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Pipsing and scalping: what to choose?

There is a common misconception among novices in the Forex market that pipsing and scalping are the same sort of thing that implies short-term trades kept opened only for a few minutes. Pipsers and scalpers do indeed operate on a very short time frame and share the same strategic principle. However, their targets differ. Pipsing is much smaller in size and scope than scalping. Sometimes, pipsing may be aimed at earning just one pip, though normally pipsers try to get 3 to 5 pips on every transaction. On the upside, the pipsing strategy is quite reliable and easy-to-use; you do not have to watch charts for hours and days. Still, its efficiency is questionable. It often happens that all the earned pips from operations are offset by spreads. Given that the average spread per trade amounts to 3 pips, traders have to go for the maximum efficiency level of pipsing, i.e. 4-5 pips, in order to guarantee the final profit of at least 1-2 pips.

But what does the maximum efficiency level mean? First of all, it implies extending time frames of transactions, with risks increasing every next minute.

As you see, pipsing is no longer the attractive, reliable, simple, fast and easy tool that it used to be – now that we have taken spreads into account. Broadly speaking, truly efficient pipsing is not as simple as the primitive “one-pip” strategy. However, there is a way out. It is much more efficient to use pipsing when trading futures and options without any spreads.

Scalping, on the other hand, is a much more suitable approach to traditional Forex trading than pipsing. In fact, scalpers also trade short positions but unlike pipsers, they use somewhat longer time frames, i.e. 1-5 minutes. The goal of scalping is not earning 1-5 pips (as in pipsing) but 5-10 pips that can easily offset any broker’s spread. To a beginner, scalping might appear as a Forex goldmine where all you do is scalp pips and get easy profit. But it is not that simple. Please note that scalping is popular mostly among beginners while experienced traders avoid this strategy. The thing is, in just 1-5 minutes you can either gain or lose 5 to 10 pips. According to statistics, there are as many profitable scalping transactions as there are losing ones. So, let us step into a skillful trader’s shoes and look at scalping with a critical eye pointing out all the weaknesses of this strategy. So, firstly, within a short time frame you are not likely to see the trend on your charts as you will be distracted by all the market noise that makes price fluctuations unpredictable up and down your 5-minute scale. Secondly, you cannot step away from your charts and lose even a few seconds. It’s all about proper timing. Even a few lost seconds may cost you a missed opportunity to close the deal with a good profit. Thirdly, even though the goal of every scalping trade is to gain from 5 to 10 pips, currency movements are not always so active in 1-5 minutes most of the time. So, when you close a position, you may find out that you only got 3 pips instead of the desired 10, and the profit is offset by your broker’s spread, as was the case with pipsing.

Essentially, scalping and pipsing are only a stage in becoming a professional trader. Every beginner tried scalping, every trader quit it sooner or later and switched to longer-term trading based on his or her own strategy. To sum up, we can say that scalping is rather simple and profitable, it can bring you some gains, as well as earn you more experience in trading and reading Forex charts. Try scalping: you are not a real trader until you have given it a go. However, there is no point in playing this for too long.