Let us start with the definition of scalping and pipsing. These trading strategies are employed by forex traders for taking profit from intraday price oscillations occurring on the currency market. As a rule, deals remain opened during only several minutes. One position will not bring much profit but these strategies require a huge number of deals.
A scalper or a pipser can execute about two hundred deals per day. However, no all deals are profitable. The result for a trader is positive summary of deals by the end of a trading day. The stop-loss level set as close to the opening price as possible enables a trader to achieve the positive result. Stop-loss is necessary for minimizing the risks in case a price moves in the opposite direction.
It is well-known that Forex is the market with the highest liquidity. During the day a price is moving up or down in a certain period of time according to the cycle. If the price passes about 60 pips during the day the difference between high and low points will be much more. Chances of getting profit increase if to trade on the hourly price oscillations. It is the main reason why so many traders decided to employ such trading strategies as scalping or pipsing.
Newbies may think that scalping or pipsing allows earning huge amount of money and the opportunity of reinvesting may turn it to the enormous sums. However, it is not that simple. There are several disadvantages of such trading methods. They are:
• Setting the stop-loss level close to the opening price increases the risk of losses even during the insignificant price oscillations. Even if you succeeded to predict further direction of the price movement the possibility of losses are still very high if you incorrectly evaluate the back bullish or bearish force on the market. It is much easier to make a mistake determining the price movement direction for a short period of time (one-two hours) than for the whole day.
• The decision can be the absence of order but in this case a trader has a risk to lose even more money after the unfavorable price movement when it goes so far that the pullback is impossible in the nearest future.
• Emotional excitement and nervousness possessed by most traders who work with real money. As a rule all traders start on demo account because it allows testing the strategy with the virtual money. Consequently, trading on real account causes anxiety which is strengthening with every pip in case the market moves in the unfavorable direction.
In general, scalping and pipsing are for experienced traders. Short-term trading as scalping or pipsing implies interruptive work in front of the screen which increases the risk of stress and leads to the inconsiderate acts.
There is also one more evident disadvantage for traders – brokers do not like those who accomplish the great number of deals daily. Traders who open deals almost every second are asked to close their accounts or imposed the limits.