What is scalping?
Scalping is a trading strategy designed to profit from small price changes, gains on these trades quickly and once a trade becomes profitable. All forms of trading require discipline. The number of trades is so large, and the profit from each person’s trade is so small, a scalper must follow their trading system rigorously, avoiding a large loss that Can erase dozens of successful.
Scalpers will make many small profits, and will not run down any winners so that they can appear and gain whenever they appear. The objective is to have a successful trading strategy through a large number of winners rather than a few successful trades with a large win size.
Scalping relies on the idea of low risk, as the actual time to market on each trade is quite small, reducing the risk of an adverse event which is a major step. Furthermore, it considers that small moves are easier than larger ones. And that smaller moves are more likely than larger ones.
Scalp trading using a stochastic oscillator.
Scalping can be accomplished using a stochastic oscillator. The term stochastic relates the point of current value in relation to its range in recent times. By comparing the price of a security to its recent range. Stochastic attempts to provide a potential turn.
Scalping with the use of such an oscillator is intended to capture moves in the trending market. One that is constantly moving up or down in a fashion. The price closes near the peak of the recent range before a turn is made.
In the chart above, of Crude oil over a three-minute time frame, we can see that the price is moving higher, and the stochastic (marked with arrows) lows provide the entry point for longer trades, when the black% K line up Crosses. Dotted red% D line. The trade is out when the stochastic reaches the upper end of its range, above 80, or when a recession crossover appears, when the% K line falls below% D.
Conversely, short positions will be used in a downward trending market, an example of which is given below. This time, instead of ‘buying dips’, we are ‘selling rallies’. Therefore, we will look for the slowdown crossover in the direction of the main trend as given below:
Scalp Trading Using Moving Average
Another method is to use a moving average, usually two relatively short-term ones and too long to indicate a trend. In the examples below, on the three-minute chart, we are using five- and 20-period moving averages (MAs) for the short-term, and 200-period MAs for the long-term. In the first chart the long-term MA is increasing, so we see the five-term MA to cross above 20 periods, and then take a position in the direction of the trend. These are marked with an arrow.
In the second example, the long-term MA is declining. So we look for short positions when the price falls below the five-period MA, which has already crossed below the 20-period MA.
It is important to remember that these go along with trade trends, and we are not trying to catch and hold every move. As in all scaling, correct risk management is essential, to avoid large losses leading to stagnation that quickly wipes out many small winners.
Scalp Trading Using Parabolic SAR Indicators
The parabolic SAR is an indicator of the direction in which a market is moving. And it also strives to provide entry and exit points. SAR means ‘stop and reversal’. The indicator is a series of dots placed above or below the price bars. A point below the price is bullish, and above is a slowdown.
A change in the position of the dots suggests that the trend is changing.
Short trades can be taken when the price goes below the SAR dots, and long when the price is above them. As can be seen, some trends are quite extended, and at other times a trader will have to deal with a lot of losing trades.
Slap Trading Using RSI
Finally, traders can use RSI to find entry points that run with the prevailing trend. In the first example, the value is rising rapidly, with three moving averages indicating roughly high.
Dips have to be purchased in the trend, so when the RSI falls to 30 and then goes above this line. A possible entry point is created.
Conversely, when the RSI moves to 70 and then the downtrend begins to decline, the rally creates a chance to sell, as we have seen in the example below.
What you need to know before scaling
Scaling requires the discipline of iron to a trader, but it is also very demanding in terms of time. Although longer frames and smaller sizes allow traders to move away from their platforms. As possible entries are few and can be remotely monitored, scaling demands the merchant’s full attention.
Potential entry points can appear and disappear very quickly, and thus, a trader must be tied to his platform. For individuals with day jobs and other activities, scalping is not an ideal strategy. Instead, long-term trades with larger profit targets are more favorable.
Scaling is a difficult strategy to execute successfully. One of the primary reasons is that many trades are required over time. Research on this topic suggests that more frequent traders simply lose money more quickly, and have a negative equity curve. Instead, most traders will have more success, and can reduce their time commitments to trade, and even reduce stress. By looking for long-term trades and avoid scaling strategies.
Scaling requires quick response to market movements and the ability to abandon a trade if the exact moment is missed. The lack of stop loss discipline, as well as the chasing ‘trade, are the main reasons scalpers often fail. The idea of staying in the market for only a short time seems attractive, but suddenly moving forward is more likely to stop.
Trading is an activity that rewards patience and discipline. While those successful in scaling exhibit these qualities, they are a small number. Most traders are better off with a longer-term outlook, smaller position size and less frantic pace of activity.