What is Scalping? Is it a Trading Strategy For You?

Scalping is a trading approach that involves buying and selling one or more instruments several times in the same day with the aim of making a small profit each time. The scalper seeks only to exploit small fluctuations in the markets. The duration of its positions can vary from a few seconds to a few minutes.

Top 3 Forex Brokers for Scalping

Pepperstone, ICMarkets and FXCM are among the Forex brokers that offer the best conditions for scalping.

PepperstoneICMarketsFXCM
Spread + Commission in pips (EUR / USD)0.8 0.70.8
STPNoNoNo
ECNYesYesYes
Execution speedFastFastVery fast
RegulatedASICASICFCA
SecuritySafeSafeSafe

Top 3 Brokers for Scalping Stock, ETFs and Indices

XTB, Avatrade and Forex.com are good brokers for scalping in stock markets.

XTBAvatradeForex.com
Commission 0.12%0.13%0.1%
Execution SpeedMediumMediumMedium
RegulatedFCACySECCFTC
SafetySafeSafeSafe

The 3 Best Brokers for Scalping Futures

With Admiral Markets, Forex. com and ICMarkets you can trade futures through CFDs.

Admiral MarketsForex.comICMarkets
Commission per contract (starting from)1.5 €0.1%0.7
Speed ​​of executionFastMediumNo
RegulatedFCACFTCYes
SafetySafeSafeFast

How to Scalp the Markets?

The concept of scalping is to quickly make a small profit from an open position and move on to the next opportunity. 

Scalping is all about making a lot of quick trades in short time frames. The scalper takes his profits as soon as his position is in the green, that is to say as soon as the market evolves favorably by a few points or pips. Then, he repeats the operation several times during the trading session. The scalper can take dozens or even hundreds of trades in a single trading session.

Take Profits As Soon As Possible

In general, a trader’s goal is to maximize their earnings by letting winning positions evolve, we say “let profit run”. This expression means that you have to maintain your winning positions and resist the urge to sell them too soon. This concept may seem obvious, because when you are on the right side of a trend, you can make big gains in a single position. This also has the advantage of minimizing transaction costs. 

The problem is, you won’t know when the market is going to turn around. When prices start to retrace, you can’t tell if this is a small pullback or a trend reversal. It is not uncommon to return all, or a good part of, your profits by following the concept of the “let profit run”. 

Realizing this, the scalper takes a more pragmatic approach. As soon as it is possible to close his position with profit, he does so. A scalper can close their position with only 2 points or pips depending on the instrument traded, provided the transaction costs are covered by this small profit.

Small Profits that Accumulate

The scalper is not a fan of the let profits run. He takes several small profits by prematurely closing his positions before the price turns around. This also implies that the scalper has a high trading success rate, generally greater than 60%. Earning only 2-5 pips per position may not sound like much. But if you multiply that by 50 or 100 trades, it can constitute a considerable capital gain, especially if you have substantial capital.

The Qualities of a Good Scalper, is Scalping Right for You?

For scalper psychology, speed, discipline, and the ability to adapt are all qualities necessary for profitable scalping.

Scalping is best suited for active traders, who can make quick decisions and take a position without hesitation. Impatient people can often make good scalpers, as they can expect their positions to become profitable immediately after opening.

To be a good scalper, you need to be focused. It is therefore not a style of trading that is suitable for people who are easily distracted. It is the most active and demanding approach to trading.

Speed

You’ll need to act quickly to become a successful scalper. Usually, a good trading signal becomes invalid after a few minutes or even seconds. The scalper must be able to open a position without hesitation when the opportunity arises. Likewise, he must be ready to close his position when the conditions to do so are met: take profit reached, signal from an indicator (Stochastic, Ichimoku, etc.), price reversal of X points, etc. 

Ability to Stay Focused

During his trading session, the scalper must remain focused. There is little room for distraction when you are a scalper. Since positions can be played in seconds, it is important to have your full attention on the charts. Audible alerts can be used to warn of a trading signal.

Discipline

When it comes to discipline, scalping is more demanding than day trading or swing trading. The scalper should schedule and stick to their trading sessions. Attendance is important for successful scalping. Likewise, during your trading session, you must follow your trading plan carefully in order to maximize your profits.

Quick Adaptation

Markets often change dynamics, some sessions are not very volatile, others are quite agitated. Scalping requires early detection of changing market conditions, such as increased volatility. In this case, the trader must adapt his strategy or stop trading, until favorable conditions return.

Be Independent 

Scalping leaves little room for in-depth analysis. When you have a trading signal, you need to open a position without resorting to third-party analysis, or confirmation of multiple indicators at the same time. Speed ​​of action requires being independent.

Do not Scalp if You Have the Following Traits

Scalping is not suitable for all traders. It is a difficult and a very demanding style of trading. If you have the following psychological defects, scalping may not be for you.

Not Enough Time to Invest

Since you will have to spend hours looking for opportunities in front of your charts, scalping takes time. If you’re in the office from morning to night, scalping during the day can be difficult. If you decide to do your session at night, take into account that the markets are quieter and not very volatile. Also make sure that it does not interfere with your lifestyle.

Easily Distracted

This strategy requires continuous attention. If you are easily distracted by those around you, or have difficulty staying focused, you may have a hard time with this style of trading. Your workspace should be isolated, in a place where you can stay focused.

Little Endurance

The psychological intensiveness of scalping can be tiring. If you tire quickly, especially by staying in front of the screens, it will be difficult for you to scalp. 

Things to Consider for Scalping

As you will have already understood, scalping is a demanding activity. As a scalper, here are some things to consider.

Discipline 

We have already seen that you have to be disciplined to scalp profitably – it cannot be said enough. Discipline is the most important element for the scalper, as it is for all styles of trading. If you are not disciplined enough to be diligent and stick to your trading plan, you will not be able to profitably scalper or trader.

Trading Fees

Each time you open and close a position you’ll be paying trading fees. They include the broker’s commission and the spread, which is the difference between the buy price and the sell price of the instrument being traded. 

As scalping is a more active trading style than day trading and swing trading, it is therefore more expensive because you take more positions and therefore pay more commissions. 

For example, a day trader can earn 50 pips on a single position and pay 1 pip in commission + spread. Which gives him a net gain of 49 pips. At the same time, a scalper can take 10 positions for which he wins 5 pips each time. But for each position he also pays 1 pip of commission + spread. Which gives him a net gain of 40 pips. 

Thus, the more active the trading style, the more expensive it becomes.

Liquidity

The ease with which market participants can open or close a position without the risk of slippage (see you being assigned a different price than your order). A liquid market is a market where it is easy to buy and sell. The major currency pairs (EUR / USD, GBP / USD, USD / JPY, etc.) are for example very liquid instruments. Such markets are favorable for scalping because the scalper needs fast and precise execution.

However, an illiquid market can be difficult to trade. In general, the spread on an illiquid instrument is relatively wide, thus not allowing scalping. Exotic currency pairs, for example, are illiquid compared to major currency pairs. 

Volatility

It can be defined as the anxiety of the market. For an instrument, it is the measure of the amplitude of the price movement, over a given time interval. Volatility is a key element for the scalper. 

In general, opinions are divided when it comes to volatility. Some scalpers prefer high volatility, others prefer a rather calm market. The higher the volatility, the easier it becomes to cover trading costs. This is why most traders recommend scalping during active market hours (start of European session and start of US session).

However, a calm market can represent huge opportunities. The market is more predictable when volatility is low, such as during the Asian session for major currency pairs.

Trading Hours 

Scalping Trading Hours

Intraday volatility is closely related to trading hours. Volatility is higher when European markets open and when US and European markets are open at the same time. 

The most favorable times depend on your scalping strategy. If you are doing trend following, or want to minimize the cost of trading, early US and European sessions will be optimal. On the other hand, if your scalping strategy calls for a calm market, the Asian session is the best time to trade.

The Range and Direction of the Trend 

One of the advantages of scalping is that you can profit upwards or downwards, without the market having to fluctuate with large ranges. Where day traders and swing traders expect movements of a certain magnitude to trade, scalpers can exploit and profit from small variations in price.

Focus on a Single Instrument 

We have seen the importance of focus for successful scalping. When starting out it will be necessary to opt for a single instrument to trade. When you follow multiple instruments at the same time, you may miss out on opportunities. Most professional scalpers specialize in fairly liquid instruments and don’t look elsewhere for other opportunities.

Risk Management 

It is important to put in place a strict money management and to take limited risks. Although there are scalpers who do not place take profits and stop losses for their positions, it may be safer to put them, especially for the stop loss. 

Scalping implies that most of your positions will be closed with a small profit. It would be unfortunate to lose a large part of your winnings because you did not put a stop loss. Prices can indeed surge one way or the other within fractions of a second after an event such as the release of key numbers of a major economic indicator. This is why leverage should be used in moderation.

The Economic Calendar

The scalper must closely follow an economic calendar. When trading in small time intervals, the publication of economic indicators, speeches by presidents of central banks and even certain speeches by heads of state can shake up financial instruments. Unforeseen events can also occur and upset the price action. This is why it is important to set up a stop loss.

Manual or Automated Scalping?

Most of the best scalping scalping techniques are relatively straightforward. They depend on the price action or technical indicators. This makes it easy to automate a scalping strategy. If you find a profitable scalping method you should automate it. The advantage is that the automated strategy will be more disciplined than you can be and it has the added advantages of allowing for backtesting and optimizing your strategies.

Scalping Strategies

There are countless approaches to learning scalping. We will see 3 different approaches, 1 that uses the supply and demand, and 2 that use technical indicators.

The Order Book

Scalping Order Book

For a given market place, the order book is a list of orders which presents the different offers from buyers and sellers for a specific security. It indicates the prices and volumes for which traders in the market are ready to buy and sell the security.

Order books are generally electronic and automatically updated, making them available online for traders. An order book is a useful instrument for traders and analysts because it provides instant information about the supply and demand of a security. This tool is an integral part of the decision making of some professional scalpers. 

Bollinger Bands

Bollinger bands are an indicator of volatility. When they widen, it means that volatility increases. Conversely, when they shrink, it means that volatility is decreasing. This is an effective indicator for scalping. 

Typically, 95% of candles form inside the bands. Statistically this offers scalping opportunities when the price action hits the upper or lower line of the bands. 

We wait for the price to touch or cross the line to open a position. The position can be liquidated if a candle completely breaks out of the bands. The take profit can be placed at the opposite line of the Bollinger bands.

Scalping Bollinger Bands

This method works best in a calm market, especially for major currency pairs during the Asian session.

Price Action

Price action can also be a good tool for scalping. A well-known strategy is based on forming a pinbar or hammer in the direction of the trend on the one minute chart (M1). We use the 20 and 30 Exponential Moving Averages (EMAs) to help us spot them better.

After an upward or downward price extension, we expect a pullback and the formation of a hammer or pinbar on the EMA 20. After the corresponding candle closes, we open a position in the direction of the trend when the price action goes above or below the configuration. As a take profit, we can aim for the last highest or lowest formed by the price. The stop loss can be placed below the pinbar, at the EMA 30 level.

Scalping Price Action

Advantages of Scalping

The main advantage of scalping is risk control.

  • Less risk: By monitoring their positions closely and closing them as soon as possible, the scalper limits the risk of sustaining large losses. 
  • Non-directional trading: Scalping is a non-directional strategy, for which you don’t need a strong trend or a clear direction to take advantage of market fluctuations. 
  • Easy to automate: Most scalping strategies are easy to automate. They are often based on technical indicators. 

Disadvantages of Scalping 

The main disadvantage of scalping is the high cost and stress it can cause to your net profit.

  • Substantial capital required: to generate decent profits, you will need to have a fairly substantial capital. When scalping with an account of just $ 1,000, the payouts are likely to be insignificant. 
  • High trading costs: as scalping involves taking several positions in a short period of time, transaction costs can drastically reduce your profits, or amplify your losses. 
  • Stress: scalping is an intense activity, which tires out the trader after a few hours. This is why it is advisable for beginners to limit your sessions in time. 

Conclusion

Scalping is a rigorous style of trading suitable for the most enduring and disciplined traders. Done in a professional manner it can be profitable and allow regular income to be generated in the markets. Scalping strategies are often simple, but require infallible discipline to be sustainable.

FAQs

What indicators for scalping?

Almost all indicators can be used differently for scalping.

Which broker to choose for scalping?

FXCM, and Pepperstone are among the best brokers for scalping.

What is stock market scalping?

Scalping involves executing trades in the stock market in order to make small profits every time.

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