Welcome back, Traders!
What better way to celebrate National Online Learning Day than with the delivery of another outstanding trading strategy lesson to our amazing readers? Today, we celebrate the advantages of online learning for students around the globe, including our trading community following our weekly lessons!
Today, we are going to discuss one of the most exciting and fast-paced strategies out there! Yes, you guessed it, let’s dive into Scalp Trading!
So what is Scalping?
Scalping is a trading strategy focused on frequently exploiting sharp price movements in smaller timeframes. The strategy requires traders to enter a large number of positions to bank small profits each time. As such, each position is usually held no longer than a couple of minutes. Most positions are usually closed in under a minute! Now you can see why there are so many trades performed throughout a single session! It is not uncommon for scalpers to trade with an increased lot size to magnify the profits from small pip gain. However, as with every system, this should always be in line with the risk management developed by each trader that fits their strategy, account size and risk appetite!
What to Scalp?
As a Scalper, your main goal is to get in and out of a trade quickly (ideally in profit)! As such, markets you trade have to meet certain criteria, these include high levels of:
Focusing on assets with high levels of liquidity, volume and volatility will inevitably provide you with the most competitive spreads and an enormous amount of trading opportunities - exactly what you need as a Scalper! Spreads are crucial for any scalping strategy. You want it to be as competitive as possible. Due to the daily number of your trades, the transactional costs (i.e. spreads) can add up to be quite significant if not considered properly!
Major Currency Pairs are usually considered best for scalping as fit perfectly into the above criteria!
When you trade will also matter! As you are aware, certain times of the day, such as session overlaps will provide us with the best levels of liquidity, volatility and trading volume!
How to Scalp?
First of all, we have to look into the Broker: will your broker accept Scalping? If yes, what leverage (capital your broker is willing to provide you to increase your exposure in the market and amplify your profits or, unfortunately, losses) do they offer?. It is very common for Scalpers to use high leverage accounts to magnify the profits from their trades. You will need to find out what leverage you’re most comfortable with before attempting to Scalp!
Next, you will have to find a technique that suits your trading style! Most traders who choose to scalp would try and avoid trading during high impact news - this is mainly because of slippage and the possibility for the price to move in the opposite direction due to the latest data release.
As with any strategy, there are loads of different approaches to Scalping. This include:
● Price Action - when you analyse recent price movements, understand support/resistance levels and draw trendlines to support your positions;
● Trend Trading - when you analyse the trend and enter positions in line with a trend;
● Countertrend Trading - when you identified a trend but enter positions against it, expecting reversal or a pullback;
● Range Trading - when you identified support and resistance levels and execute your entries around these key levels;
● Breakout Trading - this may involve both technical or news breakouts, scalping breakouts can be very profitable but also very risky. Extra caution is always recommended;
● Trading with Indicators:
● Stochastic - an oscillator that provides traders with potential turning points of the traded asset;
● Bollinger Bands - technical indicator showing the volatility of the traded pair;
● Moving Averages - both simple and exponential moving averages represent short-term changes in price trends of a traded asset allowing traders to spot changes quicker;
● SAR - an indicator that provides insights into the direction of the traded asset and can help identify changes in trend;
● RSI - the relative strength index is an oscillator that helps traders predict the future direction of the traded asset.
If you’re new to scalp trading you must take your time and learn the process! It is recommended to start with only one asset to polish your skills before diving into trading various assets at the same time!
We hope you have enjoyed our brief introduction to Scalping and now have a better idea of whether this trading strategy is for you! Remember to follow our Instagram and Telegram for our latest updates!