Scalping Trading Strategy Guide: How to Scalp Trade Your Way to the Top
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- Scalping is a trading strategy where a trader strives to profit by buying and selling an asset in a short timeframe
- Scalpers will hold a trade anywhere between a few seconds and a few minutes
- Scalpers are usually day traders, as it requires consistent monitoring of the charts
- The goal of scalping is to reap a few pips of profit by opening and closing multiple trades per day
- Scalpers will execute between 10 and 100+ trades per day
When we think of Scalping or Scalpers, a lot of us imagine the hustler outside a venue of a sold-out event selling tickets for a quick profit. Scalping follows that same concept, in that traders quickly enter and exit the market taking as many small profits as possible from multiple transactions. To ensure profits are not lost, a scalper is required to have a strong exit strategy. This will help eliminate the potential impact of one big loss cancelling out many small gains. As smaller trades add up, the profit potential from these quick wins can become substantial. Thus, the scalping strategy has become one of the most popular trading strategies amongst traders.
What Does Scalping Involve?
Scalping is a trading technique based on a few important principles. Scalping strategies utilize real-time technical analysis and can also use news and events as triggers for knowing when to enter the market. Contrary to a buy and hold strategy where an investor will play the long game for maximum returns, a scalper works to accomplish numerous trades for small earnings that will compound into a good daily take.
Timing is Everything
Another key factor in a successful scalping strategy is the timeframe. Scalping generally takes place in the smallest window, from a tick to 5 minutes. As a result of the timeframe, the profit is smaller, so traders will need to execute multiple trades to compound their profits. The most common scalping timeframes are between 1 and 5-minutes. While some traders choose to use charts of up to 15 minutes, this is the least popular.
The scalping strategy aims to find slight fluctuations in the price movement of an asset in a relatively short period, usually up to 5 minutes. One of the most important characteristics of scalping is the frequency of the trades. Scalping implies a high-frequency repetitive type of trading and is the fastest way to make profits or incur losses on your statement. Scalpers are attuned to making a large number of trades for small portions of profit. Scalpers may trade in every market, although they prefer assets with high liquidity such as currencies, commodities, and equities as they provide the necessary volatility for the short time of holding the position.
How Many Pips do Scalpers Aim to Profit per Trade?
A scalper aims to profit, or scalp, anywhere between 5 and 20 pips per transaction. They will then continue to execute trades throughout the day to turn small profits into something sizeable.
To make substantial profits, the scalper needs to trade larger volumes with high leverage so that the return on one pip can be maximized. For example, if a scalper aims at a profit of 10 to 20 pips while risking about 50% of it, the risk/reward ratio is 2:1. Meaning for every profitable trade, the trader can afford two losing trades, and they’ll break even. Also, when trading standard lots, one pip is equal to approximately $10.00, so a trader can make around $100.00 profit per transaction.
What are the Benefits of a Scalping Strategy?
One key benefit to traders is that there is continuous opportunities to enter markets for short periods of time.
Traders need to develop the trade mechanics for successful scalping by using a combination of scalps and trading management, a synchronized set of entry and exit points along with a stop-loss order. Due to the dynamic nature of the scalping technique, many traders prefer to manually close and take profit instead of placing a take profit order. A trailing stop (a stop-loss order that follows the price by a fixed percentage and can lock in profits as the price moves in your favor) is also a preferred way of closing a scalp trade.
What is the Best Time to Scalp in Forex?
Timing the market in scalping is critical. Scalpers need to find the best time of the day to scalp. Some traders avoid the highest and lowest volatility times and enter the market when it’s oscillating in a range between two prices. Others open positions right after news and events, as that’s when the market can fluctuate with the highest volatility and perform a big move in seconds. There is no right or wrong answer when it comes to the best time to the scalp since it differs between the traders and their risk appetite. Yet, we can give you some tips on how the market operates:
- Between 8:00 – 10:00 AM EST, all markets are open, and the news has already started to direct market trends. This time frame is undoubtedly the most volatile and requires the scalper to remain alert to follow the rapid swings which can be profitable or result in a loss.
- The afternoon market, between 3:00 PM and 5:00 PM EST, provides some volatility where a scalper can still make significant profits.
- The market winds down between 5:00 – 7:00 PM EST and offers an ideal pace for those testing out a scalping strategy since most of the major banks closed.
Due to the fast trade pace, scalping is an exciting game that has large profit potential, while at the same time poses risks for any trader’s account.
A successful scalper requires patience and discipline. Scalping strategies where rapid trades are made are intense and being able to handle stress is key. If you want to find more about trading psychology, read our blog about mastering your emotions while trading.
Lastly, keep consistent trade sizes, and avoid changing your strategy at the last minute in favor of a chance at a lucky streak. Focus is essential! Most importantly, learn from your mistakes. Make sure that you take the time to review those trades and analyze what went wrong. Then, modify your strategy and try again.
Want to see if Scalping is a Strategy that you can Master?
While not all Forex brokers permit scalping on their platform, OspreyFX does! So, why not try it out on a demo account, or trade with a mini account to control the risks until you’ve got the concept down. What are you waiting for? Start scalping with OspreyFX today.
OspreyFX is the perfect partner to guide you on your trading journey. Why not take advantage of our free Forex Trading Education Tools, and utilize our indicators to help you read the charts! Our traders can also trade with better insight thanks to our Forex Calculators. Why wait?