETF) or an equity-market futures contract

20 Percent Cash and Equivalents: Cash is king, and in a pinch, 90-day treasuries can be even better

25 Percent Forex Strategies: Long-term and short-term trading/investing strategies

30 Percent Fixed Income / Bonds: Exchange-traded funds (ETFs) or managed funds can be a great alternative and can be leveraged.

Here’s a chart of a heavily forex-weighted asset-class diversified portfolio:

Asset Class Diversification

In the video demonstration, we cover a few specific ideas, but you can explore on your own to see why even professional managers will allocate their risk across markets.

Forex Strategy Diversification

While investing in one trade at a time is where a lot of new forex traders will start, doing so may inadvertently expose you to a very concentrated level of systemic risk.

We look at strategy diversification as a mix of long-term and short-term opportunities. Some strategies that could be used are long-term and diversified within themselves already.

Here’s a very simple sample forex portfolio breakdown:

Forex Asset Diversification

Tips for Avoiding Systemic Risk

1. Consider using consistent position sizing when planning your trade

2. Using the same currency in too many pairs may increase your risk exposure

3. Neutralize the USD, EUR and JPY by mixing the crosses into your trading

4. Learn to hedge your positions with options or manage your risk with adequate stops

Source:www.learningmarkets.com