Getting to know the scalping trading strategy

Kopito Academy
29 Aug 2023

Scalping trades

What is scalping?

Scalping is one of the most popular trading strategies in the financial markets that most traders use on a daily basis. This strategy is based on making a large number of small and quick trades throughout the day, the goal of which is to make a small but proportionate profit from each trade.

Scalper traders use small and momentary price fluctuations in the market to make a profit. These people typically hold a stock, currency, or other asset for a short period of time—usually a few minutes to a few hours—trying to profit from small price changes.

Due to the large number of trades made during the day, even small profits from each trade can eventually add up to a significant profit. However, this strategy requires high attention and concentration, and due to the high speed of transactions, it may also have a high risk. Also, it should be noted that transaction fees and costs can also have an important impact on the overall profitability of this method.

In the rest of this article, we will examine in more detail about scalping, its advantages and disadvantages, the tools and techniques required, and how to manage risk in this strategy.

Advantages and disadvantages of scalping trading strategy

Like any other trading strategy, scalping also has its own advantages and disadvantages. To choose the best trading strategy for it, the trader should consider these concepts.

Advantages of scalping trading strategy

1. Multiple trading opportunities

  Due to the fact that scalping is based on placing a large number of short-term trades, traders can benefit from a large number of trading opportunities throughout the day.

2. Reducing the amount of long-term risk

  Because of the short duration of trades, scalpers are not exposed to long-term market risks unlike traders who hold stocks or assets for long periods or even years.

3. Continuous profitability

  If successful, scalping can lead to daily and consistent income, unlike long-term investments that may take a long time to make a profit.

Disadvantages of scalping trading strategy

1. The need for high attention and concentration

Scalping is a very active strategy and requires constant management and moment-to-moment attention to the market.

2. Transaction costs

Due to the large number of transactions, transaction fees and costs can have a significant impact on profitability.

3. Mental pressure

Making quick decisions and the pressure to make trades can lead to psychological stress for some traders.

4. High risk

  Although scalping can mitigate against long-term risks, there is a high risk involved due to the large number of trades and quick decisions.

Necessary equipment and tools for the scalping trader

Necessary equipment and tools for scalping trades

To succeed in scalping, traders need the right equipment and efficient trading tools:

1. High power computer

Because of the high speed of scalping trades, traders need a powerful computer system that can quickly process data and execute trades instantly.

2. Stable and fast internet connection

High speed and stable internet is essential to make transactions live and without delay.

3. Powerful trading platform

  A trading platform that provides advanced technical analysis, quick trade execution and access to market information is essential for scalpers.

4. Technical analysis tool

Tools such as price charts, indicators and chart patterns can help scalpers identify trading opportunities.

5. Market news and information

  Because scalping is based on real-time price analysis, access to live market news and information can be of great help to the scalper trader.

6. Risk management tools

Tools such as stop-loss orders and take-profit orders can help scalpers control the risk of their trades.

Different scalping techniques: introduction and analysis

Scalping is performed in several ways and using different techniques. Some popular techniques include:

1. Scalping based on news

This technique is based on the analysis of market reaction to economic news. The trader tries to check the market reaction immediately after the news is released and use the resulting price fluctuations to make a profit.

2. Scalping using technology

Some traders use algorithms and trading robots to execute trades faster and more accurately. This technique requires programming knowledge and advanced technical analysis.

3. Scalping based on indicators

Some scalpers use indicators such as Moving Average, MACD, and RSI to make decisions on their trades.

4. Scalping based on time frame analysis

This technique is based on the analysis of several different time frames of the price chart. The trader tries to identify more favorable trading opportunities by simultaneously analyzing short and long time frames.

Each of these scalping techniques has its own advantages and disadvantages, and based on the experience, skill and trading style of each person, one or more techniques can be more suitable.

Risk management in scalping

Risk management in scalping trading strategy

Risk management is one of the most important aspects of success in any trading strategy, and scalping is no exception. Here are some key points to learn about risk management in scalping:

Adjusting profit limit and loss limit

 These orders allow the trader to specify the maximum loss he can accept on a trade and the minimum profit he expects from that trade. Profit limit and loss limit should be set based on technical analysis and trading objectives.

Compliance with the transaction volume

  Investing too much in one trade can jeopardize the overall capital. To prevent this from happening, the trader must control the amount of capital he risks on each trade.

Review and improve performance

  Accurately reviewing and tracking trading performance can help you identify your mistakes and strengths and improve your strategy.

Continuous training and development

  Financial markets are changing and traders must try to keep pace with these changes. Continuous learning and developing trading skills can help you better manage risk.

Compliance with the risk-reward ratio

  Determining the right risk-to-reward ratio means that you need to determine how much risk you are willing to accept to earn a certain profit. The risk-reward ratio should be adjusted according to your trading strategy. In scalp strategy, this ratio should be at least 1:1.

Managing emotions

One of the biggest challenges in risk management is the trader's emotions. Fear of missing out or greed of missing out can lead to irrational decisions. Traders must be able to control their emotions and proceed with rational decisions based on strategy.

By following these points, you can make the best decisions for risk management in your scalping trading strategy. By learning and gaining experience, you can enhance these skills and become a successful trader.

How to become a successful scalping trader?

Becoming a successful scalping trader takes time, effort and experience. Here are some key points that will help you make progress along the way.

Financial markets are complex and changing. For this reason, you should always be learning and updating your knowledge. This includes learning about the latest trading tools, techniques and strategies. Scalping requires speed and precision, but it also requires patience and discipline. You should be able to wait for the right trading opportunities and avoid trading that doesn't match your strategy. Demo accounts provide an opportunity to practice and test trading strategies without real risk. Use this opportunity to improve your skills. Never risk capital that you cannot afford to lose. Always pay attention to capital and risk management. Track your performance carefully and use your mistakes to learn and grow.