What is scalping? Beginners guide
Scalping is a very short-term trading method. A trader who opens positions (buys) using this technique can take an average of five minutes to half an hour to close positions (sell). So it is an almost instantaneous and very fast system.
The objective is to obtain small and repeated profits in operations over a short period of time. Sometimes operations are even completed in a matter of seconds. In this short period of time, the purchase and sale of an asset on the Stock Market must be closed. This dynamic allows traders to carry out many operations throughout the day.
The following basics help to understand what scalping is and how it works:
How a scalper operates
How a scapler makes profit
The profile of the scalper
What kind of markets are used by scalpers
Trading platforms that scalpers use
How does a scalper operate?
To make profit with scalping, it is necessary to operate in a deeply methodical way, making a good stop-loss adjustment in each operation. It is a high-risk technique, it requires having extensive knowledge of the market and a high level of technological support.
Due to the short time interval in which scalping is carried out, it requires rapid analysis and decision-making. And the systems and tools used must be as speedy as possible. All in all, it is a strategy not widely used among conservative traders.
As for the best times to trade, these are the open, midway, and just before the close periods.
What about assets? The ideal ones to apply to this strategy are those with maximum liquidity: stocks, currencies, or indices whose turnover is high and more than guaranteed.
The profile of the scalper typically includes the following personal qualities:
- Mental agility
- Emotional control
- Analytical and methodicaly minded
- Fast action and decision making
What kind of markets do scalpers operate in?
To determine the possibility of a scalping operation, it is necessary to differentiate between the characteristics of the market (or product) and the conditions of access to the market. The following factors always stand out:
- Level of liquidity: the most suitable environment for scalping is found in markets with high liquidity. Among them, we find the SP500, DAX30, Dow Jones, or the EUR / USD.
- Level of volatility: we must look for those markets with some volatility to operate, where we find micro-trends that allow us to follow the price. A very volatile market will make us jump the stop loss very often, while in a market with low volatility we will not find the right environment to successfully profit from small and repeated trends.
Trading platforms that scalpers use
To scalp, you will need an online broker that offers you the lowest possible spreads(differentials between the purchase price and the sale price) and reliably fast execution of operations. Keep in mind that some brokers do not support scalping and can close your account if you open and close operations in a short period of time.
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