Scalp trading or Scalping is one of the most popular trading strategies that entails placing multiple trades in a short time frame, usually a few seconds or minutes.
Forex scalpers may seek to profit from one or two pip movements over a period of a few seconds, generally during the busiest trading hours of the day.
Scalping is a form of trading strategy that necessitates a high level of discipline as well as an excellent risk management system.
The reason for this is that scalpers close numerous trades with tiny gains, and their risk management system should not enable them to retain losing transactions for an extended period of time, simply because a major loss may wipe out a large number of previously made profits.
Scalping Strategy also necessitates discipline because it frequently necessitates opening a significant number of trades per day and trading on short-term time intervals, such as one and five-minute intervals, when the market may be quite volatile.
Why Choose Scalping Trade?
Scalpers choose to trade in the short term because they think it will be easier to benefit from a quick market movement than from a long market movement, which may last for days and can also experience significant corrective swings.
Another important aspect of Scalping is ensuring that your broker can execute your orders quickly, even during severe market moves.
Furthermore, it’s vital to note that Scalping is one of the few trading strategies that new traders rarely adopt. This is because it not only demands a tremendous deal of knowledge and discipline, but it’s also frequently impracticable for those who hesitate to trade.
How Does Scalping Trading Strategy Work?
Trader Scalpers often think that profiting from modest price changes in stocks is less risky than massive price changes. This is because it entails establishing small trading windows, both in terms of price movement and timing.
As mentioned above, Scalping necessitates discipline. Rather than waiting to see whether they can earn more, scalpers exit trades once their profit objective has been met.
In addition, instead of waiting to see if the trade comes around, scalpers exit trades when their goal loss threshold is reached.
Scalping is kind of similar to day trading in which a trader opens and terminates a position within the current trading session, never carrying a position over to the next trading period or holding a position overnight.
While a day trader may try to enter a position once or twice, or even several times a day, Scalping is far more than that as traders can trade numerous times throughout a session in this.
How is Scalping Different from Day Trading?
In Forex trading, Day Trading Scalping and day trading are two completely different trading strategies. Scalpers are traders who utilize the scalping method to scalp the market, whereas day traders are just traders who use the day trading system.
In principle, day trading and Scalping are similar, but they are not the same when used practically. Scalping is a kind of day trading strategy that entails generating several small profits rather than a few huge profits.
Take a look at the difference between Scalping and Day Trading:
Time frame Difference:
Scalping involves trading in a concise time frame, generally, 1 to 2 minutes in the market, whereas day traders deal in a longer time frame, usually 1 to 2 hours.
Scalpers have a large account size and take a lot of risks in the markets. On the other hand, day traders have an average account size and trade large lots on their online trading account.
Scalpers have industry knowledge and are able to predict market trends. As a result, they place trades on the market without anticipating the outcome. Instead, they expect where the market will move and benefit from closed trades.
The biggest distinction between day trading and Scalping is when traders see their profits. Scalpers get their returns right away, but day traders have to wait a day for them.
What are the Best Scalping Strategies?
There are a variety of scalping trading strategies that are in practice today. However, we recommend exploring a few alternatives before you start trading.
Here’s a list of a few Best Scalping Strategies:
Using Oscillator Stochastic in Scalping Trading:
The term stochastic refers to comparing the present price to a recent price range. This can assist in identifying critical points.
Scalping using an oscillator seeks to depict movements in trending markets, such as those that go up, down, or consistently. As a result, prices are often close to the limits of previous ranges before flipping.
Traders can enter long trades using the stochastic, and the position can be closed when the stochastic reaches the upper end of its range or when the bearish crossing emerges.
On the other hand, Short positions might be used in a market that is heading downward. Traders might sell rallies instead of purchasing falls this time.
Using Moving Averages in Scalp Trading:
In the Forex market, a MA detects common and new patterns. As a result, it is one of the most common scalping strategies among scalpers.
The Exponential Moving Average and the Simple Moving Average are the two most used types of MA. They are popular among traders because they are simple to read. Traders choose short-term and longer-term averages to assess a market trend.
The five-period average should cross above the 20-period average when the longer-term moving average increases. After that, you might take positions in the trend’s direction.
When the long-term moving average is falling, you should look to take short positions when the price falls below the five-period average, which has already fallen below the 20-period average.
Using Relative Strength Index in Scalp Trading:
In Scalping, the RSI can be used to find entry and exit points within a trend. When the price is heading upwards, the three moving averages illustrate it. Traders should purchase when the RSI decreases and rises above the trend line during a trend reversal.
Scalpers have a chance to sell the rally when the RSI peaks and begins to decline in a bearish trend. This is a straightforward scalping method that is simple to apply.
Pros and Cons of Scalping Trading Strategies:
As Scalping offers a great set of benefits to traders, there are a few drawbacks that can’t be ignored. This trading strategy may not suit every trader, especially novice.
So, before putting your real capital at risk, we recommend you practice this strategy in a Demo account. This will help you in mastering this strategy without the risk of losing money rapidly.
Pros of Scalping:
Scalpers often make multiple trades each day with no fees or commission. Suppose you have to pay commission for each of those trades.
These transaction expenses would make a massive difference in your earnings. Choosing a broker that offers commission-free trading is excellent for effective Scalping. Or at the very least, one that provides significant discounts to high-volume dealers. You can trust ABInvesting in this case.
Direct Entry to Financial Market:
Because scalpers profit from the bid/ask spread and small price fluctuations, the time frame is crucial in this case. Furthermore, as scalpers require a hit on a high proportion of trades to generate money, direct market access is a prerequisite.
You need to know exactly where and when your trade will be executed when you’re trading multiple shares every day.
Enhanced Charting Tools:
Scalping necessitates a chart that is both enhanced and advanced. Scalpers, as previously said, rely heavily on quick trades.
Using 5-minute candles isn’t particularly useful when positions are opened and exit in less than two minutes. To execute effective trades, scalpers require real-time price updates and 1-minute charts.
Scalping isn’t for you if you’re seeking a long-term profit in a quick time. Instead, prepare to spend a full day exploring possibilities. You’ll also need nimbleness to get out of non-working transactions.
Cons of Scalping:
Broker’s high transaction costs:
Scalpers might easily lose their profits due to high transaction fees. Every day, you’ll be placing many traders. It will be difficult to generate higher profits if you continue to use a broker that charges you a high transaction fee.
Scalping is time-consuming. Scalping stocks may appear to be easy, but scalpers must keep their eyes on the data at all times. You’ll be making the same trades over and over again, hoping to increase your profits and decrease your losses. Not everyone will have the attitude to employ Scalping efficiently.
Scalping isn’t a very popular or novel trading strategy, but it’s one that many traders have found to be effective. Scalping reduces your risk of losing your capital and allows you to make small profits even in the most volatile markets.
However, if you’re hoping to get wealthy overnight, then it is not for you. Scalpers must be willing to accept small profits and focus solely on the next trade.
On the other hand, Scalping can take away all the profit from traders who aren’t skilled enough to control their emotions.
So before risking real money, you should practice with a Demo account and start with lesser position sizes until you advance to the real thing.
Set profit targets before beginning each transaction, and sell promptly if the expected move does not meet your target.
Scalping takes time to perfect, but it’s a valuable skill to have, especially if markets are trading sideways for a long period of time.
Is scalping strategy suitable for new traders?
For novice traders, a one-minute scalping strategy is a wonderful way to get started. It involves taking a trade, gaining some pips, and then quickly closing the position.
On the other hand, professional traders consider it to be the simplest trading strategy, as well as one of the easiest to master.
How many trades do scalpers make in one day?
Scalpers are traders who use the Scalping strategy of trading and can place 10 to 100 transactions in a single day to achieve even the smallest profit.
Is Scalping involved high-risk?
Scalping is neither a more nor less risky strategy. For professionals, scalping a market can be profitable. However, in most cases, Scalping means that your profit is constrained by the short time you spend in the market.
How profitable is Scalping?
Scalping can be extremely beneficial for traders who utilize it as their primary strategy or merge it with other forms of trading. The key to turning little earnings into enormous gains is to stick to a disciplined exit strategy.
Can I Scalp Cryptocurrencies?
Scalping is a short-term trading strategy that entails taking the smallest gains. As the cryptocurrency market is volatile and changes swiftly, Scalping is quite popular among crypto traders.