What is Scalping in Trading? Scalping Trading Strategies Explained
2/13/2025, 3:13:54 PM
Scalping is an excellent trading style, which, if done with discipline, can be highly rewarding. Join FundingPips and level up your scalping experience.
What is Scalping in Trading? Scalping Trading Strategies Explained
Scalping in trading is a fast-paced strategy that aims to earn profit quickly from small price movements. It is a popular trading method among professional traders. Scalping is ideal for traders who wish to earn big in less time. However, it demands precision, focus, discipline and a strong understanding of the market dynamics. If you wish to level up your trading skills and kickstart your journey without risking your capital, join FundingPips, a top-tier prop firm providing adequate tools and support.
What is Scalping in Trading?
Scalping is a popular style in which a trader executes several trades quickly, looking to profit from smaller price movements. Such trades are often held for a few seconds to a few minutes. Scalping demands highly accurate market analysis and quick decision-making.
The essence of scalping is in frequent trades with predefined minimal risk per trade. Scalpers use high leverage to amplify their returns. Mostly, scalpers opt for highly liquid markets like forex and indices with more opportunities.
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How Scalping Differs from Other Strategies
Scalping is a distinct trading style that differs in approach and goals:
Scalping vs. Day Trading
Both trading styles involve closing the trades on the same day. However, scalping has a much shorter timeframe, while day trading typically holds positions for many hours. Scalping is considered riskier than day trading, but it also has higher rewards.
Scalping vs. Swing Trading
Swing traders capitalize on major trend reversals and hold positions for several days or weeks, while scalping is faster and more intense. You can start scalping with less capital. However, you need to be a sharp trader to do so.
Advantages of Scalping
Ideal for volatile markets when prices move too fast.
Provides several opportunities during the day.
Reduces overnight exposure.
Disadvantages of Scalping
Requires constant monitoring and fast reaction.
Transaction costs may be higher due to frequent trading.
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Common Scalping Trading Strategies
Scalping is not a “one size fits for all” approach. You may have plenty of scalping strategies based on indicators or price action. Here are some popular and easy-to-follow scalping strategies:
Strategy 1: Moving Average Scalping
The moving average is the most frequently used indicator in trading. You can use 20-period SMA on a 5-minute chart to trade. Here’s an example:
The GBP/USD chart shows a buy call when the price closed above the 20-SMA. The stop-loss is placed below the recent swing low, while the position is closed in profit when the price closes below the 20-SMA.
Strategy 2: Bollinger Bands Scalping
Bollinger Bands helps you identify volatility and overbought or oversold conditions. You can use it on a 5-min or 15-min chart to perform scalping.
The above chart of USD/CAD shows a sell entry when the price broke the lower band. The stop-loss is above the swing high, and the take profit is three times the risk.
Remember, the squeezing bands show a trend reversal. Hence, we considered the sell setup as it had squeezing bands after a bull run.
Strategy 3: One-Minute Scalping
This strategy uses a 1-minute chart for a quick entry and exit. We can combine MACD and RSI to find optimal entry points. Make sure to choose a highly volatile asset to trade.
The above chart of GBP/JPY shows a buying opportunity. The MACD crossover appears with the histogram bars turn green, followed by an RSI value above 50.0 to confirm a buy call. The stop-loss is below the swing low, and the take profit is near the resistance level.
Essential Tools and Indicators for Scalping
Successful scalping requires the use of the right tools. Here’s what you need:
Trend indicators: You should be able to use trend indicators like MACD, RSI, BB, MAs, etc. to trade better.
Fast Execution: Scalping can fail badly if your trading lags. Make sure your trading terminal is fast with a great internet connection.
Key timing: Scalping is not meant to be performed 24 hours. You have to find the most volatile moments to trade.
Is Scalping Right for You?
Scalping is not suitable for everyone. Here’s an ideal profile for a scalper.
A scalper should be a highly disciplined trader. Deviating from the plan is not an option.
A scalper should be familiar with price action and technical indicators. Reading charts correctly is essential.
A scalper should be comfortable with frequent small profits or losses.
Managing Risks in Scalping
Since scalping is a high-risk technique, it is essential to be familiar with the potential risks and ways to mitigate them.
Common Scalping Risks
Due to market volatility, sudden price swings can result in significant losses. As a scalper, you aim for a 5 to 10 pips profit. Hence, a loss reaching 50 pips or more can wipe off your day’s efforts.
Moreover, since scalpers trade several times daily, the likelihood of committing mistakes is high. You may indulge in over-trading as well.
Mitigating Risks
Use the leverage with responsibility. Never put more than 2% risk in one position. Always use the stop-loss to avoid significant losses. Maintaining a healthy risk-reward ratio can help you overcome this.
Greed is a curse, especially in trading. Set realistic goals and focus on being consistent with smaller profits rather than looking for sudden significant gains.
Final Thoughts
Scalping is a dynamic and advantageous method, as it provides multiple opportunities in a day. However, it is not a straight path. You must sharpen your skills and become a disciplined trader to succeed.
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