Main Benefit of the Scalping Trading Strategy
One of the main advantages, which make this strategy attractive for beginners, is the fact that there is no need to make any deep technical or fundamental analysis. Since the trader is only interested in what is happening on chart in any particular moment.
When using scalping trading strategy trader is trying to catch just few points of profit in any particular entry, but because of using high leverage and making dozens of trades every day profit can be substantial.
How to understand the Scalping Trading Strategy?
The easiest way to understand the essence of scalping strategy is with the help of example. Let's imagine that a trader has a deposit of $1000 and is using leverage of 1:5, then he/she can make transactions with 0.05 lots size, which will bring him/her $0.50 from one pip movement. And if trader considers that on average he/she is planning to earn 30-50 pips per day, then his/her maximum earnings would be around 15-25 dollars per day.
With scalping trading strategy much higher leverage is used. Some scalpels use up to 1:100 leverage or even more. In case of using 1:100 leverage the trader can open entries with 1 lot size instead of previous 0,05 lot, this makes 1 pips value equal to 10$. In this case even making 10 pips profit in one day will give a trader 100$ profit.
Main peculiarities of scalping trading strategy
Choose your broker and account type wisely. Not every broker allows scalping.
Usually the entry is closed within several minutes. When trader gets 2-5 pips in profit, the entry is closed.
Total number of transactions per day can reach several dozen; total profit is achieved due to large number of transactions.
Spread is the difference between bid and ask prices, to put it simple spread is broker’s commission which it charges when you open a trade. For scalping trading usually pairs with lowest spread are chosen. Otherwise broker’s commission and spread will reduce your profit dramatically. Most of the time traders choose pairs like EUR/USD, GBP/USD USD/JPY. The best option is choose an account type with floating spreads, which value changes depending on market volatility.
The volatility of a trading instrument is one of the most important criteria you need to consider when choosing an asset for scalping. The main peculiarity of scalping trading strategy is to trade on market noise, which appears due to the high volatility of the asset.
Volatility is basically a price change for a certain instrument within particular timeframe. The more the instrument price moves during a trading session or a day, the greater the potential profit for scalper become.
In terms of money management scalping is one of the riskiest strategies. That is why traders usually transfer all profits to another account or withdraw funds.