17.07.2024

What is Scalping in Trading (+ 15 Best Scalping Trading Strategies)

Have you heard the saying “One penny is better than none”? If you agree with it, then the scalping strategy will definitely meet your needs in the FX trading.

The main idea of scalping is quite simple: you enter numerous trades within the short period – from some seconds to 1 minute – to take small quick profits on a small price changes. That is the explanation why such way of trading is one of the basic and quite popular one among the beginner traders.

What is Scalping?

Scalping is a trading strategy aimed at making quick profits from small price fluctuations. Traders who scalp usually close out trades as soon as they see a profit. This approach demands a high level of discipline since the volume of trades can be large and the individual gains small. A single significant loss can erase the profits from many successful trades, so strict adherence to a trading system is essential.

Scalpers focus on making numerous small profits instead of holding onto positions for big wins. The strategy is based on the idea that lower exposure to risk is better since each trade lasts only a short time, minimizing the chance of a major market event causing a significant loss. Plus, smaller price movements tend to happen more frequently than larger ones.

What You Need to Know Before Scalping

Scalping requires intense discipline and a significant time commitment. Unlike longer-term trading strategies that allow for more flexibility, scalping demands your full attention as entry points can appear and disappear in an instant. For those with day jobs or other obligations, scalping might not be the best fit; longer-term trades with larger profit targets may be more suitable.

Executing a successful scalping strategy can be challenging because it involves making numerous trades. Research shows that frequent traders often end up losing money faster, resulting in a negative equity curve. Many traders may find more success and less stress by focusing on longer-term opportunities instead of scalping.

Scalping requires quick reactions to market movements, and missing the ideal moment can lead to losses. ‘Chasing’ trades and neglecting stop-loss discipline are common pitfalls that can lead to failure. While the idea of short market exposure is appealing, the risk of being stopped out due to sudden price reversals is high.

Who may find scalping strategy useful?

It can turn out to be advantageous for both the beginner and professional traders. If you just start your way through the FX trading system, the scalping can give you the impression of the trading along with the relatively small risks within the short amount of time.

Pros

– Gives the simplified impression on the trading technical aspects and insight of the way things work in FX trading

– Easy for the beginners to use

– Small risks and small losses that won’t definitely win over your wish to trade

– Numerous small profits can overcome the size of the one large gain or loss

– Small but consistent profits

Cons

– Requires quite tangible amount of time for the market analysis and placing numerous orders

– Smaller amounts of profit for the long-term traders who prefer larger ones

– Requires a flash-like response for taking decisions within some seconds

– Be ready to enter a game with tension that is probably will test your nerves

Please note: you can pick any currency pair for the scalping strategy, but it is recommended to pick the one with the high volatility (within quick trades, it is hard to track the small price changes if the currency has the low volatility).

Although traders can use any of the timeframes between 1 to 15 minutes in the scalping strategy, the most widely used are the 1 and 5-minute timeframes, however we give the examples of the strategies for 15-minutes timeframe as well.

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Useful tips about Scalping Strategies

Maybe you can find this information useful to make your scalping strategies more effective:

– Although Stop Loss and Stop Profit set ups are important for any kind of trader, you should know that for scalping traders they are essential. In order to make sure your small gains will not cause bigger losses, it is highly recommended to establish Stop-loss and Stop-Profit for every order.

– Stay ready to exit the trade if it does not result into profitable one to prevent a larger loss.

Best Scalping Trading Strategies in 2024

Next, we will explore in details some scalping strategies using the most popular indicators among traders.

Please note that we list the scalping strategies not in some special order or distinguish the most simple or profitable ones. You should try all of them to understand which one meets your needs in a better way, which one is easy for you to understand and use for scalping.

Bollinger Bands + RSI + Stochastic scalping
50 EMA + 100 EMA + Stochastic Scalping strategy
SMA + Stochastic Scalping strategy
Bollinger Bands + RSI + Stochastic scalping strategy
Bollinger bands + Stochastic + 200 EMA scalping strategy
200 period SMA and SSD scalping strategy
5 EMA High and Low + RSI scalping strategy
Ichimoku scalping strategy
Heiken Ashi Scalping strategy
ADX+RSI Scalping strategy
MACD and Stochastic Scalping Strategy
2 MACD Scalping strategy
Awesome Stochastic +Bollinger Bands + 3 EMA
Bollinger Bands + RSI scalping strategy
RSI + Awesome Oscillator

Scalping Trading Styles

Scalp traders typically fall into two categories: those who use scalping as their main strategy and those who incorporate it into their broader trading approach.

Primary Scalping Style

These traders, often called pure scalpers, make numerous trades daily—sometimes hundreds. They rely on tick charts (or one-minute charts) to monitor their positions closely, prioritizing real-time data and fast decision-making.

Supplementary Scalping Style

Some traders use scalping as a complement to other strategies. For example, in choppy markets or narrow ranges, they may look for short-term trends to spot buying or selling opportunities. Another approach involves creating an Umbrella trade, where a trader sets up a longer-term position while also executing shorter-term scalping trades in the same asset to manage risk and capture small profits.

Benefits and Risks of Scalping

Advantages of Scalping:

Cumulative Gains: Even small profits can add up over time without needing to find major winners.
Reduced Major Loss Risk: Quick entry and exit minimize exposure to adverse events that could lead to significant losses.
Easier Small Gains: It can be easier to capture small price changes than larger ones, especially in quieter markets.
Rule-Based Approach: Scalpers often follow strict rules, which can simplify decision-making and allow for some automation.

Disadvantages of Scalping:

High Fees: Frequent buying and selling can lead to increased costs, especially with numerous trades daily.
Leverage Risks: Some scalpers use leverage to amplify gains, which can also magnify losses if trades go against them.
Time-Intensive: Scalping demands continuous focus and quick reactions, making it less suitable for those who cannot dedicate significant time.
Tax Implications: In the U.S., frequent trading could lead to different tax treatment compared to long-term investments.

FAQ:

Is Stock Scalping Illegal?

No, scalping is not illegal, and there is nothing wrong with scalping since this is just trading with small time frames. There is no legal risks in countries where trading itself is allowed. However, it comes with its own set of risks (such as high transaction costs, leverage-induced losses and execution delays). It’s important to understand the rules and follow them. You can try scalping on Forex Tester Online to make sure you can perform it right.

Can I Make Money Scalping Stocks?

Your potential profits or losses will depend on your trading volume and investment size.

How Much Time Does Scalping Require?

A lot. Even though trades may last just minutes or seconds, successful scalpers need to place multiple trades throughout the day, monitor each one in real time, and conduct research continuously.

How Does Scalping Differ from Day Trading?

Scalpers tend to enter and exit trades much more quickly than day traders, often within minutes or even seconds, while day traders usually hold positions for hours.

How Do I Identify Scalping Opportunities?

Common techniques for spotting scalping opportunities include analyzing moving averages and comparing a security’s performance to others in its asset class.

What is a Forex Scalping Strategy?

A forex scalping strategy involves buying and selling currency pairs quickly — often within seconds or minutes — to profit from small price changes. It’s particularly effective in liquid currency pairs with tight spreads.

Is Scalping Profitable?

Higher leverage can increase potential profits if the market moves favorably, but it can also lead to larger losses if things go wrong. For more insights, check out our money and risk management guide.

What is the Best Timeframe for Scalping?

Scalping generally occurs on very short timeframes, often between one and 15 minutes, though some traders may use longer timeframes to capture small price movements effectively.