Scalping

Scalping, also known as scalping, is a short-term trading strategy aimed at making quick profits from small price movements. This type of trading requires quick decision making, solid risk management and the right technical tools. In this article, you will learn what scalping is, how it works, what benefits and risks it brings, and who this strategy is ideal for. Discover key tips and strategies to help you master scalping in different markets such as forex, stocks and cryptocurrencies. And if you still don’t know how to tax cryptocurrencies, don’t hesitate to contact us.

What is scalping on Forex?

Forex scalping is a trading strategy that focuses on taking advantage of small price movements in the currency market (Forex) in order to make a profit. It is a form of short-term trading in which the trader opens and closes positions within seconds to minutes. The goal is to accumulate small profits from multiple trades that may become significant over the course of the day.

How does scalping work?

Scalping is a trading strategy aimed at quickly taking advantage of small price movements in the financial markets. The trader (scalper) opens and closes trades in a matter of seconds to minutes in order to make small profits that accumulate to a larger overall profit.

How scalping works step by step

1. Market and instrument selection

Scalping works best in markets with high liquidity and volatility, for example:

• Forex (currency pairs like EUR/USD)
• Stocks with high trading volume
• Cryptocurrencies

A platform with low spreads and fast trade execution is important.

2. Use of short-term timeframes

• “Scalpers” concentrate on charts with a short time frame, such as 1-minute or 5-minute charts.
• These charts allow you to analyze small price movements.

3. Technical analysis

Scalpers use technical indicators and formulas to identify entry and exit opportunities.
Among the most widely used are:

• Moving Averages (moving averages): to track trends.
• Bollinger Bands (Bollinger Bands): to identify volatility.
• RSI (Relative Strength Index): to estimate overbought and oversold areas.
• MACD (Moving Average Convergence Divergence): to identify the momentum.

4. Short trades with small profits

• Scalpers open positions to take small profits (e.g. 1-10 pips on Forex or a small percentage move on a stock).
• Positions are often only open for a few seconds to a few minutes.

5. Fast decision making

Scalping requires quick decision making and a solid plan, as a small delay can cause losses.

6. Use of strict risk management

• Scalpers set stop-loss and take-profit to minimize risks.
• They trade small amounts per trade, often risking only 1-2% of their capital.

7. High number of shops

A typical scalper executes dozens to hundreds of trades a day. The goal is to accumulate small profits from multiple trades

Who can do scalping?

Scalping can be done by anyone with the necessary skills, discipline and technical equipment. However, this trading strategy requires a certain level of experience and ability, so it is not suitable for everyone.

It is especially suitable for:

• People with low stress tolerance: scalping requires constant concentration and quick decision-making, which can be mentally exhausting.
• Traders without knowledge of technical analysis: if you can’t read charts and use technical indicators, scalping will be difficult.
• Traders with high trading costs: if your broker charges high spreads or fees, scalping will not be effective.

Scalping is open to anyone who is interested in active trading and meets the basic prerequisites such as technical skills, mental resilience, reliable technology and sufficient capital. However, it is particularly suitable for traders who have experience or a willingness to devote a lot of time to training and practice.

Advantages and disadvantages of scalping

Scalping is one of the most popular trading strategies, which brings many benefits, but also some risks. To understand whether this strategy is suitable for you, it is important to know its main advantages and disadvantages.

Benefits of scalping

• Quick profits: scalping allows traders to get profits in seconds to minutes. With proper trade management, these small profits can gradually accumulate to a significant amount.
• Taking advantage of frequent volatility: scalpers benefit from frequent price movements in volatile markets. They are not dependent on long-term trends, they just need a small price range (e.g. 1-10 pips).
• Minimal exposure to major market fluctuations: due to the short-term nature of the trades, scalpers are less affected by major economic or political events. The risk of significant losses is lower because positions are only open for a short period of time.
• Suitable for active markets: scalping can be very effective in markets with high liquidity, such as Forex, stock markets or cryptocurrencies. Trading is possible during active market hours, which increases the number of opportunities.
• High trade frequency option: scalpers can open dozens to hundreds of trades daily, increasing profitability potential.
• Flexibility over time: scalping does not require long-term monitoring of the markets. Traders can trade according to their time schedule.

Disadvantages of scalping

• High transaction costs: due to the large number of trades, trading fees (spreads, commissions) are a significant cost. If a broker is not chosen correctly, these costs can reduce or eliminate profits altogether.
• Mentally demanding: scalping requires a high level of concentration, quick decision-making and stress management. Constantly watching the market can be mentally exhausting.
• Risk of frequent errors: with a high number of trades, there is a higher probability of errors that can lead to losses. The speed at which trades are executed can cause impulsive decisions.
• Requires fast technology: scalpers need a fast trading platform, low latency and a stable internet connection. Technical problems can cause financial losses.
• High level of risk on small movements: even small adverse price movements can cause losses if the stop-loss is not well set. Profits are small, so even small charges and losses can significantly affect the overall balance.
• Not suitable for inactive markets: scalping is ineffective in markets with low volatility or low liquidity, where price movements are rare.

What makes scalping so attractive?

Scalping is attractive to traders for a number of reasons, which are related to its speed, efficiency and the possibility of making a profit even on short-term market movements. For many traders, it represents an exceptional opportunity to excel in the dynamic environment of the financial markets. Here are the main reasons why scalping is so attractive:

Quick profit

Scalping allows traders to realize profits in seconds or minutes, unlike long-term strategies where one has to wait days, weeks or months. Traders see the result of their trade immediately, which can be motivating and fun.

Minimal dependence on long-term trends

Scalpers don’t need to wait for big market changes or long-term trends. They can profit from short-term price fluctuations. If market conditions change, scalpers can simply exit their positions and avoid losses.

Suitable for volatile markets

In markets with high volatility, such as Forex, stock markets or cryptocurrencies, small and rapid price movements often occur. Scalpers can take advantage of these movements to make a profit. Volatile markets provide ample opportunities to trade throughout the day.

Low exposure risk

Because trades are very short, scalpers are less exposed to the risk of large market fluctuations caused by economic events or news. Scalpers usually operate with strict risk management and limit their losses with stop-loss orders.

Relatively low capital to start with

In markets like Forex, scalpers can use leverage to increase their profits from small price movements, even if they have limited capital. Frequent trades can ensure a regular flow of profits, which is convenient for traders who want a quick return.

Flexibility in scheduling

Unlike long-term strategies, scalpers can only trade during certain time intervals that suit them. Scalpers can choose to trade during hours when markets are most active, such as during the opening hours of stock exchanges or after economic data is released.

Strategies for scalping

Scalping requires quick decision-making and precise strategies to identify opportunities for short-term profits. Below are the most popular and effective scalping strategies that traders can use.

Moving Averages (Moving Averages)

• Identifying the trend using short-term (e.g. 9 EMAs) and long-term moving averages (e.g. 21 EMAs).
• Buying at the “golden cross” (short-term EMA beats long-term EMA), selling at the “death cross“.

Breakout strategy

• Trading on a break of support or resistance.
• Entering the market when important price levels are broken, often with high volatility.

Bollinger bands

• Trading based on price volatility within bands.
• Selling when touching the upper band (overbought), buying when touching the lower band (oversold).

RSI and Stochastic Oscillator

• Identification of overbought or oversold market areas.
• Buy when the RSI falls below 30 (oversold); sell when the RSI exceeds 70 (overbought).

Trading in channels

• Tracking prices moving in a defined price channel.
• Buying at the lower end of the channel, selling at the upper end.

Trading on News (News Trading)

• Reaction to volatility caused by economic events.
• Enter the market according to the direction of movement after the release of important news.

VWAP (Volume-Weighted Average Price)

• Trade according to whether the price is above or below the VWAP.
• Buy when the price rises above VWAP, sell when it falls below VWAP.

Tick scalping

• Trading based on small movements on tick charts.
• Fast inputs and outputs in response to micro-movements.

Automated scalping

• Using algorithms for fast execution of trades.
• The software executes trades according to predefined rules.

The most commonly used scalping tools and platforms

MetaTrader 4/5 (MT4/MT5)

Advanced charts, a large selection of technical indicators, the ability to use algorithms and trading robots. Suitable for Forex, stocks, indices.

TradingView

User-friendly charts, a community of traders, an extensive library of indicators and scripts. Suitable for all markets (Forex, cryptocurrencies, stocks).

NinjaTrader

Advanced technical analysis tools, fast order execution, custom strategy programming. Suitable for stocks, futures, Forex.

cTrader

Low latency, ideal for fast trading, advanced technical analysis tools. Suitable for Forex, indices.

Thinkorswim (TD Ameritrade)

A wide range of graphical tools, great flexibility and detailed data. Suitable for stocks, options, futures.

Interactive Brokers

Low fees, suitable for active traders, access to multiple markets. Suitable for stocks, Forex, futures.

Binance (cryptocurrencies)

Ideal for cryptocurrency scalpers, low fees, leverage trading option. Suitable for cryptocurrencies.

What to consider when scalping

1. Market volatility: scalping works best in markets with sufficient price movements, but too much volatility can be risky.

2. Market liquidity: choose liquid markets where it is possible to open and close positions quickly (e.g. EUR/USD, BTC/USD).

3. Cost of trading: the broker should offer low spreads and fees so as not to reduce your profits.

4. Speed of execution: a fast, lag-free platform is required (e.g. MetaTrader, cTrader).

5. Risk management: set fixed stop-loss and take-profit, risk only a small percentage of capital per trade.

6. Technical analysis: use indicators such as RSI, Bollinger Bands or Moving Averages to identify opportunities.

7. Mental resilience: scalping is demanding in terms of concentration and stress management.

Success depends on discipline, the right tools and adapting your strategy to the current market conditions.

In conclusion

Scalping is a popular trading strategy that offers quick profits for experienced traders with an emphasis on precision, speed and a disciplined approach. While it brings benefits in the form of short-term market opportunities, it also carries risks that need to be carefully considered. To be a successful scalper, you should invest time in studying the market, utilize quality trading tools, and keep control of your emotions. Scalping can be a powerful tool to maximize profits if approached with the right strategy and plan.