It is one of the most popular forms of trading, especially among newcomers. It is a fast-paced, mind-rattling, and an adrenaline-inducing type of trading.
The main objective of scalping is to rush into the trade at the busiest hours of the day, grab a very small amount of pips and exit the market immediately. While the gains from the single trade might be limited, а trader can increase his returns by executing dozens of such trades throughout the day. But the scalper must always know where to stop as overtrading may quickly erode the account balance once he/she steps into a bad streak.
The key advantage of this trading style is high potential returns (well, if you’re quick and dexterous enough to execute your trades in a very short period of time). Leverage allows scalpers with modest amounts of initial resources to reap greater gains, but you should beware of substantial losses you might suffer while using leverage improperly. One pip in your favor may bring you lots of money with the leverage. In contrast, a pip against you may result in great losses. So, it is hit or miss type of trading.
Scalping doesn’t suit those who are not used to trade in a high-risk environment.
This type of trading demands the in-depth knowledge of your trading platform; you shouldn’t give too much thought to operational procedures; you should be fully concentrated on the movement of the price.
Example of a trader
If you set your heart on scalping trading, you might be interested in getting professional advice from the most successful scalper of all times – Paul Rotter. This trader reportedly made $65-78 million per year over 10 years scalping the most liquid contracts at the Eurex.
“I was always the guy who traded a lot, sometimes up to a 100 trades a day. I'm only looking for the next 3-5 ticks”, avows our scalper.
What did he do to avoid overtrading? He simply set daily goals for his profits and losses. Before rushing into trade, he used to define the stopping limit, the maximum loss he could take per day. He took quite risky positions, but when they started going against him, he mercilessly closed them. He always said: “As a trader, you should have no opinion. The more opinion you have, the harder gets it to get out of a losing position.”
In contrast, during his was winning phases he was getting truly aggressive; he took bigger risks and scaled back in losing times only. Sometimes it is truly difficult to do so. So, Paul Rotter tried always to have somebody by his side, a neutral, who could force him to switch off his terminal once he reached the stopping limit.
His trade is not directionless, he bases his decisions on through analysis of the markets. Before opening the terminal, Paul Rotter tries to check all the economic reports that are about to be released, speeches of influential political figures and central bank governors – anything that may influence the direction of the price – until he gets a clear picture of the market.
Other articles in this section
- Chart patterns
- Uncovering Gann indicators
- How to create your own trading strategy?
- Candlestick patterns
- Trend trading
- Carry trade
- Swing trading
- Position trading
- Day trading
- Trading styles and strategies
- Fibonacci tools
- Trader's psychology
- Identifying market’s reversal
- Japanese Candlesticks
- Market conditions: trends and ranges