What is Scalping? How to apply it effectively?
Scalping is a fast-paced trading style, with very short entry and order times. It is popular in Forex and has been applied in trade coins. In this article, we will find out what Scalping is and how to apply scalping for traders.
What is Scalping?
In the investment world, Scalping is a term that describes how to trade continuously throughout the day with extremely short order execution and profit times. At the same time, the profit on each order is also quite small.
In Forex and cryptocurrency trading, traders use scalping to buy or sell currencies or cryptocurrencies and hold positions for a very short time and then close orders to make a small profit.
Why Scalping is most used by traders?
Common trade styles nowadays include day trading, multi-day trading, swing trading, and scalping.
Scalping has short waves that do not hold positions long, do not leave orders overnight. Thanks to the quick closing of orders, the Scalping trading style is more comfortable than the other. It would be less worry if the market is fluctuated or appears reversed compared to day trading or swing trading.
This inevitably forces the trader to work hard and patiently accumulate the wealth to improve the profit or traders need to use leverage to multiply the profit.
What are the advantages of trade scalping?
1) Limit risks when trading
Although the market is quite stable, Forex still appears some unexpected situations causing traders to “burn out”. For example, a tweet from US President Donal Trump or a statement from the Federal Reserve chairman of the Federal Reserve (FED) about interest rates could impact a currency pair.
In addition, with a nascent market like cryptocurrencies, the risk of reversal occurs more often. For example, when President of China Xi Jinping spoke positively about blockchain and mentioned Bitcoin in a positive direction, the price of Bitcoin and altcoins jumped. Shortly thereafter, China announced to suppress cryptocurrency trading, the market was bleeding and Bitcoin plummeted.
Therefore, with the scalping method, traders will minimize the risk of a reversal order by such catalysts on orders.
2) Able to make money in the sideways market
The profitability of each order based on scalping is quite modest. However, if you get into the right waves and catch the opportunities, within 5 minutes, 15 minutes, you can completely close the order and take profits.
Thus, even in the sideways market, Crypto traders using scalping still earn a few pips, and traders can eat 20-30 prices on each order.
3) Use leverage to increase profits
With Scalping trading, traders can use leverage to open large positions and multiply their profits. Important, when using leverage, make sure you know how to manage capital.
Currently, in the cryptocurrency market, you can trade on Binance Futures, Huobi DM, Bitmex to experience leveraged scalping trading.
What are the risks when trading scalping?
Trading Forex, crypto is always risky regardless of which method you apply, the scalping method is no exception.
1) Cost a lot of transaction fees
Trading with Scalping makes less profit per order. Therefore, traders who follow this method have to execute many orders during the day. The number of orders can be several dozen, up to hundreds.
Therefore, the transaction fee traders have to pay for the floor will be quite a lot.
2) Loss due to lack of focus
Scalping trading requires speed and acumen. Traders that lack concentration and slow reflex, they will not keep up with market changes and easily lose money. Therefore, when you choose the Scalping method, you must concentrate and ensure to withstand stress and high pressure.
When DO and DO NOT apply Scalping?
Remember, scalping is a high-speed trading method. Therefore, the market requires a large amount of liquidity to ensure orders are executed immediately. You must choose the highest liquidity currencies and cryptocurrencies and trade only when they have a large trading volume. With cryptocurrency, traders should only choose Bitcoin.
Never apply Scalping when you feel distracted or unfocused. If you have any unhappy feelings, sickness, business, etc. you should shut down the computer and go out to get some fresh air, or at least, have a short break before working again,
“If you’ve had a string of losses, stop trading and take your time to think and calm down. Never try to take revenge on the market.”
Scalping method is fun and challenging, but it is equally stressful and tiring. Of course, it is extremely important that scalping is not for everyone.
Are you suitable for Scalping?
Scalping is not for everyone. So do you have these qualities below?
- Do you like to act, like to experience the thrill and pressure?
- Can you analyze technically, identify the market’s direction, especially in each hour frame 1 minute, 5 minutes, 15 minutes?
- Are you patient enough to collect small change?
- Do you act fast and have a flexible mind?
- Do you know the fund management principles?
If the bullets are describing you, then you can trade scalping. Also, if you still lack some of them and still want to try, then you have to practice to become a professional.
How to apply Scalping effectively?
Once you’ve decided to play the Scalping method, pay attention to the following factors:
Firstly, you must have knowledge of capital management and technical analysis. You can practice with a demo account before practicing real trading.
Secondly, choose analytical tools and time frames that are suitable for you.
Third, when using the scalping method, be focus and patient.
Finally, do not forget to record the transaction log and take a screenshot of the transaction history. Based on this data, you will learn more and enrich yourself.