What You Should Know About Scalping in Trading

Scalping in Trading

The fastest trading method is “Scalping” or “Scalp Trading”, which has the lowest period between opening and closing a position. In this strategy, profit is gained through small price changes.

Scalp trading takes from several seconds to several minutes. In this method, trades occur in small time frames such as tick charts, which are the 1-second time frame chart. As a scalper, you should determine the suitable time frame before trading.

High-Frequency Trading (HFT) is the fastest trading method, relying entirely on computers to execute hundreds or even thousands of trades within a single minute. In contrast, scalping is a manual trading approach performed by humans, focusing on quick trades but without the same speed or automation as HFT.

This article is an educational guest post.

We also invite you to watch our Forex Scalping Workshop.

Why is scalp trading appealing?

It goes without saying that during the day, small fluctuations in a market are more than significant movements. Therefore, scalpers don’t need to wait too long for a good opportunity in the market, and they sometimes experience several positions in small time frames. But in the case of positions that are opened and closed in a small time, controlling emotions is so much easier, because there is no need to wait too long to reach price targets.

On the other hand, when trading in higher time frames, a trader should wait a long time to reach their trading goals (several hours to several months). This will tempt the trader to close the position too soon and gain less profit.

Needed time for scalp tradings

Scalping aims to gain profits from small market movements, so the trader should trade several times a day to achieve a reasonable amount of profit. Therefore, they should study the charts for several hours to find trading opportunities.

Scalping needs a high concentration level, and positions shall be opened at precise points, so the trader should be concentrated and agile. Also, it is recommended for scalpers to work in a relatively quiet environment with no distractions.

Distractions could prevent the trader from entering a profitable position or cause them to enter a position at a bad time, which is worse. According to the level of precision and concentration needed for this trading method, it’s not recommended for all traders because not everyone can handle this amount of pressure.

The amount of needed budget for scalping

Since trading large volumes needs a significant capital, you need a more considerable margin to start trading in large volumes.

To profit from small market movements, you should trade in larger volumes to guarantee a reasonable profit.

For example, imagine a trade with the goal of 500 pips profit. If the same trade is 50 pips away from the target, you should multiply your volume by 10, and if your trade is 5fivepips away, you should multiply your volume by 100.

Margin

The amount of money blocked by your broker is called “Margin.”

In other words, the margin is the amount of money your broker blocks when you open a position. When you trade larger volumes, the amount of blocked money by the broker increases. The blocked money is released only if the position is closed. Margin prevents significant losses or even negative balances if the market moves in the opposite direction.

Some brokers may block a lower amount of margin compared to others. Therefore, when choosing a broker, you should determine whether you are trading with a CFD broker or a Futures broker. CFD brokers tend to block a lower margin for the same trade.

Pay attention to the fact that you can scalp trade using a small trading account. The only difference is that when your positions are small, you should increase the number of trades to keep up. Therefore, you should spend more time finding trading opportunities.

Capabilities of a scalp trader

 Here are some capabilities a forex scalper needs:

• The ability to think and act rapidly
• Rapid market analyzing
• Rapid validation of market reversing
• Acting fast, having fast hands, and being well acquainted with shortcut keys
• Patient like a hunter to find the best trading opportunity

 Note: You should have enough time as a scalper to spend in front of the screen.

People with the below characteristics should never choose this kind of trade

Here’s a list of characteristics that, if you have one of them, you may rethink wanting to be a scalper:

• Like to spend time analyzing the market and making decisions
• Being a beginner, having no experience or trading skills
• I wouldn’t say I like stressful situations
• Don’t have enough time to spend working with a computer
• I prefer to trade less and gain more profit

The best markets for scalping

To be successful in scalping, you should know which markets are more suitable for this kind of trading.
The most essential features a market must have to be suitable are:

Liquidity

Liquidity is the volume of orders that take place at the same time in the market. In scalping, you should enter at a specific price and exit when the market reaches your desired price. In this method, orders must be executed when you press the “buy” or “sell” button. Since slight price variations can change the outcome, orders must be executed instantly. Therefore, the liquidity of the market is of high importance. The more liquid a market is, the more orders get executed precisely; hence, the profit will be.

Note that markets with low liquidity, such as the cryptocurrency market and penny stocks, aren’t suitable for scalping.

When trading with Aron Group’s global broker, you can benefit from numerous liquid markets in the Energy, Forex, Cryptocurrency, stock market, and others. Aron Group works with reliable liquidity providers in this field.

Spread

Spread is the difference between the selling and buying price. The buying price is often more than the selling price. Some brokers receive a commission instead of a spread.

When you enter a buy position, your order is executed at the buy price, the best price for which someone is willing to sell you the asset. When you want to sell an investment, the order is executed at the selling price, which is the price someone is willing to buy the asset for. Each time you open a position, the position is opened with a loss. The loss at this moment is equal to the spread. To begin gaining profit, the position must move toward your expectations to cancel out the spread. Only then can you gain profit.

In scalping, the aim is to profit from small market movements. If the spread is high, more prominent movements have to take place to cancel out the spread so that the overall gain will be lower. So, pay attention to the spread amounts when choosing a market for scalping. Markets with higher liquidity tend to have lower spreads.

Commission

Some brokers tend to receive a commission instead of a spread.

Difference between Spread and Commission

For example, we have brokers A and B:

A: Doesn’t receive a commission, but the spread rate is one pip for the EUR/USD pair.

B: Receives 7$ commission for each lot of trade, but the spread rate is 0.3 pip for the EUR/USD pair.

If you want to open a position on a EUR/USD pair, each pip’s value will equal 10 dollars.

When you open a position with broker A, the position will start with one negative pip (-10 dollars). In this case, the price must move one pip in your direction to cancel the spread. With Broker B, the position will start at -0.3 pip (-3 dollars), which will be canceled if the market moves 0.3 pips in your direction.

Broker B receives a commission in addition to the spread; in this example, the commission equals 7 dollars per lot, equivalent to 0.7 pip.

Therefore, if you work with Broker B, the price must move 0.3 pips and another 0.7 pips in your direction to cancel out the spread and commission, which is one pip overall.

Eventually, there are no differences between broker B and broker A.

This may happen with a broker. Your broker may present many kinds of accounts. One of them doesn’t receive any commission but has higher spreads or vice versa.

Perfect time for scalping

Liquidity is an essential factor in scalping because it allows you to open and close a position at the best possible price. For the same reason, the time spent scalping is essential. Therefore, you should trade when markets are active, and more traders are trading in that market.
The most suitable and promising market movements occur during the London Trading Sessions. During this time, the market will experience a reasonable amount of volatility, movements will get precise, and liquidity will increase.

By the time the New York meeting starts, the liquidity will even improve. In cases where the London and New York meetings overlap, the number of trades increases significantly, creating the best opportunity for scalping. As a result, fluctuations will decrease as the London meeting ends. However, some good price movements remain until the end of the New York meeting.

Focusing on one currency pair, index, or stock

Scalping needs an incredible amount of focus. Scalping is done under a lot of pressure. It would be best if you moved your energy to the best place. The more markets you analyze simultaneously, the more loss you will suffer. Try to focus on one particular currency pair and analyze it several times each day.

Checking the news feed

When publishing news, liquidity will significantly decrease and cause significant trade spillage.

As the news gets distributed, markets will get volatile. What will happen if you open a position before distributing certain news and large price movements in the opposite direction afterward? It will undoubtedly have a disturbing outcome. So it is wise to wait. Even if you have open positions now, it is better to close them since the stop loss level can be easily reached afterward due to high volatility. Fluctuations and spikes will reach their normal level 1 to 2 minutes after the news distributionand that would be the time to take advantage of them.

Importance of planning

Success is far away without a trading plan. You don’t know what to do without a trading plan, therefore anything you gain is based on chance, and as you know chance couldn’t be counted on. Scalping is no place to make mistakes. If you don’t have a trading plan yet, it is recommended that you stop scalping now.

Suitable choice

There is no need to enter a trade when seeing any trading opportunity. There is no need to trade every minute or hour. If you know that a market is unsuitable for trading, simply don’t trade. There will always be opportunities. Wait for the best ones.

Specifying limits

Limit yourself. Controlling emotions is a hard thing to do. No one can stand against their feelings for too long. Specify a stop loss and limit your number of trades, time of trading, and the number of markets you want to analyze. Put as many limits as you can to increase your concentration.

Traps

We are responsible for Most of the traps. Beware of the following thoughts:

• I want to recover from my loss
• Just one more trade
• I should take my money back from the market (Taking revenge)
• This time is different

The above statements exist in your mind. Therefore, you should control your emotions. The only trap is in your mind; there are no traps in the market. So trade only when you have a high level of concentration. Don’t ever try to trade based on your emotions or take revenge from the market.

Scalping in Trading Final words

Scalping is one of the strongest and most appealing methods of trading. But as long as you are not prepared to confront constant emotional traps and permanent pressure during trading time, it could easily defeat you.

Scalping is the choice for most traders. If you obey the above rules, you can expect to improve and take advantage of this kind of trading in many ways.

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