How does Scalping Trading Strategy works?

How To Trade With Speed

Scalping is a short-term trading strategy where traders execute trades at lightning fast speeds. Scalp traders won't keep their position for longer than a few seconds. Scalp traders prefer to trade quickly when there is an opportunity and they believe in small profits over waiting for big trade opportunities to arise. A scalper will trade between ten to a hundred trades per day. Scalp trading is a great way to determine if it is right for you. We will discuss the best scalping strategies.

Scalp trading is based on the principle that market exposure can be limited by opening and closing positions quickly. Further, scale traders can be classified as either discretionary traders or systematic traders. Discretionary traders are more influenced by instinct. The trader decides which market to trade in, when to trade and how big the deal should be. To make their trading decisions, systematic traders rely heavily on technical trading tools and little on their intuition. These trading strategies can help you improve your scalping techniques.

Common scalping techniques

Scalping is high-speed trading at high speeds. It requires discipline, determination, and analytical prowess in order to succeed. The timeframe that scalpers use is what makes them different from other traders. A scalper might use 5- to 15-minute charts. Others may use tick or 1-minute charts to trade. Let's now discuss the strategies.

Strategy for Stochastic Oscillator

- The Moving Average Strategy

- RSI strategy

Strategy for Parabolic SAR indicator

Using Stochasticoscillator

A stochastic oscillator, a type momentum oscillator, compares an asset's current price to a range over time. It displays values between zero and 100. Stochastic oscillator is used to scale.

The trader opens long positions when the %K (current price of an asset), crosses the %D (3 periods moving line), from below. The trader must exit if the %K line crosses over the %D from above.

Scaling Using Moving Average

The moving average lines is another option. For decision making, traders use two short-term MAs as well as one long-term 200period MA. Long-term MAs are rising. Traders take a long position if the 5-period line crosses over the 20-period MA in direction of the trend.

When the long-term MA falls, traders will take a short position if the 5-period MA crosses under the 20-period MA.

Scaling With Parabolic SAR Indiator

Parabolic SAR is a market direction indicator that provides entry and exit points. SAR, short for stop and reverse, is a series if dots that are placed on top of the price bars. This indicator indicates the direction that the underlying is moving and gives traders an edge.

An indication that the trend is changing is a shift in the SAR dots' position. The dots move along with the stock price when it is rising. At first, slowly, but eventually, they catch up to the price. If the dots are placed below the price bars, it indicates a bullish trend and traders should open long positions. If the position of the dots turns, it indicates that a trend shift is taking place.

Using RSI to scalp

The relative strength index, or RSI, is a popular oscillator. It can be used in different time frames. It can be adjusted for any time frame that is most convenient to scalers. This oscillator can also be used to identify entry and exit points within a trend. If the RSI is close to 30 and then rises, this indicates that it is time to open a long position. Contrary market situations, the RSI rises to 70 before declining to provide an opportunity to'sell' the rally.

Conclusion

Some would argue that scalping is easy because you only stay in the trade for a short time. However, scalping is not only difficult but also requires a lot of discipline on the part of the trader. This is not the best style for traders who have a job. Scalping is a skill that requires the ability to react quickly to market movements and seize opportunities before they disappear. The technical trading tools are a good starting point to help you create a profitable scalping strategy.