The beginning traders quite often hear the word “scalping”. Some say that it is a profitable tool of trade, and some assure that it is a strategy and a quite unprofitable strategy, and some assert that is a coffee cup divination and they consider scalping a roulette. Let us try to make out what it is and if there is a profitable scalping, or every trader trading with this method is doomed to failure.
The term “scalping” derives from English word “scalping” (to scalp, to cut the upper part) and is a method of conducting trading operations by interdaily traders or if you want speculators on stock, currency and merchandise market, which is peculiar for closing the deals when reaching a small profit usually of several points (peeps).
In order to apply this method it is necessary to follow specific technical regulations:
- The trading is carried out in little timeframes that last 1, 5 or 15 minutes
- Five-unit quotations allow putting stop-orders as close to the existing price as possible
- The spread should be minimally 1-3 points.
- Quick realization of deals on broker’s behalf.
- Dynamic and liquid currency pair.
- The possibility to use leverage portfolio.
If all the technical requirements are fulfilled, then we have all the conditions to carry out a profitable scalping. This method of trading is easy to understand, that is why many traders use it as their main mode of gaining profits on the market. Let us pass to the trading strategy itself which consists of 3 points – analysis, placement of stop-loss and profits fixation:
1. A trader determines a common tendency on the market on long-term graph, then he goes to timeframes intended for scalping (1, 5, 15 minutes) and looks for possibility to open deals towards the main tendency, usually after recoil and approach of the price to the technical levels. The trade can be carried out without taking into account long-term tendency, in that case a trader searches for mini-trends and price channels within the designated intervals of time.
2. The placement of stop-loss – profitable scalping occurs only when the trader limits his losses, in case of scalping the losses should be minimal.
3. The exit from deals should be carried out by a trader with relatively small profit, if the correlation between profit/risk reached the meaning of 1,5 (for example stop-loss was 10 cents, and the profit is currently 15 cents), then the deal should be closed, but that meaning can change depending on the market situation.
The profitable scalping – received its name for a reason, in hands of skillful trader this method can bring great profits within a short period of time. But nevertheless scalping usage requires a trader to have deep knowledge of the market and to be attentive, because he needs to make a lot of deals, wometimes as many as 500 deals a day, that is why this strategy is caused by a high risk. Knowing technical and fundamental analysis is not always enough to conduct a profitable scalping, having experience and feeling of harmony with the market is the integral factor of successful scalper.
At the end we should emphasize several rules of profitable scalping:
- Do not try to guess market movement.
- Analyze and mark the main tendencies before starting the trade.
- Do not become an accidental investor, do not outstay the losses.
- The profits, on profitable deals should always be higher than the losses on the detrimental.
- The great profits are obtained due to a high quantity of deals.
- If the chosen currency pair lost the dynamics and slowed down, look for new assets.