The complete guide to scalping trading strategies | Skilling
In the world of stock and shares trading, scalping is a term that you will come across again and again. In day trading, scalping is a form of trading that requires the execution of many short, fast trades in order to capitalize on incremental price differences.
So, what is scalping trading? It is a form of trading that is most commonly applied to CFD trading, but it can also be applied to forex trading and commodity trades. Scalpers primarily seek to profit from the small market movements that occur on a minute-by-minute basis and are a result of constant market activity throughout the trading day.
The overall goal of a trading scalping strategy is to make high volumes from a wide variety of smaller profits while avoiding large losses that could wipe out those incremental gains. If you're new to the concept of scalping, you have come to the right place. Read our essential beginner's guide to find out everything you need to know about scalping trading.
Scalping trading tips for beginners
Scalping requires an ability to execute a large number of trades within very small time periods, selling quickly to capitalize on incremental gains while avoiding adverse events that can cause significant drops.
It is therefore essential to reduce exposure risk and maximize the amount of "winners" in a very narrow time window. If you are new to scalping, here are some handy scalping trading tips to keep in mind when you get started:
- Stick to a rigid scalping strategy and do not deviate from it. Since scalping depends on being able to pull off a large volume of trades in a specific time period, it is essential to remain focused and stick to a trading strategy that works for you.
- Have a solid exit strategy. Due to the nature of scalping, one large loss can easily wipe out dozens of small gains. It is therefore important to know the exact stock or share trading conditions that will prompt you to exit the market.
- Use a broker that guarantees direct market access. Since scalping requires you to be able to buy and sell at the exact times you want, down to the second, direct market access is essential.
- Avoid using a broker that charges large commissions. Since the gains from scalping come from lots of tiny profits, significant commission fees will erode your profitability.
- Endurance is key. Scalping is not a part-time trading strategy. In order to see significant gains, you will need to execute large volumes of trades throughout the day.
How to do scalping with a demo account
In order to get a solid understanding of the realities of scalping trading, as well as learning how to succeed, it is highly recommended that you practice scalping with a demo account. You can set up a demo account with Skilling that allows you to execute dummy trades with fake money, using real-time market data. This will give you a sense of how scalping trading strategies work and what you need to do in order to realize profits. To set up a scalping demo account:
- Go to the Skilling website and click "sign up".
- Enter your account information, such as your email and password.
- Enter your account preferences and information on what your trading interests are.
- Select "demo account" to start trading with fake money.
- You can switch to real money mode and finalize your account registration, which includes choosing what account type you would prefer.
Different scalping trading strategies
There are a wide variety of scalping trading strategies that are tried-and-tested by expert day traders. None are a guarantee of success, but utilizing a scalping trading strategy that works for you is crucial if you want to master the practice of scalping.
Some scalping strategies are more suited to forex trading, while others are best suited to other types of stock and share trading. Here are some of the most popular types of scalping trading strategies that you should be aware of before you start:
Moving Average Scalping Trading This is when you take multiple moving averages, usually, a couple of short-term moving averages combined with a long-term one, in order to indicate an overall trend and execute trades accordingly. For example, you could take a chart for a currency pair such as USD-JPY. On this chart, you would add two short-term lines, i.e. five and ten-period moving averages, and then a third long-term line, such as a 200-period line. You then compare these in order to determine the regular short-term fluctuations in the currency pair over time and use these to time the execution of your forex trades.
RSI Scalping Trading This involves using the Relative Strength Index, or RSI, to identify market entry points that are consistent with a prevailing trend. For example, you could use the RSI to determine the price momentum of Apple stock and see that there are consistent dips in the upward trend. The goal would be to capitalize on these dips and buy when it occurs, selling again when the consistent rise occurs again in a short time period.
Stochastic Oscillator Scalping A stochastic oscillator allows you to compare the current price of a security with its recent range over a short period of time. You can use an oscillator to capture small moves within a trending market for a certain security, as the oscillator allows you to identify entry points.
For example, if the price of gold over a three-minute interval is moving higher, an oscillator might show that this rise is happening in the form of gradually rising peaks and troughs. The goal would be to buy during the "trough" and sell during the mini-peak in order to make a profit. Of course, if you are taking a short position, the reverse is true.
Trading scalping FAQs
Is Scalping Trading Totally Legal? Yes. Scalping is a totally legal trading strategy that is widely practiced among day traders and experienced market players alike.
How Do I Choose an Asset for Scalping? The key to profitability in scalping is often volatility. Keep an eye out for volatile assets or currencies, stocks, and securities that are likely to see significant volatility over the coming period.
How Can I Minimize Risk When Scalping? There are several ways to minimize risk when scalping trading. First, always have a pre-confirmed exit strategy that will allow you to exit the market before your losses become too great.
Always use a trusted broker that deals with the real market and real market data. Spread your trading activities across a wide range of assets in order to offset losses if and when they occur.
Not investment advice. Past performance does not guarantee or predict future performance.
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