Scalping Trading: A Way to Earn Profits from Small Deals
Forex trading requires different techniques and methodologies to become a successful trader. Over the years, traders have been tasting various techniques. However, not all the methods come out as successful. A few methods are very prominent, and scalping is one of them. Both retail and institutional traders usually use it.
New traders often face a dilemma about the trading methodologies and stumble in the beginning due to a lack of knowledge in forex trading. As a result, they don’t feel attracted to trading; however, sometimes experienced traders also face this problem. Scalping trading can be a solution for these types of traders.
We are going to enlighten you on the ins and out of scalping, which you can use easily to make some quick profit.
CySEC, FCA, FSB, DFSA, SCB
FCA, ASIC, CySEC, SCB, DFSA, BaFin and CMA
What is Scalping?
It is a trading strategy that is usually the shortest-term trading method, even shorter than different day trading types. However, scalping trading provides real-time analysis for the trading. The traders who do the scalping frequently as a sort of profession are called scalpers.
However, scalping in forex trading is usually denoted by multiple numbers of trades in a day, in which each trade generates a small profit. But, at the end of the day altogether the small profits contribute to a large amount.
The scalping strategy runs on a simple idea. Instead of holding a currency pair or stocks for several hours or days or even a week, scalping buys and sells the position in minutes or within an hour. The intention of this kind of trading is to make a small profit in a short time and replay this process as much as time possible before the market closes for the day.
The Procedure of Scalping
Scalping is not exactly the day trading, but you cannot deny it as a day trading either. In the day trading, traders take the position and for several hours or a few days then sell it. However, in scalping trading, scalpers don’t hold the position for that long. Instead, they sell the position as early as possible.
Usually, scalpers commit the trade several times a day and generate a small profile each time. Scalping trading normally works through the tick chart and sometimes via one minute chart. With the use of this chart, scalper usually holds a high-velocity move to make the buy and sell quickly. It works best during the news and economic release.
Normally, scalping strategy can make you 5-10 pips per trade, and scalpers can make more than 100 pips a day.
Types of Scalping
Through intensive research, we have found three types of scalping. Although the goal is the same for all types, they are still different from each other.
However, they don’t have any specific names for each type, so that we will go with the first type, and the second type, and the third type.
The first type is similar to market-making, which makes a profit through taking the buy and sell position for the same stock. So, a small movement will sell the stock and may generate profits within a minute. However, if the price goes down, it may cost you loss unless you command for the sell at an upward movement instead of open trading.
The second type usually requires more investment than the first one as it purchases a huge amount of shares and sells them after an immediate peak. The number of shares can be 3,000-10,000, which is a liquid stock by nature.
The last type’s approach is traditional, in which the scalper would buy a certain number of stocks and sell it after the software finds a find exit. So, you may categorize this as a 1:1 reward or even risk ratio.
Prepare for Scalping
If you already made your mind to become a scalper, it would be wise to know some stuff regarding scalping trading. We have listed a few important kinds of the stuff below.
- You should have the time sense as you will have to observe the market and continue to take your chances.
- The desired entries may come up and go immediately, so you have to be active always to take action.
- If you remain busy with another job and want to join in scalping strategy, you will have to choose one as you need to keep the focus on scalping always.
- You will have to have patience.
- The market is competitive, so you will have to keep in mind that you may lose your investments.
However, you may overcome any trading-related problems and significantly reduce your risks by trading with the best broker for scalping. After finding a broker, we would recommend you to cross check it with forex broker reviews from different sources.
Scalping Trading Strategies
From scalping, you will have to get the profit as the end result. So, you need to apply some scalping trading strategies that work. We have found four scalping strategies used by many traders and brokers to support them by providing necessary tools.
This strategy focuses on a single stock and compares its price movement for the current period. As a result, it can get the trader the trading point by observing the trending market.
This strategy combines the two-minute chart to identify the strongest trend which can be bought or sold to generate profit. Besides, moving average scalping trading strategies indicators also provide warnings on adverse trend changes. However, moving average is easy to understand by all types of traders, which also helps to avoid any high risks movements.
Multiple Chart Strategy
This strategy doesn’t include any indicators, and you will need to pull a 15-minute chart and keep track of the background condition so that you can know your intraday transaction performance. Moreover, you can observe the opening point, high end, and low-end trading range.
These observations will help you with the further steps.
As a scalper, how would you know when to take the profits or cut the losses?
Well, RSI can get you that as it provides the perfect point by observing the dominant trend. As a result, traders can take their position without having any difficulties and rule out the take profit and stop-loss feature. However, MetaTrader 4 forex brokers and MetaTrader 5 forex brokers offer this scalping strategy.
When should you Scalp? And When you should Not?
Scalping requires a speedy transaction. Therefore, you need to have enough liquidity to complete the transaction. So, trading the major currencies will be the best approach while you proceed to the scalping forex. Major currencies usually provide the highest liquidity. Besides, you should consider the volume too. When the volume is high, it is recommended to trade. Besides, if NY and London’s markets get busy with the volume, you can definitely go for the trade.
If you are focused less, do not go for scalping, even if you trade with the best broker for scalping. Moreover, if you have a record of continuous losses, you should take a break from scalping trading. Loses can be recovered with proper strategy, but it would not be wise to go for revenge trading.
Tips for New Scalpers
With the low entry barriers along with the availability of several best broker for scalping, a lot of people have started trying trading. And, initially, all the new traders try day trading. Besides, scalping is the right choice too. Being said that, we have made a list of some tips for novice traders.
- Order execution: Efficient order execution should be the first priority for any scalpers. A delayed order can wipe out your investments in minutes. So, as a new trader, it is mandatory to become a master in order execution.
- Frequency and costs: As a novice trader, you should keep the costs in your mind while making the trading decision. You need to complete hundreds of trades in a day. So, make sure you have enough budget in your hand to continue scalping trading.
- Trading: Next, you will have to understand the trend and momentum to get the right entry points to generate some profit. You may also study counter-trend, but we highly discourage you from avoiding this strategy initially.
- Trading sides: For the novice scalpers, trading on the buy-side is recommended; however, they will have to practice the sell-side later on to get the best results.
- Technical analysis: Advanced technical analysis would be difficult to manage by the new scalping practitioner. So, understanding the necessary technical analysis is good enough for the initial start.
- Volume: While trading, you need to be aware of the volume you are trading; investing all your money on a large volume should not be wise.
- Maintain Discipline: By the nature of scalping, you will need to close the position during the day, and you should not carry them to the next day. So, you will have to maintain the discipline, which will ultimately get you a great result.
What is the Best Platform for Scalping?
The various brokers offer various platforms for scalping. However, our research shows that MetaTrader 5 is clearly ahead as you can add MetaTrader supreme plugin, which is specially made for scalping trading. Besides, the MetaTrader 4 is also used for scalping.
MetaTrader offers a wide variety of indicators, financial instruments to ease the scalping strategy. However, MetaTrader 5 is the best platform for scalping because it provides some extra indicators such as tick charts, mini charts, trading simulator, sentiment trader, and more. All these indicators can make your scalping forex easy.
Scalping trading is not a piece of cake, and it needs the skill to analyze the market and take the trading decision. Besides, you will have to sit for hours in front of the charts to make yourself a master.
Liquidity is a significant factor for scalping, so you should always be careful about that and keep your eyes on that. Whether you are an experienced scalper or novice, you will have to remain alert always about the market movement.
With the proper use of all the scalping trading strategies and tips we have mentioned here, you should be able to develop yourself as a successful scalper.