Scalping is a very popular trading method and is widely used among professional traders. For the purpose of “scalping, making profit” quickly, Traders will order and close orders in a short time from a few seconds to a few minutes. This style of investment may sound quite risky, but in terms of interesting things and profits, it is not small. So what is Scalping? How to trade with Scalping effectively? Investors, let’s go through this article with Blackmantrader to find out.
What is Scalping Trading?
Scalping Trading, also known as scalping, is a method of trading that makes a profit in an extremely short period of time from opening an order to closing an order. The holding time is relatively short, so the profit is also limited. The act of opening and closing orders takes place continuously throughout the day, orders are not held overnight because the main purpose of this method is to get small profits with the expectation that the number of pips achieved is not too high. Even if the market is less volatile, just a small wave movement of 5-10 pips is enough to make a profit scalping.
Features of Scalping Trading
- Scalping Trading makes the most of even the smallest fluctuations in the market.
- Very short trading hours can last for just a few minutes and never leave a position overnight.
- This method requires investors to have knowledge, skills to observe and analyze charts and indicators to perform well in trading.
- It is necessary to spend a lot of time, almost all day to monitor and observe so as not to miss market fluctuations
- The ability to profit increases because it is possible to place multiple orders during the day, and in most cases the volume of each order is relatively large.
Why trade scalping?
In the past, the scalping method was quite unattractive to many traders because they had to use manual ways to place orders. But nowadays, thanks to the development of technology, scalping trading has become easier thanks to the support of 2 trading platforms MT4 and MT5. Everything is automated, so it is not necessary for investors to monitor the market 24/7, and profit taking is also done according to investors’ orders on the automated trading system. Compared to Day Trading and Swing Trading, the Scalping method allows traders to easily place orders and profit more efficiently.
Advantages and disadvantages of scalping trading
Pros Scalping
Low level of risk
Scalping transactions are mainly carried out in a short period of time, so dangerous situations where the bodies appear are minimized. In addition, since the characteristic is that orders are usually closed during the day, not held overnight, external risk factors directly impacted are also minimized for this trading method.
Use high leverage
When scalping, investors can use high leverage to open orders and get high profits.
Quick profit
Trades are executed throughout the day, so profit or loss results can be calculated after each day.
Wide range of trading opportunities
With Scalping Trading, traders can place multiple orders in any market, even sideways. The trading time from order opening to closing is very short, so investors can make a lot of trades during the day.
Cons Scalping
High transaction costs
Although there are no trading fees, commissions and spreads are quite very high due to the large number of orders opened during the day. Without calculating this fee carefully, the profit will not be much. In addition, traders can choose an ECN broker, which usually charges a reasonable commission and spread, suitable for traders according to the Scalping Trading method.
Market risk
Trading in a short time will make it very difficult for traders to predict market movements if they do not have enough knowledge and experience. Technical or fundamental analysis can hardly be applied when trading with scalping.
Technical errors
Scalping transactions only happen in minutes or even seconds, so when technical errors occur such as platform errors, delays in placing orders,… is that the result has been different, which can lead to large losses.
Difference between Scalping Trading and Day Trading
Principle of operation
Scalping Trading takes advantage of large waves that occur in a short time, so usually investors will enter orders with large trading volumes and large leverage during the order maintenance time of only a few minutes to make profits.
Day Trading works on the principle of making profits with waves lasting several hours, so the entry and maintenance time also lasts throughout the day with average trading volume and average leverage.
Timeframe
- Scalping Trading: M1, M2
- Day Trading: H1, H2
Floor characteristics
- Scalping Trading: Low spreads, low latency, no requotes
- Day Trading: Low spreads
Order size
- Scalping Trading: Small
- Day Trading: Medium
Conditions to become a scalper
The scalping method is not a method for all traders because of its unique characteristics. To become a true scalper requires traders to have the following conditions.
Watch the market regularly throughout the day
Continuous observation of the market when trading fast and small is a necessary condition. To ensure that you will not miss an opportunity to profit, Scalper needs to observe the chart at the beginning of the trading session, focusing on even the smallest price movement.
Risk tolerance
This method usually uses very large leverage and trading time, it is impossible to use technical analysis to predict the market, so the risk is quite large. Traders must accept risks if they pursue this method.
Not for the inexperienced
For new or less experienced traders, knowledge when trading. Opening and exiting orders at the wrong time will cause them huge losses. It is necessary to acquire enough knowledge, practice and expand combat experience in the market to become a Scalper.
Some effective scalping trading strategies
For effective scalping trading, combining technical indicators as the first choice will increase the success rate significantly. Here are 3 typical indicators that are trusted by many investors and experts:
Moving Averages (MAs)
This strategy uses the moving average MA, which basically shows the trend behind a currency pair by displaying the average price over a short period of time, and it is also a tool to reduce price movement noise and the reversal of the real market trend. By using 2 or 3 MAs in rising or falling markets, traders will be able to more accurately identify important buy or sell points. When the current price level is above the MA, it can be considered a sell signal. Conversely, when the price level is below the MA, it is a signal to buy.
RSI indicator
The RSI indicator is a popular tool used by many investors to analyze charts in all market states including trending or sideways. Using RSI can track recent price movements under relevant conditions of overbought and oversold points. If the RSI is above 70, the pair is overbought, whereas the indicator is below 30, it indicates that the pair is oversold. RSI is usually represented as a purple indicator line under the candlestick. Applying RSI, investors will find entry points in line with the general trend of the market.
Support – Dynamic and static resistance
This strategy focuses exclusively on support and resistance levels according to the rule of 3 or more points that can indicate a support or resistance line. Static support and resistance are levels from the beginning of the day with the highest and lowest points, this must be determined when you start trading. Dynamic support and resistance are always changing depending on market volatility and are much more subjective. The area where static and dynamic support meet or dynamic and static resistance meet can be your buying or selling points. This tactic can be combined with other indicators to further and more accurately confirm buy and sell points.
Important notes when trading Scalping
It is recommended to choose a reliable trading platform and a stable trading platform, fast execution speed to help open and close orders in time. In addition, the spread and size of the deposit are also important, they impact the level of profitability so a quality and suitable exchange is a successful start for a Scalper.
The liquidity of the exchange is also something that traders should keep in mind. Trading with currency pairs with low spreads, high liquidity and high volatility will increase your chances of winning and profit in a short time.
To trade several times a day, traders need to determine the time frame in advance. Market analysis on high timeframes such as H1, M30 will be accurate and scalping is more effective.
Set Stop Loss and Take Profit points flexibly, at the right time.
Above is all the basic knowledge of Scalping Trading that Blackmantrader provides to investors. Hopefully, through this article, Blackmantrader has brought investors insights into this interesting trading style to apply successfully. To learn more useful knowledge about the stock market, investors can visit Blackmantrader.com , where the stock situation and interesting things about the stock will always be constantly updated. Good luck and success to investors!
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Source: Exness
