What is Scalping and how does it work?

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6 min read

In the trading world there are many techniques to obtain profits. Scalping is one of the most attractive, since in a few words it is about generating profits through micro movements in the market. The fact of earning money in such short periods of time attracts the attention of many users who decide to put this technique into practice.scalping is also known by the name of quick trading being a variant of day-trading. In other words, short-term trading. The operations carried out under this technique are fleeting, since we are talking about opening and closing a trade in a matter of minutes or even seconds.

This technique involves traders making a large number of trades throughout the day. This instantaneous system makes the trader earn small but repeated profits in a day.

How does Scalping work?

If we want to obtain profitability in scalping operations must be done methodically adjusting the stop-loss on each operation. This is a high-risk technique that requires extensive knowledge of the market and a good technological support.a.

Operations of this type are carried out in short intervals of time, so speed of analysis and decision making is required. Therefore, the systems we use as tools must be as fast as possible.

To apply this technique, the ideal assets are those with maximum liquidity whose turnover is high and guaranteed, as is the case of Bitcoin. Practicing scalping in cryptocurrencies involves applying this methodology in multiple operations with the objective of obtaining fast returns in short periods of time.

Scalpers are a highly active type of currency traders. They open and close orders quickly. This type of strategy is very popular with more experienced traders, as it helps to limit losses and high exposure to the market. The risk is more limited.

The Scalping strategy is a perfect starting point for beginner traders who do not want to take high risks. Always keeping in mind that it is a strategy that requires daily time in front of the charts. This strategy involves about 100 trades per day for the average trader. This means that we should choose an exchange with smaller spreads and low commissions. Clearly Scalping is based on technical analysis and price action. On the one hand general analysis is only marginally taken into account while technical indicators play a fundamental role. 

In this technique there are relevant factors that condition our operations. These factors must be taken into account before starting an investment.

  • The first factor is the level of liquidity. If we want to do Scalping the most suitable environment is in markets with high liquidity.
  • The second important factor is the level of volatility. To gain more possibilities to accept we need to look for markets with volatility that allow us to enter micro-trends and follow a price. 

We must keep in mind that this technique is based on activating a stop-loss. This type of market order will only be triggered if volatility triggers it again and again. On the contrary, in a market with low volatility we will not be able to enter small trends.

When to apply or not to apply Scalping?

To perform this type of trading we must first think about whether we meet the necessary characteristics to carry it out. This type of operation requires investors who, first of all, orient their investments to short term and fast trading. It requires a lot of time to observe the market charts and draw conclusions after hours of watching them. You need to think and act fast.

It should be noted that there are situations in which Scalping is not the best option. One of them is when the user cannot dedicate enough time to observe the charts and market movements. If our goal is to earn large profits in a few operations Scalping is not the best option.

If you are one of those people who need to meditate when carrying out a general analysis of the market and determining the general trend, this methodology is not for you.

Finally, it is essential to know how to control emotions in the face of rapid market movements. 

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Advantages and disadvantages of Scalping

Like everything else, this technique has its own advantages and disadvantages. Below we will tell you the most important ones.

  • Less risk. Losses are reduced, if any, since we play little. However, this feature also makes it a disadvantage because as losses are reduced, profits are also reduced.
  • Many opportunities. This is considered an advantage, as due to the fact that the action time is quite short, traders have many opportunities to make profits.
  • We must know at what exact moment to enter or exit a transaction. This is because in very volatile markets there can be a lot of price variation between the opening of the transaction and its closing.
  • The trader’s emotions are involved. This is a clear disadvantage considering that in the face of large price variations we do not usually think before acting and we can make mistakes that result in losses.

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