What You Should Know About Scalping in Trading (2024)

Scalping in Trading

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

Scalp trading takes from several seconds to several minutes. In this method, trades are taken place 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.

The High-Frequency Trading method is the fastest method. Scalping unlike the HFT method, which is solely done by computers, is manually done by humans. It is worth mentioning that in the case of HFT, hundreds or thousands of positions are opened and closed within one minute.

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 a day, small fluctuations of a market are more than big 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 span, controlling emotions is so much easier, because there is no need to wait too long to reach price targets.

On the other hand, in the case of trading in higher time frames, a trader should wait a long time to reach his/her 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 gain a reasonable amount of profit. Therefore he/she should study the charts for several hours to find the trading opportunities.

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

Distractions could prevent the trader from entering a profitable position or cause him/her 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 large capital, you need a larger margin to start trading in large volumes.

When you want 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 5 pips 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 is used to prevent big 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, you should determine whether you are trading with a CFD broker or a Futures broker when choosing a broker. CFD brokers tend to block a lower amount of margin for the same trade.

Pay attention 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 can’t stand 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 important 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 need to be executed when you press the “buy” or “sell” button. Since small 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, orders get executed precisely; hence the profit will be more.

Note that markets with low liquidity aren’t suitable for scalping—for example, the Cryptocurrency market and Penny stocks.

When trading with Aron Groups’ global broker, you can benefit from numerous liquid markets in the Energy, Forex, Cryptocurrency, stock market, and several other markets. Aron Groups 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, which is the best price someone is willing to sell you the asset for. When you want to sell an asset, 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 loss. The loss at this moment is equal to the spread. In order to begin gaining profit, the position must move towards your expectations to cancel out the spread. Only then you can gain profit.

In scalping, the aim is to gain profit from small movements of the market. If the spread is high, bigger movements have to take place to cancel out the spread so that the overall gaining 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 1 pip for EUR/USD pair.

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

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

When you open a position with broker A, the position will start with 1 negative pip (-10 dollars). In this case, the price must move 1 pip in your direction in order to cancel out the spread. With broker B the position will start with -0.3 pip (-3 dollars), which will be canceled out if the market moves 0.3 pips in your direction.

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

Therefore in case 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 1 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 the other way around.

Perfect time for scalping

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

By the time the New York meeting has started, the liquidity will even get better. In cases where the London and New York meeting overlap, the number of trades increases significantly, therefore creates 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 a great amount of focus. Scalping is done under a lot of pressure. You should move your energy to the best place. The more markets you analyze simultaneously, the more loss you will suffer from. Try to focus on one particular currency pair, analyze it several times each day.

Checking the news feed

When publishing news, liquidity will significantly decrease and cause great spillage in your tradings.

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 certainly have a disturbing outcome. So it is wise to wait. Even if you have open positions at this moment, it is better to close them since the stop loss level can be easily reached afterward due to high volatility. 1 to 2 minutes after the news distribution, fluctuations and spikes will reach their normal level, and 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 to stop your 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 not suitable 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 emotions for too long. Specify a stop loss and put a limit on 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 just 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 own 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 the 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 so many ways.

If you want to receive an invitation to our live webinars, trading ideas, trading strategy, and high-quality forex articles, signup for ourNewsletter.

Subscribe to ourYouTubechannel.

Click here to check how to get qualified.

Click here to check our funding programs.