What is Scalping? Is it suitable for you?

What is Scalping? Is it suitable for you?

EDUCATION

Scalping is a method of trading by buying and selling one or more instruments several times in the same day in order to get a small profit after each trade. The scalping trader will only focus on exploiting small fluctuations in the market. The duration of positions in scalping can vary from a few seconds to a few minutes

How to surf the market?

The goal of scalping is to quickly profit from an open position and move on to the next opportunity.

Surf trading advocates making lots of fast trades in short timeframes. The scalper takes his profits as soon as his position is in the green zone i.e. as soon as the market develops in a positive direction for him to gain a few points or pips. He will then repeat this action several times during the session. A scalper can make dozens or even hundreds of trades in a single trading session.

How to surf the market?
How to surf the market?

Prioritize making profits as quickly as possible

In general, a trader’s goal is to maximize his or her profits by letting winning positions develop in what we call a “let profit run”. What it means is to encourage you to maintain your winning positions while resisting the urge to sell them too soon. This point of view seems quite obvious because if you follow the right trend then you will have the opportunity to make a large profit with just a single position. It also has the advantage of helping you minimize transaction costs.

The only problem here is that you won’t be able to tell when the market will turn. When price starts to retrace, you cannot determine if this is a minor retracement or a trend reversal. It is completely normal for you to lose all or a large part of your profit if you follow the “let profit run” point of view.

Scalper is aware of this and takes a more pragmatic approach. They will close their positions as soon as they see a profit. They can close their position with as little as 2 points or pips depending on the type of instrument they are trading as long as the profit earned is sufficient to cover the trading fees.

Accumulate small profits

Scalper is not a fan of profit. They make many small profits by closing their positions early before the price turns around. It also indirectly indicates that the success rate of the scalper is quite high, usually greater than 60%. You can see that getting only 2-5 pips per position doesn’t seem like much. However, if you multiply it by 50 or 100 trades it can make a significant profit, especially when you have large capital.

Things to consider when doing a surf trade

As you know, surfing is a demanding activity. Here are some things to consider if you decide to become a scalper.

Discipline

You need discipline to be able to trade successfully. This is the most important factor for a scalping trader as well as other traders. If you don’t have the discipline to force yourself to be diligent and stick to your trading plan, you won’t be able to achieve success.

Transaction fee

You will be charged a transaction fee each time you open and close a position. Fees include the exchange’s commission and the spread, which is the difference between the bid and ask prices of the instrument being traded.

Since scalping is a more aggressive style of trading than day trading and swing trading, its fees are more expensive because you hold more positions and therefore pay more commissions.

For example, a day trader can get 50 pips on a single position and pay only 1 pip commission + spread to the exchange. That is, his net profit will be 49 pips. At the same time, a scalper can hold 10 positions which earns him 5 pips per trade. However, he has to pay 1 pip commission + spread for each position. That is, his net profit will be only 40 pips.

It is why the more aggressive the trading style, the more expensive it will be

Creditial

Liquidity allows market participants to freely open or close a position without worrying about slippage risk (finding themselves being assigned a different price than their order). A liquid market is a place where buying and selling is done with ease. Major currency pairs (EUR/USD, GBP/USD, USD/JPY, etc.) are highly liquid instruments. Such markets are well suited for scalping as they fulfill their demands for speed and accuracy.

However, you will hardly be able to trade in a illiquid market. In general, the spreads on an illiquid instrument are quite wide so they do not allow for the execution of a scalping trade. For example, exotic currency pairs are less liquid than major currency pairs.

Volatility

It can be defined as market anxiety. It is a measure of the amplitude of the price movement of an instrument over a certain period of time. This is an important factor for the scalping trader.

In general, views on volatility are quite divided. Some scalpers prefer high volatility while others prefer to trade in a quiet market. The higher the volatility, the easier it is to cover trading costs. That is the reason that most traders recommend to do scalping during trading hours (the time of the start of the European session and the beginning of the US session).

However, a quiet market can also present great opportunities. The market is more predictable when there is low volatility, such as during the Asian session for major currency pairs.

Trading hours

Intraday volatility is closely related to trading hours. Volatility will increase when the European markets open and when the US and European markets open at the same time.

Trading hours
Trading hours

The most favorable time to trade the surf will depend on your strategy. If you are following the trend or want to minimize trading costs then you should opt for the early US and European sessions. On the other hand, if your scalping strategy needs a quiet market, the Asian session is the best time to trade.

Range and direction of the trend

One of the advantages of the scalping strategy is that you can make a profit when the market goes up or down, regardless of the range of volatility. While day traders and swing traders have to wait for movements to a certain extent to trade, scalpers can exploit and profit from small fluctuations. on price.

Focus on a single tool

Concentration plays a very important role to be able to surf successfully. First, you need to choose a single instrument to trade with because if you follow multiple instruments at the same time, you may miss out on opportunities. Most professional scalpers specialize in instruments with good liquidity and do not look for other opportunities.

Risk management

Establishing tight money management and limiting risk is especially important. In fact, some scalpers do not place take profit and stop loss orders on their positions even though doing so gives them more security, especially for stop loss orders.

Surf trading is understood to mean that you will get a small profit with most of the positions closed. It will be a pity if you lose most of your gain by not placing a stop loss order. Prices can actually rise in a variety of ways within a few seconds of an economic event such as the release of key figures for a major economic indicator. This is why you should use leverage in moderation.

Economic calendar

Surfing traders must keep a close eye on the economic calendar. When trading for short periods of time, economic indicator releases, speeches by central bank presidents, and even some speeches by heads of state can shake up instruments. finance. Unforeseen events can also occur and upset the price action. Therefore, this once again emphasizes the importance of setting a stop loss order.

Manually or Automated Surfing?

Most of the most effective surfing techniques are relatively simple. They are based on price action or technical indicators. This makes it easy to automate your surfing strategy. If you find a profitable method of surfing then you should automate it. The advantage of automated strategies is that it is more disciplined and allows for feedback and optimization of your strategies.

Advantages of surf trading

The main advantage of this trading method is that you can control the risk.

Less Risk: By keeping a close eye on his positions and closing them as quickly as possible, the scalper limits the risk of big losses.

Trade with no direction: Surfing is a strategy with no direction so you don’t need a strong trend or a clear direction to take advantage of market fluctuations.

Advantages of surf trading
Advantages of surf trading

Easy Automation: Most scalping trading strategies can be automated easily. These strategies are usually based on technical indicators.

Disadvantages of Surf Trading

The main downside of this method is the high cost and psychological stress on your net profit.

Easy Automation: Most scalping trading strategies can be automated easily. These strategies are usually based on technical indicators.
Large capital requirements: you need to have a large amount of capital if you want to make a significant profit. If you make a surf trade with an account of $1,000 (VND 23,000,000), your profit will be negligible.

High transaction costs: because scalping requires holding many positions in a short period of time, trading costs can significantly reduce your profits or increase your losses.

Psychological stress: scalping is such a stressful activity that it is easy for a trader to burn out after a few hours. For this reason, beginners should limit their trading sessions.

Conclude

Scalping is a rigorous trading method suitable for traders with endurance and discipline. If trading is taken seriously, it can be profitable and generate regular income for you in the market. Surfing strategies are often simple but require absolute discipline to stay sustainable.

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