If you have been trading forex for some time now, you must have come across these two terms – Scalping and Day Trading. But what do they stand for?
Scalping and Day Trading are both intraday forex trading strategies which have found so much application in forex trading from so long ago until now.
You must be curious to know the in-depth meaning of the two terms and maybe to understand if you have been using any of the two forex trading strategies unknowingly.
Better still, both cannot be equally good for you, and so you may be interested in knowing which of the two is better, right?
How about we do a Scalping Overview, Day Trading Overview, and then we give a Verdict? That would not only give you insights into the two forex trading strategies but also point you to the better of the two.
Scalping is a Forex Trading Strategy that involves executing trades fast, which in other words would be to say entering and exiting a trade within seconds or minutes.
The aim of scalping is to profit from the small price moves which occur over short periods.
In several seconds to several minutes, a scalper will enter and exit a trade – scalpers place so many such trades in a day because so many small price moves occur during a given day.
Scalping also involves the use of the lower time frames for analysis – that is one to two-minute candlesticks.
These low time frames are best in predicting impending small price moves.
Scalpers, to profit maximally from small price moves, must make use of large leverages.
The higher the leverage applied, the more the yields will be realized as the price moves in the favor of your trade.
This is also to compensate for the spread which may be so large at times.
So to beat the spread and still emerge profitable, you must use high leverages which ensure high yields are attained in small price moves.
Note that scalping, as we said, involves executing so many trades in a day.
Each trade executed will carry the cross of paying for the spread alone, and so as we mentioned, high leverages are inevitable to beat the spread and still profit from the seemingly small price moves.
In summary, scalping is a high speed and fast-paced kind of trading.
What that means is that a scalper will need to be highly vigilant in timing as well as being so precise on entry and exit of all their trades.
Scalping is one of the best forex trading strategies for experienced traders and those that want to see results very fast.
Day Trading Overview.
Day Trading on the other hand is a Forex Trading Strategy that involves entering and exiting trades after several hours, and all trades must be closed before the end of the day.
No Day Trading trades run overnight and that means that any pending trades must all be closed before the day ends.
What that means is, you can decide to place one, two, three, or several trades, which are not so many of course, as long as they run for one to several hours and are closed before the end of the day.
Day Traders, as it is evident, open, and close fewer trades than scalpers.
They also take all their time to make trading decisions as opposed to scalpers who make and execute very quick decisions.
Day Trading aims to profit from the major price moves and the best opportunities the day offers.
Day Traders neglect small price moves as they focus on the major moves of that particular day to profit maximally from them.
Day Trading involves the use of higher time frames for analysis – Ten minutes to an hour candlestick.
These higher time frames predict major price moves of the day better than their lower counterparts.
Day Traders do not need to have a huge appetite for leverage.
Given the fact that they place only a few trades in a day, not much of their capital goes to settling the spreads for each trade.
Therefore, Day Traders utilize lower leverage ratios compared to scalpers, because they capitalize on major market moves of the day, which are most likely not only to cover the spreads but also earn them huge profits.
Given that you will hold trades for a significant amount of time, then giving them attention now and then may be a challenge.
For that reason, Day Traders use of Stop Loss and Take Profit orders, as well as pending orders for execution and exit of trades.
To this end, you must realize that day trading has a slow-paced approach and enough time to make trading decisions.
That said, this trading technique may be suitable for newbies and traders who like taking it slow. You can see it is not that involving because decisions are made after careful considerations and analysis.
Day Traders use Momentum Indicators such as Moving Average Convergence and Divergence (MACD) and Relative Strength Index (RSI).
Also, Price Action, Candlestick Patterns, and Support and Resistance levels are highly applicable in making trading decisions for a Day Trader.
Day Trading is one of the best beginner forex trading strategies because a trader has enough time for analysis.
Between day trading and scalping, which trading method is best?
From the above overviews, you can see how each of the two differs from the other.
There are those traders who like quick results and therefore have to place short-term trades – Scalpers.
However, the price they will have to pay is to risk using so high leverage ratios that put their capital at risk in case the trade backfires, or will require them to have huge amounts of capital, which may be difficult to acquire.
Scalpers will also need to be so experienced to predict correctly in seconds and minutes.
Newbies and traders who don’t like rushing it all will opt for Day Trading.
As mentioned earlier, in day trading, you have all the time to analyze and make trading decisions.
You also do not risk much of your capital on leverage because low leverage ratios are used.
Day traders don’t also need much experience in forex trading, but just enough knowledge to analyze charts well.
All said, Day Trading is the best forex trading strategy for newbies and experienced traders all alike.
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