Scalping trading guide

What is scalping?

The  day-trading  is to invest very short term, but always with operations that open and close on the same day; scalping (said in a colloquial way) is a more radical version of this system: the objective is to make money in the form of reduced profits and in a very short space of time (only a few minutes or even seconds). This obviously means that scalping traders do a lot of trades per day. For this they use  Japanese candles  (charts that show the fluctuation of the price of an asset in a specific period of time), a maximum of 15 minutes, although the most common is that they do not exceed five.

The   ideal markets to implement this technique are indices, commodities and currencies. And the   most commonly used assets : Mini S & P500, Mini  DowJones , DAX or  EUR / USD .

Not all brokers are prepared to execute this technique. Conservatives, and those who are overly stressed when performing operations, better abstain. Using scalping requires maximum  self-control  and, above all,  speed  in analysis and decision-making. If you like to be full of adrenaline, here is a great opportunity.

Product and market characteristics

There are times when this investment system can pay off, but it is not always appropriate. To find out, you have to inquire about the characteristics of the market / product and the conditions of access to the market.

> Market / Product

• Level of liquidity:  the higher it is, the greater opportunities there will be to open and close operations without execution problems. Forex is the most liquid stock market in the world, hence it is common to find the figure of trader who uses scalping in said highly liquid financial market.
• Level of volatility:  a very volatile market makes it difficult to operate, since it is much more difficult to find the right moment to carry out operations. All this makes it common for the “stop loss” to be activated, that is, the broker is given the order to “stop losses”.
• Spread:  if the asset has a very wide spread or range, it is not appropriate for this system.

> Market access conditions:

1. Commissions:  the broker's commissions and other implicit costs are a critical factor, which must always be taken into account to prevent the intermediary from getting rich at our expense. The goal is to find a trader whose associated costs are sustainable over time. Make calculations and choose the one that suits you best after analyzing the following aspects:
   • Cost of the platform or software  used: the programs prepared to carry out this type of trading usually have a cost.
   • Commissions applied by the market access provider , both for the execution and for the settlement of operations.
   • Administrative, management and maintenance fees  for the account.
   • Market-related costs  (market fees), which are established based on the asset being operated on.
   • Costs linked to  market regulators .
2. Leverage:  as always when talking about leverage, it must be valued from two aspects: both the one that magnifies your profits with little investment, and the one that intensifies your losses. In addition, if it is a question of operating with the scalping system, another variable comes into play: if the leverage is too low, directly, it is better not to use this method.

Adequate times for scalping

The  volatility  is key for scalping, since it is based on price movements. The times when there is greater volatility are openings and closings:

• Europe:  opening from 9:00 a.m. to 11:00 a.m. (local time)
• United States:  open from 9:30 a.m. to 11:30 a.m. In Spain it would correspond to from 15:30 to 17:30.

Plan your trading days based on these schedules if you plan to make scalping your main strategy.

How much can a scalper earn?

There is no single answer to the previous question. Not two, not three, but infinite. In fact, the correct question would be:  is this style of trading the most appropriate for me?  If you choose the one that best suits your investment characteristics, the more options you will have to earn money. And not to lose.

But we are going to give you an answer, yes, with all possible precautions, and taking into account that in order to offer an accurate answer, different variables such as the size of the account, the leverage or the capacity of the trader would have to be analyzed.

In very broad strokes, with the scalping strategy in one hour, 15 or 20 operations are opened and closed  . With an average account, you can earn 500 euros a day. But they can also be lost.

The best financial assets for scalping

Actually, you can implement this short-term scalping strategy with all  financial assets : stock indices, futures, Forex scalping, commodities, bonds,  CFDs .

But you have to bear in mind that the best products for this type of investment, obviously, are those with a marked  volatility  and sufficient  liquidity . Therefore, the ideal assets are currencies or indices. Within the raw materials, gold and oil are the most interesting.

Strategies when scalping

There are many options, and there is not one with which, a priori, there are more chances of obtaining great benefits. Scalping can be  done following breakouts  of trend lines, Fibonacci levels, chart figures, triangles, breaks of the highs or lows of the day … the famous one-minute scalping strategy. You will have to try and experiment to find out which one works best for you.

5 factors when choosing a scalping broker

What is the broker's policy regarding scalping?

The most common thing is that the intermediary – in its Terms and Conditions section – clarifies whether resale is allowed on its platform. Make sure that this is the case, there have been cases of somewhat ambiguous intermediaries at this point that have ended up sanctioning brokers for carrying out these operations.

Where is your broker located?

Scalping is prohibited in some jurisdictions. Make sure that the broker you have chosen does not operate in one of them and that it allows you to adopt this trading strategy.

Scalping on ECN platforms

Normally, scalping is only allowed on accounts that trade on  ECN platforms . This condition is not only better for scalpers (due to the speed of execution), but also for ECN brokers, since the more operations carried out, the more commissions will be generated. On these platforms, a commission is charged for entries, exits and spreads.

ECN intermediaries do not act as counterparties, therefore they are not affected by whether traders profit from buying and selling operations. The opposite happens in market makers (market makers, which, in the  forex market , are usually banks, currency trading platforms, institutions or companies): they do act as counterparties and, therefore, can lose if the traders win. It is the reason why many market makers do not allow scalping on their platforms.

Is the broker able to update the price quickly?

Before, volatility was mentioned as a basilar element. Speed ​​is too. The broker has to provide updated prices very quickly. It is essential to apply this investment system.

What specifically does the broker say about scalping?

If there is any doubt about the regulations regarding scalping applied by the broker, get in touch with him via email or live chat and solve them. A level operator must give a quick and concrete answer. In fact, it can serve as a test to assess the quality of the chosen intermediary.

Scalping Forex

Investing in Forex with the scalping strategy involves operating in the very short term. It is a variant of day-trading and the objective is to achieve very small profits (normally 5 Pips maximum). These are operations that, on occasions, are opened and closed in a few minutes, or even seconds, and with a high level of leverage. Therefore, it is common for the scalping trader to perform many operations in a single day.

How to be successful scalping on Forex?

Obviously, there are many circumstances and characteristics that affect the good (or bad) result of applying  scalping in Forex , but, very broadly, we are going to mark three essential items.

• Self-control : many operations are carried out per day (there may be a hundred) and each one lasts for a very short time. Self-control is a necessary virtue for scalping.
• Time : it is not worth being attentive to the market for a little while a day, but you have to dedicate several hours with maximum attention.
• Liquidity : logically, it is key to have enough liquidity.
• Spreads and commissions : when making so many operations in a single day, it is essential that the chosen broker applies low spreads and commissions.

Do you find scalping interesting? Two more recommendations: start with a  demo trading account  and first go over all the basics of Forex trading. In addition, you will have to inform yourself and familiarize yourself with technical and fundamental analysis as well as with other tools such as trading courses. It is also important to choose the broker with which to operate and for this you can consult our list of the best forex brokers .

Timescale when scalping Forex

Candles are graphical representations that show the  variation  in the value of a financial asset during a given period of time. They serve for the investor to investigate the  behavior  of said asset, and, based on that study, make  investment decisions in this  regard.

Whoever invests in Forex scalping uses 5, 10 or 15 minute candles . Sometimes even 1 or 2 minutes (although this is usually less common).

So far our Scalping guide. We hope you have found it useful and remember that online trading carries risks of capital loss. In fact, most retail investors lose money quickly due to leverage.