Among the trading methodology, Scaling is one of the most common strategies used by short-term retail and institutional traders. Instead of optimizing for big profit from single business, scaling optimizes win-to-loss ratio in many trades. The process involves quick booking of small profits and losses as they appear in the market.
Pros and Cons of Scalping
The benefits of scalping
- Less risk: Scalping strategies have been designed to limit the risk of loss from any one business by making tight leverage and stop-loss points. There is very little market risk.
- Non-directional: Scaling is a non-directional strategy for which the market does not need to go in a specific direction. You can take advantage of both the top and bottom markets.
- Easy to automate: Scalping strategies are often easy to automate with the trading system because they are usually based on a series of technical criteria which can be calculated.
Drawbacks of scalping include:
- Higher Minimum: Higher minimum account values are required or generate sufficient profit to reach their goals.
- High Transaction Cost: Scaling involves involving maximum trades in comparison to other strategies, which means that the cost of transactions is very high.
- Greater leverage: Scalping is often required to take advantage of high amounts to generate enough profit, which is very important to control risk to avoid large losses.
Conclusion:
Scalp trading involves entering trades for a short time to catch fast price moves.
When you do trade:
– There are less exposure to risk
– Keep many trades per day
– Control your internal greed because you aim for small profits.
- If you do trade, then you need a win / loss ratio of more than 50%.
- Oscillator can be very useful for your scalp trading system because they are key indicators; However, oscillators are not a standalone indicator.
- Try to find the indicators that are complementary to each other so that you can validate business signals.
- Scalp trading money management is important:
– Invest in around 15% of your purchasing power in each scalp business.
– Keep Stop Lose 0.1% from your entry price.
– Stay in trades until the price hits the opposite point
– If you do trade in low chart frames, you will usually trade between .2% and .3%.
- If you scalp to the High Chart timeframe (5-minute, or more), then you can exceed the goal.
- You must have a solid bankroll for the scalp trade. Small accounts will be eaten alive by the trading commission.
