high speed trading • Finance Hero

What do we mean by “scalping”?

Scalping is a trade practice consisting of taking a position on the financial markets, whatever they may be (Forex, Commodities, Stock Indices, Shares, Cryptocurrencies, etc.) for a very short period of time, from a few seconds to a few minutes, maximum. In this way, scalping differs from “day trading”, where we aim for positions over several hours and a closing at the end of the day.

It is this repetition of repeated buying and selling that allows the scalper to accumulate profitability and gains over time. It is also customary toa scalper trader places a few dozen or even a hundred orders in a single day. You will therefore have understood, in this sense, scalping is antithetical and incompatible with the stock market phrase “let your profits run”!

In order to perform, the scalper will seek to anticipate the development of prices at a given time in order to free himself from “market noise” (announcements from central banks, economic figures, company results, news, etc.). With scalping, the goal is thus to reap profits several times an hour or a day, regardless of market conditions. Furthermore, a scalper can take a short or bearish position on the same asset on the same day.


Matthew’s advice

When you scalp, do not plan to close your positions manually. You will not have time, especially if you are in multiple positions or multiple values ​​in parallel! This process should be automatic. Thus, when you take a position, your trading platform will automatically place exit orders (stop loss And take profit), which you have previously configured according to your own preferences.

Characteristics of scalping

There are a multitude of strategies that can be implemented for scalping. However, you will always find three essential pillars:

  • The use of leverage. In order to maximize his profit quickly, the scalper will generally use leverage when triggering an order. For example, with a leverage of 10, for an order placed at €100, you are actually taking a position of €1,000. This can especially be achieved by using CFDs (contracts for difference), which are the most popular derivatives with scalpers.
  • Use of Stop loss. To preserve your capital, it is essential to know how to manage your risk by having one money management very strict. This requires good control of your stops. Therefore, the scalper will automatically set invalidation thresholds (position closure) with a predefined maximum loss amount that he is willing to tolerate. Technically, these switches very often involve trigger threshold orders, more commonly known as “stop orders” or “limit orders”.
  • Use of technical analysis. With scalping, you must concentrate mainly on prices (price action) thanks to the use of technical analysis and chartism. The time scale is actually too short for fundamental analysis to make sense. Here again, each scalper trader has his strategy, his favorite indicators (Bollinger bands, Fibonacci retracements, etc.) or his favorite oscillators (RSI, MACD, etc.). It is up to you to implement your own trading strategies and to be efficient when taking very short-term positions.

Advantages and disadvantages of scalping

  • Capturing micro-movements outside of any market context.
  • You will have options in any market at all times.
  • Can be exercised as a supplement to a professional activity. Even if you have a busy day, it is possible to do scalping sessions lasting a few hours when you have a little time to spare.
  • You don’t need a lot of start-up capital to make regular profits. It is still necessary to respect one money management very strict.
  • You get action and adrenaline very quickly. This can quickly become exciting, especially if you accumulate winning trades. But you also expose yourself to the risk of overtrading, that is, taking exaggerated positions, based on a bad interpretation. Strong mental discipline helps guard against this.
  • Have a strict exit method because if the scalper lets a loss slip, it can wipe out a lot of previously earned gains.
  • On this time scale, it is not easy to implement a systematic winning strategy because you do not benefit from the upward trend in the financial markets, which is valid in the long term.

Transaction fees (or spreads) can quickly eat into your winnings. It is therefore important to go through an excellent broker to conduct scalping.

What trading platform for scalping ?

The choice of platform and broker is paramount and should not be neglected. To practice scalping effectively, make sure you have:

  • A recognized and serious broker/broker to provide you with a perfect and fast execution of orders to avoid in particular the effects of slippage (offer difference between the time of placing an order and its execution).
  • Real-time access to the markets you wish to trade.
  • Access to “tick off” quotes, that is, a minimum time scale, less than a minute.
  • Reduced fees. Since the profit on each trade is low, commissions attached to the diversity of order placements can drastically reduce your profit and prevent you from becoming a profitable trader.

One last tip for the road

Don’t get intoxicated by the feeling of quick profit that scalping can give… Contrary to what people think, it is not the miracle method or the easiest way to perform in the stock market. This investment method is not suitable for everyone, especially because of the use of leverage. It is aimed at experienced traders with very good ability to analyze and read prices, responsiveness and foolproof discipline.

Do not hesitate to practice in advance with an online broker on a demo account for a certain period of time. And don’t risk more than you can afford to lose.

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