Scalping is a unique day trading style suited for those looking for quick short-term gains and reducing the risk involved in taking long-term positions. It is one of the most exciting and yet challenging ways of making profits as a trader. Thus, as a scalper, you must develop several methods and unique scalping strategies that work for you to be able to generate consistent returns for the long term.
In this article, we’ll suggest three tips that may help you in scalping trading. Let’s start!
Scalping is a trading style designed to make profits from small price fluctuations by using high leverage. As a scalper, the idea is to get in and out of many trades daily and close all the positions by the end of the day. By doing so, the trader can reduce the risk of leaving positions open overnight. Further, the risk is significantly lower in scalping trading since day traders stay open in a position for a short period of time.
While it is undoubtedly an effective method to trade the markets, there are also many risks involved in scalping trading. More than anything, it is based on proper money risk management and technical indicators that help traders find minor price fluctuations without having to deal with fundamental analysis.
With that in mind, here are some tips to maximize your chances of success as a scalper trader.
As we mentioned previously, scalping trading is all about risk management. For example, you can win nine successful trades in a row, lose the tenth trade and finish the day with a negative balance in your trading account. Well, it hurts, and you want to ensure you do everything possible to prevent it.
Using a stop loss is one simple way to do that. You set a risk-reward ratio that typically ranges from 1:1 to 1:2 for scalping strategy and always follow this rule. For example, suppose you want to focus on the forex market and you decide that you never lose more than $100 in a trade, meaning that is your limit for a losing trade. Therefore, you'll set your stop loss based on the number of pips you can lose for each trade. Ultimately, that should be a central rule to your forex scalping strategy.
If you are a good trader who statistically can win most of the scalp trades, then you won't have any problem closing losing trades in the long run. But never allow yourself to lose a large amount of money in one transaction - it is the most important rule for scalping trading.
Chart patterns are the foundation of the technical analysis methodology and have a massive value for scalpers. The idea about trading with chart patterns is that the traders can identify repetitive formations or shapes on price charts that help them find trading opportunities. It is somehow simple and as such, working with chart patterns is one of the best scalping trading strategies you can find.
Either way, getting familiar with many chart patterns can help scalpers find many trading opportunities. This, in combination with support and resistance level and other technical indicators, can be enough, especially for traders looking for extremely small price movements.
Typically, economic events are unpredictable and may cause unexpected losses for scalpers. Unlike swing trading, as a scalper, you are not trying to evaluate the intrinsic value of an asset or an economy; instead, you simply try to find minor price fluctuations and exploit this opportunity. Of course, this does not mean you must avoid financial announcements or any economic data released daily.
As a matter of fact, you must be aware of all the data released on a certain trading session that might impact your chosen market. What’s more, even though it is recommended that you close all positions before financial announcements, you can definitely take advantage of price movements following the economic reports or speeches by central bankers. However, suppose you decide to use this trading strategy - in that case, it is best to wait for at least five minutes after the announcement to enter a scalp trade due to the high volatility during economic reports.
Make no mistake; scalp trading is not for everyone. Indeed, it is an exciting trading strategy that could be very profitable. But the high level of activity and pressure is not something that every person enjoys doing for a living.
Nonetheless, if you take the challenge and explore whether you have the right personality to become a successful scalper trader, then take our suggestions and implement them into your scalping trading strategy. Though they are basic, they are not regularly followed by day traders and can essentially make the difference to become a profitable scalping trader.