Scalping: secrets of successful trading on small timeframes

28.06.2021

Feature articles

Scalping is one of the most popular trading styles for both novice traders and professionals. Why is this trading strategy so popular? Let's figure it out right now.

What is scalping?

Scalping is a rather aggressive trading style that involves making a large number of short-term trades with small profit targets. Trades last from a few seconds to several minutes on average. Due to the need for being constantly at the screen, making deep market analysis and quick trading decisions, scalping allows traders to have more control over the situation than long-term strategies and bring more profit. The key element to successful scalping is the transformation of the quantitative side of trading into a qualitative one.

A scalping strategy is a very dynamic trading type. Scalping can help to accelerate the deposit quickly. This is, perhaps, the best method of market learning. As the well-known rule says: "To master any skill perfectly, you need to repeat this action 10,000 times." In the context of Forex, it will take a mid-term trader years to do this, comparing with a few months for scalper.

The amount of profit in scalping trading depends on many factors: the initial deposit size, the level of take profit and stop loss, intraday goals and, most importantly, the psychological stability of the trader.

Who is scalping suitable for?

There is a common myth that they are only beginners who are involved in scalping, but this is far from the case. Scalping is a daily painstaking work that requires concentration, patience and control over emotions, as well as the ability to navigate the market. In scalping, like in no other trading style, it is important to correctly determine the risk levels and manage your capital. All of these skills are acquired only with experience through trial and error.

The most important quality for a scalper is stress resistance, because it is stress and constant emotional tension that are integral companions of scalping trading. In a stressful situation, people panic and commit illogical actions that will definitely lead to losses. The scalper must react to any market triggers with lightning speed and without human factor influence. Fear and greed are the most common emotions of traders as well as the worst enemies of successful trading. There is no place for them in scalping.

The advantages and disadvantages of scalping trading

Short timeframes trading attracts traders for a number of reasons:

  • Fast results. Scalpers don't need to wait for a week or a month to make a profit. Many profitable trades can be closed in terms of one trading day.
  • High profitability. Probably the most important one. Huge profits are possible due to the use of large leverage and making many trades with small profits.
  • Small trades - low risks. Even if some orders turn out to be unprofitable, you will not lose all funds at once. You are not limited to a single transaction that may ultimately be miscalculated.
  • A field for experiments. Especially important for beginners. Novice traders rarely use conservative trading methods with profit targets of 5-10% at the end of the month.
  • The ability to make money on almost any asset. But it is better, of course, to choose something with higher liquidity.

Already running to join the scalper squads? Take your time, not everything is so smooth. Scalping hides a number of pitfalls. Ignoring these features will inevitably lead to financial losses.

  • Emotional factor. As we mentioned before, the hardest part of scalping trading is to stay cool and deal with emotions that arise. Even the most elaborate trading strategy with perfect entry and exit points can crash under stress. Scalping throws even seasoned traders off balance, as having to make many decisions in a short period of time drains emotional resources.
  • Time. Scalping requires a constant presence in the market. You don't have the privilege of moving away from the POS during business hours, unlike your mid-term mates.
  • Brokerage commissions. Don't forget that the broker will take a percentage for each of the buy/sell transactions, and in scalping the number of transactions is huge.
  • Maintenance. Scalping requires additional software, which isn't always free.

Scalping strategies

Traditionally, there are 3 main types of scalping strategies.

1. Blotter trading strategy

One of the most common scalping strategies. It is based on the imbalance between supply and demand. Buying/selling numbers can never be the same, which leads to a short-term movement of quotes. This is what scalpers use. Using this strategy, the scalper first of all examines the depth of market (quote tables). Most often, the blotter trading strategy is used to trade stock futures. One of the types of this strategy is front-running. Traders place their orders in front of large lots, which create some kind of airbag for the price movement against scalpers.

 2. Impulse strategy

This is another popular strategy based on the analysis and assessment of world indices, the so-called "guides". The point is that indices are capable of provoking a short-term movement of the entire market or an individual trading instrument. To apply the impulse strategy, a comprehensive analysis of external factors from completely different spheres of life is required, from the most important political and economic events, the level of inflation and oil prices to natural disasters. Traders who prefer this method are most likely to trade CFDs on indices.

3. Hybrid strategy

Most often scalpers use this strategy. It is based on an assessment of the instant liquidity of the instrument, combined with the “guides” observation. Simply saying, it is a combination of the 2 previously mentioned strategies. This method is popular for its versatility.

Additional software

One of the scalping features is the need to use not only the standard trading platform but additional software as well. Special programs are necessary for quick orientation in the depth of market, getting fresh analytical information and placing and closing deals instantly, because speed is the scalper's main assistant. There are many free and paid scalping software out there. All of them are similar in functionality, but can vary dramatically in interface. 

If, after reading all the pros and cons of scalping trading, the desire to try yourself as a scalper is still with you, feel free to open an account and apply the knowledge in practice. Grand Capital will always provide you with favorable conditions for testing any trading strategy.

Start trading

Author: GC
Back to all articles Back

Subscribe to our blog

Thank you for subscribing to our analytics

Blog topic

All Analysis round-up Blog Feature articles Main