Some of the forex scalping expert advisor programs that were popular until recently have been getting a bad press in the last few months. It seems that they are selling when they should buy and buying when they should sell. So what is happening, and can you still trade successfully with a scalping expert advisor?
Scalping is a tactic that relies on making small, quick trades to exit with a profit not many times the size of the spread. In fact generally anything more than 3 times the spread is not considered scalping at all. Scalpers are aiming to move in and out of the market in just a few minutes, or sometimes even less than one minute. They plan to do this many times in a day to achieve many small profitable trades adding up to good profits over the course of time.
The first problem for all forex scalpers is finding a broker who will allow you to do this. Brokers, even if they are not deliberately taking a position against you, often have some time delay before they cover your position in the open market. This may only be a few seconds to one minute which is not significant with long term trading but can put them into a loss position with successful scalpers who may close their trade before the broker has covered it.
But assuming that you are hooked up with a broker who will accept your EA working in this manner, why does it happen that sometimes the EA itself starts to foul up the trading?
One reason is that some EAs have been based around indicators that lag, such as moving averages. It should be obvious to anybody that if you are trading on small price movements you need to react very fast to new trends and a lagging indicator is not the best to use.
However, while the market was relatively stable with slow moving trends, it was possible to profit from scalping tactics even with lagging indicators. This pattern may continue for several years, long enough for many people to believe this is a genuinely possible system and certainly long enough for scalping expert advisor software to be developed to implement these strategies.
But sooner or later the market will enter a more volatile period. This may only happen every 7-10 years but when it does, lagging indicators become useless for scalping techniques. It is better to use indicators such as Bollinger bands which do not rely on measuring movements over such a long period in the past.
So if you want to continue scalping during times when the market is particularly volatile, you should ask questions about the basis of the software that you are thinking of buying and look for a scalping expert advisor that does not rely on lagging indicators.