Scalping is a type of trading style. It specializes in making fast profit by reselling after small price changes. It is a term given for the strategy to prioritize making high volumes off small profits in day trading. If you are investing in scalping you need to have a strict exit strategy. Because a single large loss can eliminate your large number of small gains. In this article we will discuss how scalping strategy works, its types, and benefits.
Understanding Scalping Trading
Scalping is a short-term trading strategy in which we sell or buy underlying assets several times a day to gain profit from the price fluctuation. It simply means that you buy an asset for less money and sell it for more. The key principle is finding the assets whose prices change frequently during the day and that can be sold quickly. You shouldn’t scalp an asset that is not easy to sell. Liquidity in the market also makes you obtain the best prices when you enter or leave the market. Scalpers usually believe that it is more profitable to make small deals as they are easier and contain low risks even in market volatility. Hence they can make small profits before the opportunity is gone. They think it’s better to make many small profits than to wait for a large one. They employ three basic rules to work on the market:
- Lower Exposure: They stay in the market for a very short time period so that they reduce the likelihood of an adverse situation.
- Small Moves: The stock value needs to move a lot for a large profit. In simple words there should be a larger difference between demand and supply. On the other hand it’s easier to catch small rice changes.
- Small Changes Are Frequent: Small changes in the asset prices are often happening even when the market seems stable.You can take advantage from these changes and make profit.
Types of Scalping Trading Strategy
Here are the most common type of Scalping trading strategy:
1-Minute Scalping Trading Strategy
A short 1 minute scalping trading strategy has the advantages of low-risk market exposure. There are less chances that you will face any unexpected events such as demand and supply imbalance and losing money quickly. You will only have a brief exposure to the stock market. It is simple to obtain smaller profits as it requires a greater imbalance in demand and supply chain to make price fluctuation.
The principle behind the one-minute scalping strategy is that small price changes happen more frequently in the market as compared to bigger changes. The small changes are happening even when the market seems pretty stable, hence scalpers can make profits from the small moves. However there is a need for big deposits to get fair returns on short scalps. You will require quick reflexes and mental computation in 1 minute scalping trading. When you aim for such trading you need to weigh all your options and skill sets, so that it is not time consuming and stressful.
High Probability Scalping Trading Strategy
This scalping method focuses on investing in the most profitable trades. This trading is dependent on the principle that there are specific market conditions that are more likely to have profitable trades. Traders identify the market by analyzing the factors like:
- Price action
- Volume
- Volatility
- Economic indicators
Once they determine the market conditions, they can enter into trades with low losses risk and make huge profits. You should also be prepared for a quick exit, if the trade does not work out as expected.
Benefits of Scalping Trading Strategy
Here are the benefits of the scalping trading strategy:
1. Quick Profits
Scalping trading is known for quick profits. You make small profits by investing in so many trades. Doing so you can make a large amount of money in a short time. The notable point is that the gains may be small, but the high frequency of trades lead to a significant overall profit.
2. High-Frequency Trading
In the Scalping trading, multiple trades are made in a shorter time period. This is how you can take advantage of the price movements and volatility for a short time in the market. Due to high-frequency trading, you get more chances to make a profit.
3. Small Capital Requirement
Such trading can be done with a small amount of capital. Since our goal is to make small profits on multiple trades. It is possible to enter trades with smaller capital and still significantly make a good return on investment. If you have limited capital and you want to gain, this can be beneficial for you.
4. Low Risk
Scalping is a strategy that is associated with low-risk strategy. The trades are typically open for a shorter time period, usually a few seconds or minutes. Hence you can limit your losses by rapidly withdrawing a trade if you feel the market moves against you.
5. Flexibility
Scalping can be used on various markets, whether its stocks,commodities, or more. You will require to adapt to the different market conditions and comprehend their unique features. For instance, scalping on the commodities market needs a different strategy than scalping on the stock market.
6. Consistency
In scalping trading strategy, you will be continuously engaged and active in the market. You can take benefits from the small market movements as and when they happen. If you like the fast-paced activities in the markets, this strategy is a fit for you. Additionally for the latest updates on market trends, you can join a sebi registered telegram channel of Gap Up.
Conclusion
Scalping trading is a great strategy as it can help you make a large number of small profits in a short time period. Also the risk of significant losses is very low. While investing in such a strategy you need to have a proper understanding of scalping trading. You should be always ready to take a quiet exit to prevent any significant loss as one big loss may eliminate all your small gains.
Source: Explore
