Pipsing on Forex without mistakes. How to avoid losing your deposit?
Pipsing has been one of the most popular strategies among traders with varying levels of trading experience for several decades.
They're scalping in Russia, they're scalping in Europe, and they're scalping in African countries, too. This massive interest is driven by only one reason.
This trading strategy (TS) allows you to realize the desire that most traders bring to the market – to earn quickly and a lot.
Indeed, scalping within a week can bring profits amounting to several hundred, or even thousands of percent of the invested funds.
However, there is one BUT – with this type of trading, the risk of losing your deposit is 100%.
How to avoid losing your deposit and profit from scalping on Forex? We'll discuss this in this article. This material will be useful for those new to the market and considering this trading strategy as a priority.
With expert support from international broker NPBFX (NEFTEPROMBANKFX), we've identified the main mistakes that lead to deposit losses when scalping.
- Incorrectly selected broker for trading.
- Lack of a working strategy when opening trades.
- Ignoring risk management.
Below, we'll examine each point in detail, as well as provide specific examples using the services and capabilities of the NPBFX broker.
#1: Choosing the wrong broker for trading
Many novice traders don't even realize that their scalping results can directly depend on their broker. The company they plan to open an account with isn't selected based on the criteria necessary for scalping. Traders are lured by flashy promotions, bonuses, and other perks, only to discover that scalping is either restricted or prohibited by the company. Let's look at the parameters you need to consider when choosing a brokerage for scalping.
- No trading restrictions. Unfortunately, not all traders carefully read the broker's terms of service. Some companies' regulations may contain restrictions on the minimum profit in pips per trade, as well as on the lifespan of a trade.
For example, your profit must be at least 3 pips, and the time from opening to closing the trade must be at least 3 minutes. With these conditions, you definitely won't be able to scalp.
- Minimal spreads. Spreads play a key role in short-term strategies like scalping. When your goal is to earn just 2-3 pips of profit in a few seconds, spreads of 3, 5, or more pips can seriously impact your plans.
To profit, you'll need to wait for the trading instrument's quotes to recoup the spread, and then your 2-3 pips. This can take several minutes, which is unacceptable for scalping. The longer a trade remains open, the higher the risk that the market situation will change. The trader's goal is to enter the market quickly, take a few pips of profit, and exit before the quotes reverse.
- Good liquidity providers. A broker should provide excellent liquidity for most instruments, so you can profit from scalping. If a broker has low-quality or limited liquidity providers, you'll see price gaps on the minute chart, which is primarily used for scalping. As a result, placing an order to open a trade at one price may result in it being executed at a completely different, worse price.
The larger the liquidity providers, the more of them in the broker's pool, the more buy/sell orders enter the order book in a short period of time. This minimizes price gaps on minute (M1, M5) charts of trading instruments.
Let's look at NPBFX as an example. The Trading Regulations, which are publicly available on the company's official website, contain no restrictions on minimum profits or trade holding time. Moreover, the website's main page states that the broker welcomes absolutely all trading strategies, including scalping/pipsing and HFT trading.
Spreads start at 0 pips, allowing scalpers to maximize profits. The broker's liquidity providers include Tier 1 banks and major ECN systems (Integral, Currenex, Hotspot). The excellent liquidity provided by NPBFX has been repeatedly praised by clients in reviews on various online resources.
#2: Lack of a working strategy when opening trades
At first glance, scalping seems very simple to novice traders, requiring no in-depth trading knowledge. Open a minute chart, see where the price is moving, and enter a trade. See a profit and close it. However, in reality, such traders quickly lose their deposits. Trades reverse almost immediately after opening.
The trader closes losses, begins to rush around, and open new trades thoughtlessly. This approach to trading can be classified as intuitive trading. Yes, it can also be used when a trader has extensive trading experience and a keen sense of the market. For beginners, however, such a strategy is tantamount to suicide.
NPBFX broker experts recommend using technical analysis for short-term trading. Develop your own trading strategy or use a proven one on the NPBFX Analytical Portal. Then test it on a demo account until it produces consistent results.
Let's look at a specific example using the ZigZag technical indicator. Initially, the H4 chart of the trading instrument is analyzed. The goal is to determine the short-term market trend.
As the chart above shows, the GBPUSD pair has been in a short-term uptrend since October 4, 2023. Therefore, ideally, pipsing should be in the direction of the current trend, i.e., opening long trades on the British pound.
However, trades against the short-term trend can also be considered if indicators provide a clear signal. Now let's move on to the pair's minute chart from October 9, 2023, and demonstrate a trade opened against the current short-term trend.
Initially, the entry condition was the drawing of a ZigZag line longer than 40 points. As can be seen from the chart, this ZigZag line was drawn in the direction of the current trend. The trader had to decide whether to open a trade against the short-term trend, based on the technical indicator's signal.
Ultimately, the decision was made to open a short position on the pound. The length of the next ZigZag line was more than 10 pips. Thus, the trader earned his 3-5 pips of profit within a few minutes without any difficulties.
The situation described above is quite tricky. The trader had to trade against the short-term trend. In such cases, to confirm the correctness of the decision, NPBFX experts recommend looking at higher timeframes. For example, a daily or weekly chart may show a bearish trend, while an H4 chart shows an uptrend. Naturally, the trend present on the higher timeframe will carry more weight.
#3: Ignoring risk management
Professional traders say scalping and risk management are incompatible concepts. Indeed, when the risks are 100%, what management rules can we talk about? Meanwhile, there are techniques and methods for minimizing these risks to prevent the loss of your deposit.
First, you need to consider the account parameters for scalping. We discussed spreads above, but leverage is also important. It's highly recommended to use the maximum leverage. For example, with the broker NPBFX, you can open accounts with 1:1000 leverage. The higher the leverage, the lower the margin required (the amount blocked in the account) for each trade. This means the trader has more available funds in the account after opening a trade.
This allows for a floating drawdown on a trade to be tolerated, allowing for some leeway. Let's give an example. With a leverage of 1:100, opening a Buy EURUSD trade at a rate of 1.1000 with a volume of 1 trading lot requires a margin of $1,100. With a leverage of 1:1000, the margin is only $110. The $990 difference can be used to tolerate a 99-pip drawdown or to open another trade, resulting in even greater profits.
Secondly, even though scalping involves 100% risk, it still needs to be controlled. This can be done by adjusting the trading lot size. It should be large enough to allow you to profit by opening trades of just a few pips. However, the trade size shouldn't be so large that any price movement against you triggers a Stop Out. You should have sufficient free equity in your account after opening a trade (including margin).
For more conservative strategies, professionals recommend maintaining a risk limit of 2-3% per trade. Of course, this isn't enough for scalping. With this level of risk, the lot size will be small, as will the profit from the trade. With scalping, you can increase the risk level to 10-15% per trade. For example, with a deposit of $10,000, the trade size can be 1 standard lot (100,000 units of the base currency). This will allow you to withstand a fairly significant drawdown during a temporary market reversal. You can also open another trade if a clear entry signal for a different trading instrument suddenly appears. This approach to trading will allow you to easily open at least 10 trades per day, which will yield 20-30 pips of profit. This equates to 440-660 pips per month, which in monetary terms amounts to $4,400-6,600. This means you can earn around 500% profit or more over the course of a year. At the same time, the risks will be significantly reduced.
Conclusion
To summarize, the following conclusions can be drawn:
- Pipsing on Forex can really give a trader significant profits in a short period of time.
- The risks involved in scalping are extreme, but they can be influenced and controlled. To do this, follow all the recommendations outlined in this article and trade only through a proven and reliable broker.
We've mentioned our long-standing partner, the international STP/NDD broker NPBFX, several times in this article. Indeed, this company offers some of the best trading conditions for Forex scalping: execution speeds of 300-600 ms, 0% commission on trading volume, and competitive spreads. Furthermore, servicing Russian citizens is a pressing issue today. The broker has never had any issues with registration, deposits, or withdrawals for Russian clients. NPBFX is a member of the international Financial Commission (The Financial Commission) and holds the highest Status A. This ensures that each client is insured for €20,000, which can be paid out of the regulator's compensation fund in the event of a dispute.
The minimum deposit for trading is just 500 rubles, or 10 US dollars/10 euros. Becoming an NPBFX client is easy: simply register on the company's official website and open a trading account.
