How to use a scalping strategy

In our time of crisis, trading is one of the most attractive ways to generate income. But trading should not be taken lightly, it requires certain skills. In particular, you need to know about trading methods. Scalping is a strategy widely used by traders. We will tell you what scalping is, why it is interesting for traders and how to start using this strategy.

What is scalping trading

Scalping is a type of trading that involves placing a large number of orders quickly in order to make a profit. Traders buy and sell a particular asset several times in a short period of time. Although profits are correlated to the period of investment, with the right approach, scalping trading allows for small profits in many cases.

This type of trading is ideal for assets whose price fluctuates a lot. In particular, this is why scalping is used to trade cryptocurrency - it has a huge volatility. However, the favorite platform for scalping trading is currently other assets such as Forex, stocks and indices.

Scalping trading is different from day trading. Although the principle is still to buy and sell an asset, scalping is done very quickly. This technique requires excellent knowledge of the market and current events in order to choose the right asset.

Given that the success of this type of trading depends on the speed of action, some traders use bots. Bots or trading robots are able to place orders faster than a human. Manual execution of orders is also possible in scalping trading, but it requires a lot of attention on your part and the use of indicators.

What indicators and techniques are needed

For your scalping trading experience to be successful, you must be familiar with certain analytical tools that will help you understand the movement of the asset price. Moreover, there are also certain mechanisms that will help you maximize your profits and make trading safer.

Technical Analysis Tools

To succeed in scalping trading, you need to know certain signals and technical analysis tools. If you are familiar with these tools, you will be better able to anticipate changes in the price of an asset.

RSI

RSI stands for Relative Strength Index. This indicator is used to assess the strength of the trend. It ranges from 0 to 100. The order of magnitude of RSI is as follows:

•  Around 70 - the asset is overbought and the trend is likely to weaken soon;
•  Around 50 - this is the neutral zone and the trend cannot be identified;
•  Around 30 - the asset is undersold and the trend is likely to end soon.

MACD

MACD stands for "moving average convergence and divergence". MACD consists of the following 5 elements:

•  MACD signal line;
•  MACD histogram;
•  MACD 0 line;
•  Exponential Moving Average (EMA) over 26 periods;
•  12-period exponential moving average (EMA).

Ichimoku

This indicator was invented by Japanese journalist Goichi Hosoda and was publicized in the 1960s. The Ichimoku technique is to plot various trend lines and shapes on a candlestick chart. In total, the Ichimoku indicator consists of 6 elements:

•  Tenkan-sen is a straight line reflecting the average price of the asset over the last 9 periods;
•  Kijun-sen is a straight line representing the average price of the asset over the last 26 periods;
•  Senkou Span A (or SSA) is the average of the Tenkan-Sen and Kijun-Sen curves projected for the next 26 periods;
•  Senkou Span B (or SSB) is the average of the Tenkan-Sen and Kijun-Sen curves projected for the next 52 periods;
•  Kumo (or cloud) is the area between the SSA and SSB curves;
•  The Chikou curve is the asset price shifted to the left by 26 periods.

Maximize and secure trading

Leverage is widely used by traders. It allows you to multiply your profits: if you have leverage of 50, your profits will be multiplied by 50. Leverage also allows you to minimize your initial investment.

For example, with a leverage of 50, you can bet as little as €2. This will earn you the same as a €100 bet without leverage. However, keep in mind that leverage is only for experienced traders. While it can increase your profits, it can also increase your losses.

Using leverage can be addictive. But if you don't use it correctly, you can lose a lot of money. From a practical standpoint, using leverage can cause you to lose more than you invested.

To reduce these risks, always use a stop loss mechanism. Essentially, it allows you to set a maximum loss limit. When your losses exceed this amount, the order is executed and your losses no longer continue to increase.

Best scalping trading strategies

In theory, scalping trading can be done on any financial asset. However, due to their specific nature, some markets are better suited for scalping trading than others.

Scalping trading is based on one important criterion: the speed of order execution. In other words, you need to choose an asset with a volatile price.

You should be able to make a profit in a very short period of time. If you choose an asset with a stable price, you will not be able to make a profit in such a short period of time.

Therefore, day trading is more suitable for this type of asset (stable price). Cryptocurrencies have a very volatile price, so it is easier to trade them by scalping.

Another important parameter to consider when scalping is the liquidity of the asset. Since orders follow each other on very short intervals, it is necessary to use an asset that is popular among traders.

That is, you need to choose an asset that you can easily find people willing to buy or sell. An asset with high liquidity gives such a guarantee because it is a highly speculative asset.

In this area, cryptocurrency is not necessarily the best destination. Putting these two important parameters together, it becomes clear why scalping is widely used in Forex, stocks and indices.