Forex traders use a variety of different strategies and time frames to trade the markets, and one of the most popular tactics is to adopt a short-term forex trading strategy. However, with so much volatility every day, can you really make consistent profits this way?
Well I’ve traded the markets for many years and in my opinion, although you can make profits short-term trading, it’s a very difficult (and stressful) way of making a living.
So why is it so difficult?
Well it’s generally the case that financial markets, and currencies in particular, move in trends. However while this is true of medium and long-term charts, ie 30 minute up to weekly and monthly charts, when you get down to 1 and 5 minute charts, you’re basically just looking at noise.
Prices will whipsaw all over the place and it’s very difficult to trade with any confidence. While you will sometimes get breakouts that can result in a fair few pips profit, you will also get a lot of false breakouts and will be constantly stopped out of positions when your stop loss gets triggered.
Basically it’s a very difficult way of trading and a very difficult skill to master. Yet so many people new to forex trading are seduced into short-term trading excited by the fact that they can grab say 20-50 points in a matter of minutes.
However, you can also lose a lot of points very quickly and instantly be whipsawed out of a position, especially if you are trading through news announcements. The end result of this is that a lot of short-term traders eventually find out how difficult it is to consistently make money this way and will often give up forex trading altogether.
So should you forget about short-term trading or scalping altogether?
Well not necessarily. There are definitely people who make consistent profits this way, and there are times when you may have a larger longer term position and you see an intraday opportunity to get in and grab a few points.
For instance, you may be 100 points in profit thanks to a long-term long position, but confident of a continued move upwards, you think the price has gone too high in the short-term, and you decide to go short to catch a short-term retracement. This is one example of where short-term trading may be appropriate.
Another instance may be where you notice that a currency is strongly trending upwards on the 30 minute and 4 hour charts, yet is oversold on the 5 minute chart after a brief retracement. In these instances it can be very profitable to use the shorter term charts to look for opportunities to take a value position in the same direction as the longer term trend.
So you can use short-term charts to look for positions, but it’s always important that you look at the longer term picture before doing so. My own personal opinion is that just trading 1 and 5 minute charts without looking at say the 15 or 30 minute charts, at least, is suicidal.
So much of the price movements on a minute-by-minute basis is just noise, and will move all over the place, which is why it is so difficult.
To sum up, I would say that people should always look to take longer-term positions as they are a lot less stressful and are more prone to follow trends, therefore making them potentially a lot more profitable. Plus you can potentially grab movements of 1000+ pips rather than sitting at your computer all day looking for 5-20 point movements.