The Ideal Guide to Scalping Trading Strategy – Introduction
To make money in the financial market, there are many strategies you can follow. You can be an investor like Warren Buffet or you can be an algorithmic trader like James Simmons or an event-driven investor like Ken Griffin. You can also become a private equity person like Leon Black.
The fastest way to make a fortune is by being a trader. For example, if you had $1,000, you can make a bigger return by trading it than by investing it. This is because investments take time to mature and realize a good return. One trading strategy that you can use is called scalping.
The scalping strategy is simple. It involves opening a trade and exiting it within a short period of time after making a profit. In this case, the profit will not be big, but when you perfect the process every day, the profits will be high. I have seen many people who have made millions by opening and closing tens of trades every day.
To be good at scalping, you need to do several things.
First, you need to understand the dangers of opening multiple trades a day and how you can minimize the losses. Since trading is a risky business, the more times per day you trade exposes you to more risks. It also presents you to more opportunities to profit. To achieve the latter, you must learn on how to minimize your risks.
Second, you need to identify the assets that you will be trading in. Often, I find many traders who are struggling to become successful. They understand the basics but often fail where they want to trade everything. For example, a trader will have three open positions of EUR/USD, GBP/USD, and JPY/USD but if you ask them the relationships between the three pairs, they will never tell you.
To succeed, you need to identify the assets that you will trade in. In this, I recommend that you select a few currency pairs, a few stocks, and a few commodities, master them, and then trade them. Avoid trading in so many assets. As they say, too much of everything is poisonous.
Third, you need to have a set of parameters that must be met before you open or close a trade. Mostly, I recommend that you use technical analysis when using scalping strategy. This analysis involves using technical indicators like moving averages, resistance and support points, and relative strength index. This is because, in the intraday, prices of financial assets move up and down because of technical reasons. For example, you can create a strategy where you only enter a trade when a combination of indicators are reached.
Fourth, I recommend that in every trade that you enter, you have clearly thought out stop loss or take profit points. This is because, no matter how good your analysis is, often, the trade will not work out fine. Therefore, to protect your trades, you should always have a stop loss which will come to effect when the trade goes in the negative territory. A take profit ensures that you take profits when a certain level is reached.
Finally, ensure that you don’t let your trades don’t run overnight. If you are a scalper, this decision can be costly. You want to open trades and close them within a few minutes or hours. If you let them stay overnight, it could have bad implications especially when you don’t have a stop loss.