Scalping is a trading strategy that involves buying and selling financial assets within a few minutes or even seconds. The trader’s goal is to execute ten or hundreds of trades per day and make a small profit in each of them.
For example, a trader who executes 20 trades per day, making a $5 profit per trade will have a total profit of $100 (same for a trader who execute 200 trades making 0.50$ profit per trade).
To maximize the results of this approach, it becomes critical to succeed in putting in place a strategy that allows you to scale either the number of trades or the profits you can generate from each.
In this article, we will look at some of the simplest strategies to improve your scalping trading strategy.
How scalping works
Scalping is a trading approach where a trader enters and exits multiple trades with the goal of making a small profit in each. As such, these trades use extremely short-term charts that are often less than 5 minutes.
They then apply one of their strategies to trade the asset. For example, a trader using the VWAP indicator will place a buy trade when the price moves above the VWAP indicator.
Similarly, a trader using moving average crossovers will place a buy trade when the short and long-term moving averages make a crossover.
A successful scalping strategy involves having the best risk management tools. Some of the top risk management tools are stop-loss and take-profits.
Scalping trading strategies
Before we look at how to improve your scalping trading strategies, let us look at some of the top approaches to scalp:
- VWAP scalping strategy - This is a trading approach that uses the scalping trading approach. In it, a trader places a buy trade when the price moves above the VWAP and vice versa.
- Moving average scalping strategy - This is a trading approach where a trader buys when the price is above the moving average or when a short and long MA make a crossover.
- Oscillators strategy - This is a trading strategy that involves placing a buy trade when oscillators are in the oversold level and a sell trade when they are in the overbought point.
- Chart pattern strategy - This is an approach that involves looking at patterns like triangle, head and shoulders, and double-top.
- Candlestick patterns - This is a trading strategy that involves looking at candlestick patterns like doji, harami, and bullish pennant.
Strategies to improve scalping
There are several strategies that will help you improve your scalping strategy. Let's go to see and explore some of these approaches.
One of the best scalping strategies to use is directional bias. It refers to the process of following an existing trend instead of forcing moves. It is also known as following the trend. Its opposite is fading a trend, which can be risky at times.
Therefore, if a stock is in a bullish trend, you should focus on going long. You can use several strategies to do this.
For example, you can use a technical indicator like moving average or Bollinger Bands to support your move. In the case of a bullish trade, you should hold the position as long as it is above the moving average.
Always have a catalyst
Another thing that will improve your scalping is having a good catalyst. A catalyst refers to the main cause of a certain move. There are several types of these catalysts, including:
- merger and acquisition
- management change
A good way to look at this is to focus on stocks making big moves in the premarket. Some websites like WeBull, TradingView, Market Chameleon, and Investing.com provide a list of companies making major moves in the premarket session.
Focusing on these companies, whether you know them or not, can help you in scalping.
Another important tip to boost your scalping strategy is known as the relative volume. This is where you look at a trade’s volume and then consider the average volume in a certain period.
For example, if a stock is trading 1 million shares while the 30-day moving average is 200k, it means that there are more buyers or sellers of the asset. Fortunately, many companies like Investing.com provide volume analysis data.
Always protect your trades
The next tip to improve your scalping is to always protect your trades. Fortunately, most online brokers provide tools to mitigate your risks like a stop-loss and a take-profit.
A stop-loss will stop a trade automatically when it reaches a certain loss level while a take-profit will stop it when it hits a profit target. You should always protect your trades to prevent any major moves.
Don’t overdo it
Finally, a key tip that will help you in scalping is that you should not overdo it because of the risks associated with overtrading.
In most cases, you should identify the sweet spot on the number of trades that you should execute on a daily basis. For example, you can decide to execute a maximum of 15 trades per day. In this, you should avoid placing more trades than this.
In line with this, you should always have a trading journal, which is a document that lists your trades. A journal can be a piece of paper or soft copy version. The journal will help you avoid common mistakes and take advantage of some opportunities.
This article has looked at some of the best tips to use when using the scalping trading strategy. We have alo explained how the scalping approach works and some of the top things that you will use to improve the situation.
External useful resources
- Which is the best scalping trading strategy? - Quora