Scalping trading strategies: Particularly fast profits?

Scalping is one of the fastest forms of trading. Within a few seconds, small profits are generated that add up to a positive overall result. But how does it work, which strategies lead to success and what do you need to bear in mind? We have summarized the answers for you here! 

What is scalping?

Alongside the selection of suitable assets, the planned holding period is one of the most important factors in an investment strategy. While investors typically hold their shares for years in their Equity portfolio traders plan to sell quickly in order to take small profits. 

Scalping is the practice of taking rapid buying and selling to the extreme. 

• Scalping strategies rely on a high volume of trades that are closed quickly when profitable. 
• As a rule, a period of less than 2 minutes is aimed for. 
• Although a person who scalps only earns a small amount per transaction, successful scalping can lead to a considerable return. 

Scalping is generally regarded as the fastest form of active trading. The time periods are even shorter than with Day trading strategies. Only the High frequency trading offers even higher speeds, but is not accessible to private individuals. 

Achieving a large number of profits requires a solid trading strategy, which should be strictly adhered to when scalping. A "hunch" approach, on the other hand, can very quickly lead to losses that can add up at the same speed as the hoped-for profits!

Scalping poses great challenges for the trader. The ability to react, specialist knowledge and discipline are necessary in order to successfully implement the often complex scalping strategies. The time required here is also considerable: scalpers must remain at their "workplace" and act with great attention and care.

Placing a trade and devoting yourself to other things, as is the case with Swing trading strategies is therefore out of the question. 

How can scalping trading work?

Scalping trading turns a lot of popular wisdom and assumptions on their head. It works based on two important concepts: 

1. Small price movements are easier to predict than large ones

Scalping strategies are based on the assumption that small price movements can be predicted with greater precision. They therefore only rely on these minor movements and do not even attempt to forecast larger trends. 

2. Thanks to leverage effects, even small movements are sufficient

Scalping only works through the use of leverage: traders borrow additional capital from their broker, which they have to pay back on completion. This multiplies their exposure and profits, but also losses, are multiplied! 

If a position is positive, it is closed almost immediately when scalping and the profit is realized. It takes great discipline and self-control to resist the allure of higher returns in these moments!

Good to know: In addition to a suitable strategy, personal aptitude is of great importance when scalping. Tools such as a Trading Journal or automation via AI trading can help, but a suitable personality on the part of the retailer is and remains essential. 

Which assets are suitable for scalping?

Scalping is theoretically possible with almost all trading assets. However, there are a few points to bear in mind when making your choice: 

• Markets with high liquidity, such as forex trading with USD to EUR, are particularly ideal for beginners 
• Commodities, above all oil, precious metals such as gold and silver or share indices such as the S&P 500 are also considered to be beginner-friendly 
• Markets with high liquidity move more slowly 
• Professional scalpers therefore often focus on smaller, less liquid stocks with high volatility in order to take advantage of more attractive price jumps 

The slower movement of large markets gives you a little more time to execute your scalping strategy. In many cases, the Trading signals This is easier to interpret for such popular assets than for small and volatile markets. 

Especially at the beginning, it is advisable to try out the various possible areas and find an underlying asset that suits your own scalping strategy. 

Scalping advantages and disadvantages

Scalping is a particularly fast strategy that requires a large volume of trades. It therefore differs from many other approaches and has its own advantages and disadvantages. The most important are 

Advantages

• Scalping allows traders to make an attractive profit even in "quiet markets". They are therefore less dependent on strong up and down movements.
• Scalping is very flexible: various markets are available, which can be analyzed and scalped using several strategies. 
• For scalping trades, usually only one or two indicators need to be taken into account. Due to the short duration, it is hardly necessary to analyze all the information. 
• Since a wide variety of leverage products can be used, scalpers can optimize their returns and adjust their risks. 
• Losses can be minimized through good risk and Money management begrenzt werden. Occasionally losses are completely normal with a scalping strategy and are no cause for concern. 
• Scalping has the character of a professional activity, as we have to invest time and energy in order to make profits. It therefore feels less "passive" than longer-term strategies.
• Depending on the assets used and the broker's specifications, scalping is possible with comparatively low starting capital

Disadvantages

• Due to the high volume of trades, a favorable broker must be found for successful scalping. Some brokers are even completely unsuitable for scalping strategies as they cause problems due to the high trading volume. 
• There is a very high risk. The vast majority of traders generate high long-term losses through active trading.  
• Scalping is unsuitable for emotional investors. Here, the defined strategy must be followed with precision and efficiency in order to actually achieve profits. 
• Scalping strategies require a higher time investment. Traders cannot move away from their workplace during the activity, as is the case with Swing Trading is possible. 
• Almost all scalping strategies are based on technical analysis / chart analysis. There is no evidence that these forms of analysis can predict price movements. 

Scalping trading: strategies and indicators explained

The term scalping describes very fast trading with the intention of regularly making small profits. However, it says nothing about it, like a trader makes these profits. 

This is where scalping strategies come into play: 

• A scalping strategy is the specific approach a scalper uses to generate returns
• As with other methods, scalping requires a trader to correctly predict price movements in order to open successful positions
• Various key figures, graphical evaluation methods and trading signals are available for these forecasts
• The scalping strategy describes which indicators are used when and how and when which positions are opened or closed

The success of this form of trading therefore depends largely on which indicators and other sources of information a trader uses. A successful forecast and therefore successful scalping is only possible with the correct selection. The most popular indicators include 

Scalping trading with the moving average

We can use moving average scalping to calculate trends in an asset. 

• This form of technical analysis uses the price data of a share, commodity or other underlying asset over a longer period of time as a basis
• The simplest form is the "simple moving average" 
• This is calculated from the arithmetic mean of the prices under consideration. 

A 200-day line is often formed on the financial markets, but this is often too rough for scalping trading and is replaced by a shorter variant. Such a line is calculated by adding up all the closing prices of the last 200 days and dividing them by 200. 

This results in a curve of average values that eliminates short-term "outliers" and is therefore suitable for a trend overview. 

Trading on the basis of a moving average is particularly popular in scalping, as trends emerge very quickly here. Scalpers usually use several moving average calculations: Two over relatively short periods as well as a longer one that shows larger trends. 

Alternatively, we can use the exponential moving average. This works in a similar way, but places a higher weighting on more recent data. As a result, it reacts even faster to price changes than the simple moving average. 

No matter which moving average you use: The actual scalping takes place by identifying and exploiting trends. In the case of rising prices, a regular long position is used, while we use a Short sale can also benefit from falling prices. 

Although the moving average is an effective analysis tool, there is still a strong human element to this form of scalping: Whether a trade is executed or not is up to the scalper to decide. Jumping on all trends is risky, while we run the risk of missing out on lucrative movements if we are too passive. 

Parabolic SAR indicator

The parabolic SAR indicator is based on a trading system called "Welles Wilder's Parabolic Stop and Reverse (SAR)". In scalping, however, it is not used as a trading system but as an indicator. 

• It displays current trends and calculates points at which such a trend reverses using an accelerating "trend curve"
• Since the result in graphical form resembles a parabolic curve, it is also referred to as the "parabolic SAR indicator"
• This curve is made up of several points that can run above or below the actual price
• If the points of the SAR indicator are found below the graph, investors should be in a long position (according to this technique)
• However, a short position is indicated at points above the curve

The dots are also either red if it is a bear market or green if the market is bullish. After a longer series of dots in one color, the first dot in the other color is seen by many traders as a signal of a trend reversal. This makes the parabolic SAR indicator also suitable for scalping. 

However, as with all indicators, it should be noted that the SAR indicator cannot provide absolutely reliable predictions and misinterpretations are possible. The trends shown should therefore always be viewed with caution. For this reason, its use is particularly recommended in combination with other indicators and signal services. 

Stochastic oscillators

In scalping, oscillators can be analyzed to discover a middle line that can signal trends. The Greek word "stochastic" refers to guesswork or a dependence on chance. 

In scalping trading, stochastic oscillators are used to measure changes between two trading periods. A simple fact is used for this purpose: If prices in one period were below the prices of the following period, there was an increase. If the trend was the opposite, the market moved downwards. 

Stochastic oscillators are possible trend indicators for scalping. They are used over several trading periods. Crossings of oscillator lines are used to predict turning points. Such turning points are ideal for scalping, as they are often sufficient to realize the desired profit. 

Scalping trading in practice: Forex scalping

The use of scalping is particularly popular in forex trading. Trading currency pairs offers a number of advantages that can make a scalping strategy particularly lucrative. These include: 

• Highest liquidity, which is particularly suitable for beginners in scalping
• As a result of liquidity, volatility is also lower, which makes price developments more predictable
• Rather low margin requirements compared to other asset classes 
• Possibility for higher leverage due to lower margin 
• Forex trading is available around the clock, so traders can easily pursue scalping as a side activity

As with all forms of scalping, traders must also correctly forecast price changes when trading forex. The tool of choice for this is often the Technical analysis: Various calculations are used to determine indicators that are intended to predict the price. 

If the evaluation has a Trading Signal scalpers open their positions for a few seconds or minutes. If their forecast is successful, they make a small profit in a short time. If they fail, they risk a loss, which is limited by stop-loss orders and other hedging methods. 

Price action scalping" is available as an alternative: Through Chart analysis traders try to identify trends, resistances, support lines and more. This is a purely visual analysis that does not use any key figures or calculations. 

Conclusion: Scalping offers fast trading and high risks

Scalping has a great appeal for many traders: the small profits that are realized after just a few seconds can add up to a handsome return. In practice, however, scalping is a very risky strategy that can quickly cause inexperienced traders to fail. 

As with all forms of trading, traders need to predict price changes correctly. Short holding periods do not automatically ensure trading success! 

Various scalping strategies are used for forecasting. They are almost all based on the technical analysis and/or Chart analysis. 

For example, the use of is popular: 

• Moving average (simple or weighted)
• Parabolic SAR indicator
• Stochastic oscillators

Please note: Many traders believe that they can estimate future developments based on current or historical price data. Unfortunately, there is no evidence that this is actually possible. 

There are numerous other key figures and calculations that are intended to facilitate scalping strategies. However, they all have one thing in common: only in combination do they produce reasonably reliable Trading signals for scalping. 

Despite all the conceivable data, however, scalping remains a risky strategy that does not bring many traders any luck. In addition, a lot of time has to be invested to analyze the many trades in detail and wait for the right time to enter. We therefore strongly recommend that this form of trading is first tested on a Paper Trading Account to test.