Trading Strategies: Scalping
Welcome to this new series of articles from CryptoAltum where we’ll tackle various trading strategies. Here, you get to decide what kind of trader you are and which trading strategy best suits you.
In this first article, you’ll be reading about scalping.
Even if you’re just starting your trading journey and you haven’t ever seen a Cryptocurrency chart before, you’ve probably heard about Scalping. No, we’re not talking about removing the people’s scalps!
Scalping in trading has to do with benefiting from the last few movements of any given instrument.
Simply put, scalping is geared towards profiting from minor price changes in an instrument’s price. Traders who implement this strategy can place up to a few hundred trades in a single day with the belief that small moves in an instrument’s price are easier to catch than large ones.
The traders that utilize this kind of strategy are known as Scalpers. Scalpers attempt to target price gaps and other short-term trading “loopholes” that allow them to quickly turn around a large position into a profit.
Because Scalpers focus on short-term positions with low-profit margins, the best scalping strategies require some leverage. It’s recommended that Scalpers start with a large amount of capital. Opening and closing larger positions allow you to reduce the marginal costs of trading and maximize potential gains.
Scalping utilizes larger position sizes for smaller price gains in the smallest period of holding time. This means that most, if not all, trades are done on an intraday basis. The main goal is to buy or sell a number of lots at the bid — or ask — price and then quickly sell (or buy) them a few cents higher or lower for a profit. The holding times can vary from seconds to minutes, and in some cases up to several hours. However, it’s very important to note that the position is never held beyond the end of one day as that would incur SWAPs which is considered to be the enemy of Scalpers because it would meddle with their profit margins.
If you’ve been reading so far and consider yourself to be a Scalper. Well, don’t get ahead of yourself as there are a couple of characteristics that all Scalpers must have.
The first thing you need to maintain is discipline. This means that you have to stick to your trading system at all costs. Any decision that needs to be done, must absolutely be in sync with your original trading system. However, since markets are fluid in nature, you can’t be the rock in the middle of the stream; you’ll eventually get beaten down. So, if your trade isn’t going as expected, you need to fix the situation as fast as possible without accumulating too much loss.
On the topic of loss, most Scalpers set a daily loss limit for themselves. Once this level is hit or breached, they stop trading. This is usually used so Scalpers don’t have to chase after their losses. It also helps traders learn to take the hit and come back the next day with a fresh attitude.
The second thing that most Scalpers have in common is their combative attitude. Scalpers have the “us versus them” attitude when it comes to trading! They often see the market as the battle zone and other traders as the enemy.
The last thing about Scalpers is that all their thinking process is done while they’re on their feet. No, we don’t mean standing up. It’s more about the fast-acting attitude they trade with. There’s often little time to react when making short-term trades. Scalpers often have to make trading decisions in a matter of seconds, or they’d miss the opportunity. They also need to make quick decisions if any errors were made. For example, do they close an erroneous trade immediately, or do they close half now and leave the other half for the market close?
Clearly, you have to be a good decision-maker to be a successful Scalper who never panics.
Now that you’ve read what makes a great Scalper, do you think you’ve got what it takes to claim you’re a Scalper?
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