Scalp trading is a well-known form of short-term trading. It involves attempting to profit from small price movements, whether in the stock markets, Forex trading, or cryptocurrency. This article will discuss what scalp trading is, how it makes money, and common strategies for scalp traders. Lastly, it will provide some guidance as to whether or not one should try scalp trading.
Scalp trading is a strategy that involves trying to benefit from small price changes over and over again. Scalp traders don’t aim for significant profits from a single trade. Rather, they try to accumulate small profits from a numerous different trades. In order to be successful in scalp trading, it’s important to make quick decisions – as it involves shorter time horizons – and to be knowledgeable of the technical analysis and charting tools.
So, how do scalp traders make money? They will often utilize multiple technical indicators to make trade decisions, including moving averages, the Relative Strength Index (RSI), Bollinger Bands, the VWAP, and the Fibonacci retracement tool. Scalp traders may also rely on their own custom indicators to give them an edge. Additionally, they’ll typically look at intraday charts, such as the 1-minute, 5-minute, or 15-minute chart, in order to identify potential trades.
Scalp traders can be categorized into two categories: discretionary traders and systematic traders. Discretionary traders make decisions for each trade on the spot, basing them off of conditions at hand. Systematic traders, on the other hand, have a pre-defined trading system that dictates when and how to enter and exit a trade.
A common scalp trading strategy is range trading. Scalp traders will look for an established range of prices and then trade within the range. It’s assumed that the bottom of the range serves as support and the top as resistance. Of course, nothing is certain, and it’s important to have a stop-loss in place in case the range is broken. Additionally, some scalp traders will exploit the bid-ask spread. If there’s a large difference between the highest bid and the lowest ask, there is potential for a profit. However, this is where algorithmic trading is most often utilized, as it is difficult and time consuming for humans to find these inefficiencies.
When it comes to deciding whether one should take part in scalp trading, the advice supports the notion that an individual should practice the style of trading that fits his/her personality, risk profile, and understanding of the markets best. What works for one, does not necessarily mean that it will work for another. Thus, it is important to find the style in which one is most comfortable and develop a strategy from there. Paper trading on the Binance Futures application is a great way to test out different strategies without risking any funds.
Overall, scalp trading is a viable strategy for those who are comfortable and successful at making quick decisions and identifying potential trades. Scalp traders should make sure to understand the basics of risk management in order to protect their trading account. Additionally, it is important to remember that what works for one individual’s trading style, may not work for someone else’s. Thus, it is important to practice different trading styles until you find one that works best for you.
