Scalping: Small Gains Add to Big Profits

Scalping is another form of trading that has been around for some time now. Scalping is a form of day trading but much faster paced. Scalping is a very short term based strategy that focuses on small gains. Once a scalper opens a trade, it is usually closed within the hour. Over time, these small gains add up to become a nice chunk of profits. Scalpers defend their style of trading as limiting risk because there is such a short period of time that they are in trades. On a typical day, the scalper can trade anywhere from five to hundreds of trades per day. However, there are some risks you must consider.

Scalping is considered to be an advanced strategy and not intended for those without a trading strategy or some sort of plan. Additionally, you must have an exit plan established prior to entering the trade. This will help you visualize your exit goals and limit our greed tendencies. Also needed is a fast executing broker, confidence and a grasp on technical analysis. Once you have these attributes down, take a look at scalping to see if this strategy fits your financial goals.

Prof. Binary’s Trading Tip:

The best assets for scalping are assets that have excellent liquidity. The reason is simple: If you are a scalper you don’t want to get surprised by sudden spikes. Therefore, the best assets for scalping are currencies. Read our article about Forex binary options to get more information.

This strategy can be used in other situations even if scalping is not your primary strategy. For instance, if you are trading a financial asset that is in a “sideways” market, meaning the price action is currently neutral, scalping could be a great way to capture short term moves as you wait for a trend to develop. Similarly, a trader with the long term in mind can deploy a scalping strategy along side the long term holding. This way, you will be able to defend yourself against any downside and profit from any additional upside in a short term environment. Traders also tend to turn to scalping for breakout trades, range bound trades or chart patterns. Either way, if you are an experienced trader, take a look at scalping to use along side your long term holdings to juice up your returns.

Unfortunately, if a trader does not have a solid plan in place, one bad trade can whip out all of those small gains. This is why stops are essential in your trading, as they will help defend your small gains from evaporating. Another point where new traders fail is that they go into a trade with the idea of scalping but then end up holding it for an extended period. When you enter a trade under a form of analysis, stay that way do not jump over to a new strategy mid-trade. This can lead to disaster results and can hurt your confidence in trading.

If you feel that your trading is on an advanced level, I urge you to do additional research on the topic not only to make sure this strategy is for you but also to make sure you understand the criteria and how to be successful. This leads me to the point I continue to try to make: paper trading. Paper trading is an account where a trader is able to place trades without risking their hard earned money. This is a great way to help establish your strategy and build confidence in your trading.

The bottom line here is that scalping is not for new traders. Even for advanced traders, it is imperative that you understand the basics and have a solid trading plan already established. Do not try to change your trading strategy mid-trade unless absolutely necessary. Similarly, it is important to get educated and trade on a paper account to make sure you understand the basics and what scalping entails.