Scalping is a short-term trading strategy (Active trading) that relies on short movements of a price for profiting. Scalpers use this technique to gradually collect small, but frequent amounts of profit, instead of big orders.
This strategy is generally employed by day traders that conduct short-term profit through everyday trading on various markets, including both forex and cryptocurrency.
As aforementioned, scalping is a strategy involving buying or selling assets in a short matter of time. Some scalpers even leave their orders open for only a few seconds, which can result in low profit, but benefits them when at loss, in terms of how the loss margin is still relatively low, compared to other techniques, making it a less risky trading technique.
With it taking concern of a small time frame, scalping should be conducted in a short matter of time in order to allow scalpers to respond to any immediate graphs trends or movements. The most popular time frames range from one hour to only a couple of seconds.
In addition to scalping, traders enforce the use of technical analysis strategies as well, which can include various indicators, chart patterns, support-resistance lines, etc. All of which are advised to be studied intensively before usage.
Furthermore, investors have also been found to use “bots” to enforce trading orders as desired as well. Such signaled orders can also include the use of the MACD indicator, a basic TA tool. The use of bots is for opening or closing orders automatically to reduce time management issues when investing, while also being ahead of various investment opportunities that appear when prices show movements.
When receiving low profit yields, traders include the leverage function to multiply their buying and selling power during their scalping time frames. However, leverage trading can be highly risky, traders are advised to study risk management strategies ahead of time.
Evidently, scalping is a risky trading strategy and can be unsuitable for new traders. To initiate such techniques, traders are highly advised to conduct a thorough risk management strategy, along with investment plans.
Examples of disciplined risk management strategies include cutting loss and establishing a risk/reward ratio of around 1:1 or even a win/loss ratio of 2:1.
Different types Scalping
A scalp trader can be divided into two variations; discretionary and systematic, in accordance to their trading methods.
Discretionary scalpers rely on logic and theories, while also studying the market state before investing. In opposition, systematic scalpers depend on signals and indicators, rather than personal views and feelings (found to employ the use of bots).
If performed correctly, scalping can be an accurate and suitable investment strategy, with lower risks, when compared to other methods. This is due to the given short time frame, which would not coerce investors to rely on basic fundamentals in trading. Therefore, only understanding graph movement analysis would be needed.
Additionally, with the help of bots, scalpers can conduct immediate trades through indicators.
One of the main functions of scalping is a liquid market, which would allow instant buys and sales of assets.
Also, with the method taking regard to creating numerous buy-sell orders, traders may need to absorb high rates of fees for brokerage and exchanges. Therefore, on some occasions, fees can be even higher than the attained profit itself. Not to mention the immense focus and time needed to conduct this method in the first place.
All in all, scalping is a widely-used short-term investment strategy. Fundamentally, it takes priority to acquiring consistent and gradual profit gains from numerous orders, rather than a large amount from one.
Though effective is correctly used, this technique can be risky. Traders are highly advised to conduct adequate research in technical analysis methods before investing, while also being able to manage risks as well.