Many traders use scalping strategies in stock exchange trading. Such a strategy implies short-term daily transactions and obtaining small income from one transaction. However, the total profit for the day is compensated by a large number of deals – sometimes up to 500 trades. Usually the trading time lasts from a few seconds to several minutes
The full list of companies that allow scalping can be found in the section – Scalping Brokers
There are still heated debates over the application of scalping strategies. Some argue that scalping is better for beginners because it does not require global market analysis and can be a good practice to gain experience. Others argue that scalping is an advanced strategy and requires certain knowledge and a plan of action, as it will help to determine the right direction and trends in the market. To determine the choice of scalping strategy, it is necessary to study its advantages and disadvantages
The benefits of scalping trading
- One of the most obvious advantages is that you get a lot of profit in a short period of time. For example, you can open a deal at the price of 15.500, and in a few minutes you can close it at the price of 15.520. Thus, in a couple of minutes you have earned $20, and taking into account that there can be several tens of positions, the amount will be quite impressive.
- The second undeniable advantage is the fast learning process. The use of long-term trading requires careful analysis of the market and study of the main factors. While trading on short timeframes it is possible to use small market regularities and technical analysis.
- The use of scalping allows you to get a good profit with a minimum deposit. Receiving 100$ from 10 to 20% monthly will not improve your financial situation, and 20% daily can significantly increase your budget
Shortcomings in scalping
- Perhaps the biggest disadvantage of scalping is the huge risk. Getting a large and fast profit is always associated with great risks, because determining the direction of the trend on short timeframes is sometimes unpredictable.
- Most brokers do not welcome traders who use scalping. Of course, no one directly prohibits the use of scalping, but many brokers put a limit on the time of the transaction or the number of trades during one session. Some brokers limit the duration of the profitable operation to 10-15 minutes.
- It makes sense to use scalping if the spread (commission) is minimal. Usually it is recommended to use no more than 3 points. Therefore, we have to limit ourselves to choosing a currency pair – spreads in many pairs are too high. (Learn more about the reasons why scalping strategies are restricted by brokers in the article: Why do Forex brokers not like scalpers?
- Since a scalper makes tens to hundreds of transactions a day, you have to spend a lot of time at the workplace.
- Leverage should be used for short-term transactions. Therefore, one or two unsuccessful transactions may have a significant impact on the deposit
Scalping strategy can be used not as the main, but as an auxiliary strategy, i.e. you can trade on long-term positions where the price is stable and stable, and at the same time use scalping and make short-term profit.
Favorable conditions for scalping
In order to start using scalping strategy, you need to have a set of components that will allow you to trade successfully and make a profit. One of such components is the correct choice of a broker.
- Before you give your preference to any company, make sure that it supports scalping.
- Pay attention to the quote – the five-digit quote is considered to be the optimal one. In this case, the trader can put a small stop and 5-10 points, in this case it will be 0.5-1 points.
- A rather controversial issue for traders is the spread size. Some prefer floating spreads, others prefer fixed spreads. However, most people believe that floating spreads are more suitable for short timeframes and fixed spreads for large ones.
- Execution of orders. A pair of order types is used – a snapshot order and a pending order. The momentary order depends on the actual response speed. Speed, in turn, depends on a number of other factors. It is possible to determine it only in practice, opening several orders at once at high liquidity of the market.
- Another component for successful profit is trading time. The best time is when the market is most active. The activity increases during the intersection of two trading sessions, when the number of players almost doubles. Increased activity is also observed before the release of news, so it is necessary to monitor the schedule of news releases.
- Choosing the right tool. Most often, these are currency pairs that have the most active movement and more news.
Summing up, we can say that scalping can not be used by all. To achieve good results and get a stable profit, a trader must have special qualities. First of all, it is the ability to be attentive, to concentrate and not to pay attention to extraneous factors. Secondly, the scalper must have strong enough nerves and self-control – not everyone will be able to observe the workstation during the day and make the right decisions quickly.
However, if you believe that you have all these qualities or experience, scalping strategy can bring you a good profit.