Scalping Strategy: Successful Scalp Trading Strategies For Forex Trading

Christina Clarke
October 5, 2021
Sooner or later, every new trader will be confronted with the term “scalping”. But what does scalping mean in SouthAfrica? The scalping strategy is not without controversy. Some brokers strongly oppose it.
scalping-strategy

Sooner or later, every new trader will be confronted with the term “scalping”. But what does scalping mean in SouthAfrica? – It means something like “cut out”, which explains the behaviour within the strategy very well. In scalp trading, the trader tries to use even the smallest changes in the exchange rate to make a profit.

A brief period is, therefore, “cut out” from the course of the course. This can take a few minutes or just a few seconds. During this period, the aim is to achieve the greatest possible profit by buying and selling. The scalping strategy is not without controversy. Some brokers strongly oppose it.

Table of Contents

What is scalping trading? Definition and simple explanation:

In itself, the strategy is straightforward to understand. The traders try to take advantage of the smallest fluctuations in the price. Even if the course visibly stagnates, there are mostly small fluctuations in both directions. All you have to do is change the scaling.

These minimal course changes occur because a lot is traded in seconds or minutes. Of course, there are also sections in which little or no action is taken. However, this is certainly the exception.

If more are bought than sold at one point, the price rises for a brief moment. This also happens when the price is in a long-term downward phase.

At first, it seems absurd and pointless, but scalp trading is the smallest movement that can succeed the trader. So, for example, the euro rate about the dollar can go from 0.8532 to 0.8535.

With scalp trading, important currency positions are usually closed again after a short time, as the trader sells again very quickly. The whole process only takes a few minutes. This can get even more extreme and happen in seconds. Especially when algorithms and powerful computer systems take over the processes – even if they can reach their limits here. Not because the computing power is insufficient, but rather because it is difficult to feed the computer with enough “meaningful” data. The pattern of these brief changes in the course does not follow any real way.

Because of this, it is tough to predict how the position will change. Nevertheless, computers are also crucial for scalping. However, good infrastructure and network connection are even more critical. Therefore, many countries fall out of this strategy because the ping and other metrics are simply too slow.

Procyclical vs countercyclical scalp trading

Scalping is divided into procyclical and countercyclical approaches. The procyclical method means that traders trade the breakouts from the first 60-minute candle. Another possibility is to trade the breakouts through the daily low or the respective daily high.

In the countercyclical approach, the trader is speculating on the tops and lows of a move. Then, when it comes to setbacks, you try to get a part of the profit.

Scalping example

The trader has found a suitable stock and begins scalp trading. The share has already been acquired for this purpose. Now the trader goes “short”, which means that he suspects that the price will decrease. If he ends the course after a second, he incurs losses. Now the question is what to do.

It can get better or worse. A few seconds later, the price could return to the old level or even rise, which would make a profit.

The trader is always charged for the spreads. So the difference between buying and selling is not the final amount that the trader can keep to himself.

The price trend must be predicted within a brief period. The problem here is that this course has nothing to do with the long-term course. So it is not about company policy or other environmental influences that influence long-term price sales. At this moment, only the current transactions of the stock count. So how can these price fluctuations be predicted?

scalping-strategy

Predict price development in scalping – Scalp Trading trading settings:

In “normal” trade, you can use a variety of tools. These include, for example, technical analysis or fundamental analysis. News and information about the company can also be important. Algorithms are also particularly well designed for longer-term trading. State-of-the-art computers can, of course, be used for everything, but first of all, you need data to feed them with.

At the dealer of your choice, you can have the course of the price displayed graphically. There are also useful tools that can make your life easier. You should first take a look at the current course. Good brokers update the price every second and are therefore particularly well suited. 15-20 minutes is a sufficient period for this.

Now you can place your trade and set the stop loss. However, with the strategy, you can often not set your take profit yourself. This is why manual closing is necessary if a win is won, which also applies to a transaction.

The risk of the scalping strategy

There is also a not inconsiderable risk for the user with scalp trading. As with any trade, the biggest problem is incorrect forecasting or poor timing of transactions. With scalping, a loss can occur within seconds.

You should also find out whether your broker is technically up to date, as every second counts.

It is therefore essential that prices and all transactions are displayed with the smallest possible technical delay. This can mean the difference between profit and loss. If you are still looking for a new broker, the ECN dealers are particularly recommended for scalping.

A demo account is a must

A broker demo account can prove to be a means to success, especially when scalping. Here you not only learn how to use the software and the trading platform. Instead, all strategies related to the method can be tested beforehand with play money. With most providers, you get around 10,000 euros as “play money”.

So more than enough capital to test everything according to your preferences. Thus, the user is shown all the possibilities that are given here. You can also test the technical implementation and see whether the software works quickly. All processes must be implemented immediately. For this, the respective broker must have good servers and also otherwise have good software.

Within the demo account, you can at least check whether you should notice any particular omissions.

The prerequisite is that you use the demo account in all functions. This takes time in the beginning – but it will undoubtedly be worth it in the long run.

Pros & cons of scalp trading:

  • Relatively low risk
  • Hardly any preparation is necessary
  • Great profit opportunities in a short time
  • Comprehensive knowledge is not necessary
  • Great stress
  • Some brokers do not allow scalping
  • Spreads can shrink profits dramatically
  • Great investment of time in the long term

Advantages of the scalping strategy

The general risk of scalp trading is relatively low compared to other methods.

As a trader, you hardly need to prepare yourself to implement the scalping strategy, as you don’tt need any information or other data for this. In addition to the basic knowledge, there is no vital knowledge about this. In addition, the strategy is rapid and easy to apply. Those who are well versed in the subject can make a lot of profit with the scalping strategy.

This strategy is particularly successful when there is a strong trend because, with a movement, the price only moves in one direction for many seconds or even minutes. This allows the deal to be completed in minutes.

Basic knowledge of the market is still essential to understand which company is particularly well suited for this. Comprehensive analysis is useless, however, and is therefore not advisable in this case, as it only costs time and energy. In addition to the advantages, however, several disadvantages should not be overlooked.

Disadvantages of the scalping strategy

It’s about minutes or seconds in which significant decisions have to be made. This is usually repeated several times a day. This represents pure stress for the trader and his body. In the long run, this effect should not be underestimated. You should also show great self-discipline from the outset.

Quite a few retailers do not even offer the option of scalping. So it can be that you do not have the opportunity with the personal broker. Some providers are even strictly against it. For them, this method no longer has much to do with regular trading.

This is certainly going in a direction that can no longer be controlled in the future through even faster trades

Due to the spreads when trading, the trader can lose profits. You should not forget this when making a calculation. However, the profits are usually small enough and rarely exceed 10 pips.

As an advanced trader, you can compensate for this disadvantage with a large number of trades. With a lot of small profits, a large amount is created at the end of the day. However, the time required increases massively here, as you first have to collect information for each trade and keep an eye on the chart for some time.

However, scalp trading does not make sense in every situation, especially when a general trend is missing.

Overall, however, the scalping strategy offers great potential. Another plus point is that hardly any knowledge is required and little time is taken.

scalping-strategy

The best brokers for scalp trading in comparison:

Select broker

valuation

4.64.94.84.7

Mobile app rating

8/109/109/109/10

account

Min. Trade

1 €N / A1 €0 €

lever

1:301: 2001:301:30

Margin trading

number of stocks

200+242510,000+1000+

Number of ETFs

10250+600+105

fees

Cost per trade

€ 0€ 0€ 3.95€ 0

costs per month

€ 0€ 0€ 0€ 0

ETFs

0.01% – 0.5%0.01-2%3.90 €0.01% – 2%

Funds

0.01-2%€ 9.900.01% – 2%

CFDs

0.01% – 8%0.01-2%4.90 €0.01% – 2%

Savings plans

N / A0 €

Crypto

0.4% – 8%N / A0.01% – 2%

Bonds

N / A3.90 €0.01% – 2%

Trading fees

SpreadsSpreadsFixed feesSpreads

Withdrawal Fees

€ 0 – € 1 / 0.1%0 €0 €0 €

Inactivity Fees

N / A10 €

Deposit fees

0 €0 €0 €0 €

Overnight CFD position

N / A0.5%

Payment options

Credit card

Giropay

Neteller

Paypal

Sepa transfer

Skrill

Instant bank transfer

Scalp Trading Fees Comparison: What Is The Cheapest Broker For Scalping?

So we compare the fees of the largest brokers with the following example:

  • We scalp 10x shares a day worth € 1,000
  • Sell ​​the shares within the day
  • The simplicity is based on course changes in the holding time.

With these assumptions, we now compare the fees of Capixal  & Plus500 :

providersCapixalPlus500
Depositfreefor free
Purchase feesfree3.08%
Holding feesfree0.05%
Sales chargesspreads3.08%
Total feesReasonable€ 92.32

scalping-strategy

Risk management

Efficient risk management is always an essential part of all trading options available today. The distribution of capital over several positions is probably the most important point, although this appliesexcellent everywhere.

Sensible handling of the stop-loss orders is also necessary, since a lack of timing can lead to a loss. Therefore, the stop-loss orders should be set tightly. In the best case, they should be a maximum of 10 pips.

This unfolds the most significant potential of the scalping strategy. However, some claim that having a bigger pip can also bring benefits. However, we also stick to the fact that ten pips are optimum.

In addition, an ECN broker should be used for scalping. ECN stands for ” Electronic Communication Network “. These traders have typically focused on the forex market. The quick reactions when opening or closing positions are a particular advantage.

The charts are also shown in real-time. This minimizes delays. However, as already mentioned, a good internet connection is, of course, necessary for this. Trading over the cell phone and cellular network should only be done if you are sure that the latencies are low.

Scalping Trading Conclusion – Our experience and recommendation:

scalping-strategy

The scalping strategy offers great opportunities, whereby trading in new dimensions is possible. However, as always, it is essential not to rush into new investments or trading activities blindly. Fortunately, scalp trading doesn’t require much to learn.

General things remain important here, too, such as looking at the market and the stock closed at the beginning. With this method, the choice of broker is much more important than with many other strategies. However, the main focus here is on the technical aspects, as one second can make the difference between profit and loss.

Fortunately, these days you can test this out at any reputable broker with the help of a demo account. If you notice slow transactions or server problems here, a change is urgently recommended. Beginners, in particular, should not expect too big profits with the scalping strategy. The profit per trade is low because the limits are very tight.

One advantage, however, is that large losses are almost impossible. So you have to invest a lot of time. With some experience and time, however, it can be worthwhile.

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