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.
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.