If you’re looking to make small but consistent profits as a Forex trader, scalping may be the right trading strategy for you. Find out the benefits of this strategy and try Forex trading strategy scalping today.
Xtrade – In this article, we’ll explain scalping and its advantages. Scalping is a trading strategy in which traders attempt to make small profits on small price changes. In the belief that it is easier to catch small price changes and that the netted profits will add up to a considerable sum, scalpers usually place anywhere from ten to hundreds of trades in a single day.
What is Scalping? Theory Behind Scalping: Smaller is Better
Scalpers assume that most financial instruments—a currency pair, a stock, a commodity, or a stock index—will move in the trader’s desired direction for only a short time, after which the direction is uncertain. Accordingly, scalpers intend to make many small profits during the short period in which the traded asset is moving in the desired direction. Scalpers achieve their trading results by focusing not on the size of their wins, but on their number of wins. The premises behind scalping are as follows:
- Less exposure equals less risk: Scalpers trade for short periods (see above), as a result of which they are less likely to encounter adverse market events.
- It’s easier to catch small price changes: Large price changes require an imbalance in supply and demand. Accordingly, an asset is likelier to move by 5 cents than by $5. Small price movements are everywhere, even during a quiet market.
What Trading Tools Do Scalpers Use?
Scalping requires discipline, the ability to place many trades in a single day, and a strict exit strategy, the last of which is crucial to preventing the elimination, through one losing trade, of accumulated small profits.
The most important tools for scalpers are a live news feed, an excellent broker, and, as mentioned above, the willingness to place many trades in one day.
Scalping as a Supplementary Trading Strategy
Many traders use scalping as a supplementary trading style, most often when the market is volatile. When there are no discernible long-term trends in the market, traders often look for short-term opportunities, resulting in the decision to scalp.
Another, albeit somewhat more complicated, way to add scalping to a trading strategy is to use the “umbrella” style of scalping. Scalpers who use the umbrella method open a trade with a longer time frame; while the trade develops, the scalper identifies new short-term developments in the trade, capturing them according to the methods of scalping.
Try Forex Trading Strategy Scalping as your Primary Strategy
Trader
s who use scalping as their primary trading strategy place many trades every day—10, 50, hundreds. Since scalpers trade for short periods, they rely heavily on one-minute charts—an indispensable tool for anyone considering this strategy. All good brokers provide their traders with these charts.
Hence, you should also make sure, before deciding to use scalping as your primary trading strategy, that your broker offers accurate trading quotes and instant execution of orders.
The Takeaway
Learn how to scalp even if you plan to do it only occasionally. Scalping can boost your profits and teach you about the importance of an exit strategy. Other advantages of scalping include limited market exposure (less risk) and the availability in the market of small price changes. Visit our follow up blog, for more tips and advices on scalping.
About Xtrade
Xtrade is an award-winning brokerage that offers CFD trading on stocks, indices, commodities, and currencies. Its cutting-edge technology, available on both desktop and mobile devices, includes five digital trading platforms. These are accessible to traders across Europe, Asia, and Australia in over 40 languages. The company also offer a sophisticated trading education centre, real-time financial news, and innovative trading tools. Xtrade’s Global Ambassador is Cristiano Ronaldo of Real Madrid, who features on the company’s digital hub. Moreover, Xtrade is CySEC regulated and complies with the EU’s Markets in Financial Instruments Directive. It also has the licence from the Australian Securities and Investment Commission, and South Africa’s Financial Services Board.