Do you find scalping to be an interesting method for trading the financial markets? Most traders are charmed by the prospect of quick trades and profits, but scalping requires a disciplined and persistent approach. This article explains scalping in more detail, and examines whether scalping is a proper trading style for you, how traders can apply scalping methods, and which aspects are critical for increasing your success with scalping.
Scalping is a trading style or technique where traders buy and sell a financial instrument (such as EURUSD) within a short period of time. As with all other trading styles, scalpers enter the financial markets by taking a long position (buy) or a short position (sell). The setups are then closed by the doing the opposite: a sell closes a long position and a buy closes a short position. The main difference between scalping, intra-day trading and swing trading is the length of the trade. Also, the number of setups, the intention of the trader, and leverage are critical factors that play a role.
When comparing scalping versus day trading, there are a few main advantages and disadvantages for scalping. Let's begin with the benefits of scalping and applying scalping trading strategies:
The main disadvantages are as follows:
The pros and cons listed above are the main reason for why it's best for traders to test their scalping trading strategy on a Demo account first. If traders are using a live account, it is recommended that they apply proper risk management techniques when doing so, to ensure that they manage the risks involved effectively.
Traders can apply scalping trading strategies to a wide range of financial markets and instruments, including Forex and CFDs. One of the main criteria is sufficient price volatility. Here are a few of the most interesting instruments for Forex and CFDs:
CFD and Forex scalping is mostly performed on charts such as the 1 minute, 5 minute, or 15 minute time frames. CFD and Forex scalping is often based on technical analysis, price action and news or data releases.
The most popular and used scalping method is probably based on indicators. Some tools are more used than others - here are some of the most popular tools:
Admiral Markets also offers its own indicators and useful tools for CFD and Forex scalping via the MetaTrader Supreme Edition package. It includes amongst others:
Traders must use trading systems to achieve a consistent approach. Although this is valid for all trading styles, it is even more vital for scalping, due to the speed of trade setups and the need to make quick decisions. Scalpers can earn as little as 2 to 10 or 15 pips for a setup. The critical factor to check is whether the small wins add up to more profit than what is lost when losing. This is how it looks from a mathematical point of view:
A plus figure indicates a positive trade expectancy, whereas a minus figure indicates negative expectancy in the long-term. Scalp trading strategies that have a positive expectancy are good enough to include, or at least to consider for your trading portfolio. Scalp trading strategies that create negative expectancy are not worth it.
Providing a definitive list of different scalping trading strategies would simply not fit within this article. To keep things compact and readable, we will provide a summary of different types of Forex scalping methods. You can click the links to find out more information about each of the scalping strategies:
When tackling the financial markets with one of these scalping trading strategies, make sure to also scan the charts for the following six aspects:
Scalping is a system of quick trading which requires sufficient price movement and volatility. The highest levels of volume and liquidity occur in the London and New York trading sessions, which make these sessions particularly interesting for most scalpers. But it also depends on the type of scalping strategy that you are using. Trading false breakouts can sometimes work well in an Asian trading session, as the price typically moves up and down in a relatively narrow range. Scalpers should also be mentally fit and focused when scalping. Any signs of tiredness, illness, or any sign of distraction present reasons to cease scalping, and take a break. Also keep in mind that CFD and Forex scalping is not a trading style that is suitable for all types of traders. Some traders will thrive with it, but others perform much better as swing traders. Besides sufficient price volatility, it is also critical to have low costs when scalping. The main cost is the spread between buying and selling. Traders lower their costs by trading instruments with low spreads, and with brokers who offer low spreads. Usually the lowest spreads are offered at times where there are higher volumes.
Do you know which broker to choose for scalping? Finding a good broker is actually a very important step for scalpers. Several aspects should be taken into consideration before choosing a broker - here are the key criteria:
Admiral Markets offers all of the aspects above, as well as:
Scalpers who are new to trading often do not realise that execution is also a key factor, besides the presence of competitive spreads. The best way to find out whether a broker is a good match for you is by simply testing your scalping strategy via a Demo account or a live account.
The best trading platform for CFD and Forex scalping is arguably the MetaTrader Supreme Edition. Traders can use scalping strategies on a wide range of other financial instruments, including Forex, CFDs, CFDs on commodities, and stock indices. The MetaTrader platform offers a charting platform that is not only easy to use, but also simple to navigate. Admiral Markets offers the Supreme Edition plugin which offers a long list of extra indicators and tools. These features are not a standard part of the usual MetaTrader package, and include features such as the mini terminal, the trade terminal, the tick chart trader, the trading simulator, the sentiment trader, mini charts (perfect for multiple time frame analysis), and an extra indicator package including the Keltner Channel and Pivot Points indicators.risks.