Scalping – Concept, Features, Techniques, Benefits, Drawbacks & moreLast Updated Date: Nov 24, 2022
In this article, we will explore anything there is to know about Scalping.
Of course, we will start with what Scalping is in the first place. Then, we will move forward with the basic understanding of this process.
In the world of financial assets trading, everybody has their own opinion of how they will do business.
Since there is no written formula in existence to get guaranteed success, everyone follows a principle and hope for the best.
Scalping is one of such trading techniques which many traders all around the world do believe in.
Here, we will address the basic characteristics of Scalping, and also raise the argument behind the mentality of adopting this strategy.
Finally, we will also talk about the pros and cons of Scalping. So, let us walk through it.
Overview of Scalping
While you do financial assets trading, there can be several strategies that you can adopt to get success.
However, after loads of researches, experts have figured out that there are four main trading styles that 95% of the traders follow.
Scalping, as you might have guessed already, is one of such trading styles.
The core concept of Scalping is relatively simple – to perform numerous trades within a day tenure and earn profits collectively.
To simplify, those who proclaim themselves as Scalpers buy and sell assets in less than one minute. Therefore, they can trade hundreds of times in a particular day’s tenure.
Of course, the profit margin per trade will not be massive, but when you calculate the aggregate earnings, they typically reach their daily target.
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Basics of Scalping
It is not unfair to the traders who think Day Trading and Scalping are the same, which in reality, it isn’t. At least not entirely.
You see Scalping can also be Intraday trading, similar to Day Trading. But the basic difference is Scalpers deploy trades that typically last for less than a minute.
So, if we do that math correctly, they can do hundreds of trades to reach their potential daily target by accumulating profits. The core idea sounds very simple, which it is not in fact.
Scalping involves a lot of risks as one or two bad trades can ruin the entire chronology for the day, and you may end up losing a large chunk of money.
Therefore, the traders do a ton of research and should prepare themselves if things didn’t pan out as expected.
Features of Scalp Trading
One thing that you should be aware of about Scalping is that it is dynamic. There are several aspects that you should know before you wish to become a Scalper.
So, here are some of its notable traits:
Proactive is the Key
The first thing that you must have is being proactive while trading. On average, a Scalper takes around 30 seconds to wrap up a deal.
So, you too must have the confidence to finish the trade with 1 minute at maximum.
Understanding of Candlestick Charts
The Scalpers should have a thorough understanding of the one-minute and five-minute candlestick charts.
This technical analysis is crucial to predict the next move quickly and efficiently.
Understanding of RSI & MACD
Alongside the general tools, the traders should possess the quality to extract results using the Relative Strength Index (RSI), Stochastics, and Moving Average Convergence Divergence (MACD).
Understanding Price Chart Indicators
It would be best if you are also versed in reading various price chart indicators such as Bollinger bands, pivot points, and moving averages.
In this way, you can quickly guess the price and resistance levels.
Should have Financial Backup
Scalping requires significant financial backups to recover the loss you may incur in a day.
There is a general indication that the amount should not be less than Rs.5,00,000. However, this figure is not mandatory.
Margin Money Back-ups
In case of any short-trades, there are margin money backups which you should also prepare for, prior to the regular backup.
Typically, there can be four ways a Scalper operates:
- They buy at a low cost and sell at a high cost.
- Next, they buy at a high price and sell at an even more high priced.
- In the case of short trading, they usually short at a high price and cover at a low cost.
- Finally, there can be another short trading style – short at a low cost and cover at an even lower cost.
Technical Analysis is a Must
Two primary factors regulate where your trades are successful or not – short-term price fluctuations and your technical analysis.
You can’t control the first one, while you can, the second. However, as most Scalpers rely on the trading leverage, many believe that this form of trading involves high-risks.
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How to become a Scalper? – A Beginners Guide to Scalping
By now you should have an idea that Scalping is not easy, and to be honest, not meant for everybody.
However, if you are really determined to achieve these feet, you should follow the ideologies down below:
Understanding of Scalping
As we can understand, every form of financial trading requires a proper understanding of the subject matter, and more importantly, should be aware of the risks they are willing to take.
Scalping is also not an exception.
Stay alert all the Time
It would be best if you stay alert all the time. As you are planning to accumulate small profit margins to turn it into a significant one.
You got to stay disciplined throughout the trading hours. One lapse of concentration could heavily cost you.
Flexible Decision Making
One significant trait that you should have if you wish to become a successful Scalper is to be flexible in your decision making.
As there is no hard and fast rule to achieve glory in trading, you should be ready to take initiatives that may violets your primary line of thinking.
Still, you need to do it for the sake of the greater good.
Having a strong mentality is pivotal in any form of financial trading.
However, when it comes to Scalping, you need to be more resilient, as everything is hyper active here and you need to keep up to the pace to stay afloat in this market.
Spend a lot of Time
You got to have excellent Tape Skills and must be willing to spend a ton of screen time.
If you wish to become a successful Scalper, one of the key elements is to create great contacts in the market.
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Why should you become a Scalper?
Scalping is a form of trading that can elevate your knowledge to a different level.
Since you need to study and do a lot of research, it makes sense you acquire knowledge which no other regular trader could have attained.
As far as we can understand, owning that knowledge is the most significant reason to inspire yourself on becoming a Scalper.
Of course, money is the pinnacle of all success. So, if you can convert yourself into a successful Scalper, financial gains would follow you willingly.
Scalping involves a lot of time investment prior to the money you invest. You need to do various forms of technical analysis every day to stay on top in the game.
Thus, the knowledge that you do gain will drive you to take calculative risks and earn decent profits.
You can say Scalping is like doing a regular job where you need to stay sharp to generate the kind of cash flow you desire.
Unlike Day trading or swing trading, where one can do 1-2 trades in a day, or a month, Scalping craves for the undivided attention from you.
So, the outcome is more stable and satisfactory as well.
Benefits of Scalping
Now, once you have a decent idea of Scalping, we should talk about the benefits of becoming a Scalper:
- You can eliminate the chance that you caught in reversals.
- If you transform yourself into a successful Scalper, your trade win ratio will be staggering – over 80%.
- You won’t need a massive trading capital as in most Scalping trade involves low investment and fewer returns.
- As discussed before, your knowledge will be the power that will guide you forever. It is like playing a game on the hardest level. If you harness it, you can do anything.
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Drawbacks of Scalping
We have already highlighted some of the drawbacks of Scalping. However, it is not a harm to warn again:
- You will need an over an 80% trade win ratio to reach your daily target on a consistent basis.
- There can be so many external affairs that can ruin your daily calculations and may force you to suffer heavy loss.
- On average, a Scalpers usually trades around 3,00,000 – 5,00,000 shares in a day. So, many brokers can add commissions on the trading limit.
- You will need a hefty backup fund in case you suffer a massive loss while Scalping.
- You do need undivided attention to see the market trends as any loss of focus can cause catastrophes.
Conclusion – Scalping or Scalp Trading
So, that is what we wanted to share with you about the Scalping trading style. Now, you should make up your mind, whether this is for you or not.
You should also remember that there are no wrong ways to be successful in trading; there are only ways, and Scalping is indeed one of those proven ways.
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