A scalping trading strategy involves making a large number of trades within a short timeframe, often just a few seconds or minutes. Forex scalpers aim to accumulate small amounts of pips as frequently as possible, usually during the busiest times of the trading day.
We explain how to start day trading scalping, detailing different systems, definitions, automated bots and more. Learn how to build a real-time scalping program to profit from forex, stocks and crypto markets.
Best Scalping Trading Brokers
Due to the nature of scalping trading, it’s important to choose the best broker. With hundreds of trades often being placed a day, users need to look for competitive fees. In addition, scalpers need rapid order execution along with leading software and platforms to assert an edge.
What Is Scalping?
Scalping systems exploit minor changes in prices. Scalpers aim to rapidly enter and exit the financial markets, skimming profits from a high volume of trades. They typically play the role of market makers ensuring liquidity.
Scalping strategies are most effective during periods of substantial trading volumes in conjunction with high leverage and tight spreads.
Key features of scalping include:
- Liquidity – The more liquid a market is, the tighter the spreads and the more trading options usually available. Scalpers generally prefer a liquid market because they can enter and exit positions with less negative impacts. With that said, they also tend to attract professionals which can make it harder to predict trends.
- Volatility – In contrast to momentum traders, scalpers prefer stable markets. Let’s say price doesn’t shift, scalpers could bank profits all day – placing thousands of trades on the same bid and ask.
- Timeframes – Even by day trading standards, scalpers move quickly. In fact, some market shifts are too small to even be seen on a one minute chart. This means scalpers often have a huge number of trading opportunities in any given session.
- Risk management – Because they make a huge number of trades, scalpers can accumulate lots of losses as well as profits. As a result, traders need to employ risk management tools to curb exposure.
How to apply a scalping technique may vary, but systems can be used in multiple financial markets, from cryptocurrency pairs with Bitcoin, to gold, CFDs, stocks and binary options. We’d recommend applying a scalping strategy to a market you already understand, such as forex, the Dax 30, ASX, or Nifty.
Benefits Of Scalping
- Achievable profit targets – While some strategies require a significant price shift to accumulate profit, scalpers may only need a forex pair to move one pip to reach their profit target.
- Trading options – Scalpers don’t need high profile market shifts to bank profits, meaning there are often plenty of smaller opportunities to apply scalping techniques, even on relatively quiet trading sessions.
- Reduced risk exposure – Because scalpers are only exposed to the live market for a few seconds or minutes, it reduces the chances of incurring a large loss in a single trade.
Scalping Trading Tips
Scalping relies on tight spreads because you’ll be entering markets frequently throughout the day. As a result, you need to focus your efforts on assets offering the greatest trading volumes. For forex traders, EUR/USD, USD/JPY and GBP/USD are sensible options. You also want to focus on the most liquid times of the day when sessions overlap. These are 02:00 – 04:00 to 08:00 – 12:00 EST.
Another useful tip is to ensure your targets are at a minimum double your spread so you factor in times when the market shifts against you.
We’d also recommend focussing on one asset first. Trying to scalp multiple forex pairs as a beginner will prove challenging. Once you see consistent results, you can then turn your attention to other assets.
Trading bots can prove an effective way to implement a scalping system. Intelligent algorithms can open and close huge volumes of trades based on preset criteria. You can build your own Expert Advisors (EAs) on platforms such as MetaTrader 4 using Python and the MetaQuotes scripting language. Alternatively, you can buy pre-existing scalping robots from the MetaTrader marketplace, among other providers. Always check reviews to make sure you’re getting value for money when buying a Hamster scalping trading robot, for example.
Scalping can be a time consuming and complex investing method. With that in mind, it’s worth tapping into the wealth of guides, courses and real-time tutorials available online. You can find scalping ebooks that walk through strategy examples and can help you set realistic results.
For visual learners, there are how to start scalping training videos and interactive PDFs. Forums also offer a useful space to bounce ideas about indicators off established scalpers. Additionally, keeping a journal where you track order book options and experiences in live trading rooms can help you refine your technique.
Intraday scalping with high leverage means you can take more positions to generate greater profits. Leveraged scalping also offer a mechanism to diversify your investment portfolio as you can take positions in different markets, such as forex and cryptos.
Note, scalping with high leverage does increase your risk exposure and losses can exceed deposits.
Be conscious of news reports which, due to slippage and volatility, can harm scalpers. A news announcement can see the market move against you. It’s worth keeping an eye on your broker’s economic calendar so you’re not caught off guard by major news events.
Scalping trading relies on slim profit margins. As a result, beginners need to make fast and efficient trades. A delayed order can turn a small profit into a loss. With this in mind, it’s worth utilising supplementary systems such as Direct Market Access Trading and Level 2 quotes.
Scalpers can make hundreds of trades a day. With such a high frequency of trading, fees and commissions can add up, cutting into profits. It’s vital, therefore, to open an account with a broker that offers competitive fees. Even small price differentials between trading desks can add up over time. It’s also worth keeping in mind that not all online brokers allow scalping.
Scalpers must remain disciplined. In general, aim to close all positions in a single trading day rather than rolling them over. The basic premise of scalping is holding positions for a short period. Beginners should resist deviating from this.
For novices, the buy-side is a good place to start. It offers relative comfort for beginners who can refine their strategy before moving into the sell-side. Of course, in the longer term, successful scalpers need to balance both for optimum returns.
What Is The Best Scalping Strategy?
Multiple scalping trading methods and strategies can work. Setups and techniques vary between traders. We’d recommend trying a few options on a demo account and tinkering until you find a system that works for you.
Scalping Trading Using Moving Averages
A straightforward system, traders look for two short-term moving averages and one longer one that points to the trend. For example, if you took a one-minute GBP/USD chart, you could use five and 20-period moving averages for the shorter term, and a 200-period moving average for the longer term.
When the longer-term moving average is rising, you’d look for the five-period average to cross above the 20-period. You could then take positions in the direction of the trend.
Alternatively, when the long-term moving average is declining, you’d aim for short positions when the price crosses below the five-period average which has already crossed below the 20-period average.
Scalping Trading Using The Stochastic Oscillator
Stochastic refers to comparing the current price with a range seen during a recent time frame. The comparison can help indicate turning points. Scalping using the oscillator aims to paint a picture of moves in trending markets, for example, one that’s moving up, down or consistently. The premise is that prices typically close near the limits of recent ranges before turning.
The stochastic offers entry points for long trades while the position can be exited when the stochastic hits the top end of its range or when the bearish crossover appears.
In contrast, short positions can be used in a downward trending market. This time, instead of buying the dips, traders can sell the rallies. Investors should keep an eye out for bearish crossovers in the direction of the trend.
Scalping Trading Using The RSI
The RSI can be used to identify entry and exit points in an existing trend. The three moving averages show when the price is trending upwards. When there are dips in the trend, traders should buy when the RSI drops and moves above the trendline.
Alternatively, when the RSI peaks and starts to fall in a downward trend, traders have an opportunity to sell the rally. This is a simple, easy to implement scalping strategy.
Note, you can also browse online for a list of the top 5 scalping strategies for beginners available as PDF downloads, training videos or via other mediums.
Scalping May Be Suitable If…
- You have lots of time to take positions on the markets
- You want fast-paced activity rather than waiting for longer-term positions to materialise
- You’re comfortable spending extended periods studying charts and conducting technical analysis
- You have a careful and considered approach to risk
Scalping May Not Be Suitable If…
- You prefer to make fewer trades with larger profit potential
- You don’t have the hours to commit to charts and trading
- You don’t like the stress of fast-moving markets
Scalping vs Swing Trading?
Swing trading is a popular strategy among investors. Swing trading can be applied to multiple markets, from stocks to forex and cryptocurrencies. However, there are some distinct differences when compared to scalping.
|Scalping Trading||Swing Trading|
|Holding Period||Seconds to minutes||Typically days|
|Trading Volume||Hundreds or thousands a day||A few|
|Profit Target||Small but multiple||Few but large|
|Charts||Tick or 1-5 minutes||Daily or weekly|
|Characteristics||Impatience & discipline||Patience & precision|
Scalping vs Day Trading
For beginners and investing dummies, scalping and day trading can be confused. Scalping is always a form of day trading, however, day trading is an umbrella term that encompasses any number of strategies that are used to enter and exit positions in the same trading day.
|Scalping Trading||Day Trading|
|Use||Always day trading||Scalping optional|
|Timeframe||Seconds or minutes||Any duration during the day|
Is Scalping Trading Legal?
Scalping trading is generally not illegal as long as you don’t breach general investing regulations. With that said, it’s always worth checking the rules in your jurisdiction, such as in the UK, India or Canada.
But while scalping is legal, some trading platforms do not allow the practice. Bans are usually seen at brokers that have lagging price feeds that cannot meet the direct access demands of scalpers. So check the rules at Binance, Robinhood, eToro, or Plus500, for example, before you open an account.
Some brokers also define “scalping” differently. For example, if a trader aims to exploit:
- Internet latencies
- Delayed prices
- Off market/bad prices.
- High volumes of transactions targeting tick fluctuations (rather than price movements) where trades are opened and closed very quickly.
…then some brokers will identify this as abuse of the trading platform and take actions to stop it (even voiding closed trades). Defining the motives of the trade is problematic however, which is why brokers tend to tread carefully when scalping is discussed.
Final Word On Scalping Trading
Scalping day trading is a strategy used to place a large volume of trades throughout a trading session to generate small profits vs placing a few, big-ticket orders. It’s a system that requires time, discipline and a careful plan for managing risk.
Beginners should find a broker that offers easy and direct market access, low fees and excellent tools. It’s also worth focusing on a single asset with high volume and volatility to begin with, such as the major forex pairs. A scalping system can be used as a primary trading strategy or to supplement other techniques.
What is scalping trading?
Scalpers rapidly enter and exit the market, skimming small profits from a high volume of trades, usually holding positions for just a few seconds or minutes. Scalping systems usually use automated trading robots to increase efficiencies.
Is scalping trading profitable?
Scalping trading can be profitable when a good strategy is used. Scalpers will need a robust risk management system and a broker that offers powerful tools alongside competitive fees.
Can you scalp on Trading 212?
Traders can open and close positions within a few minutes at Trading212. With that said, forex scalping is not allowed on Trading212. See the broker’s website for its ‘scalping’ definition.
What is the best forex scalping system?
The best forex scalping system will vary depending on trader needs. With that said, popular strategies include using RSI, stochastic oscillator and moving averages. We’d recommend testing your setup on a demo account before putting money on the line.
Does scalp trading work?
Scalping trading systems do work for some traders. Success hinges on the effectiveness of the trading setup, from automated bots to market access and broker commissions.