Are you a beginner trader and want to start implementing your newfound knowledge and find your trading style? Here we will discuss scalping and the strategies beginners can utilize.
What is a scalping trading strategy?
Scalping is a strategy that means you can potentially profit from small changes in the market. This trading style is generally suited to someone with a high level of discipline, as it involves a large number of trades and sticking to a trading system strictly. Scalp traders will focus on a chart for around 5 minutes, monitoring extreme price moves, and then take a position.
One of the first steps is identifying whether you want to follow a day trading or a scalping strategy. What’s the difference between scalp trading and day trading? You are not alone if you are a little confused about the difference between day trading and scalping. Because the two are very similar, the difference can be unclear. However, there are some definite differences between each that set day trading and scalping apart.
Timing really is one of the most substantial differences between these two types of traders. A scalp trader enters and exits trades within a few minutes or even seconds. Whereas a day trader usually holds a position for a day, as the name suggests, or overnight. Because scalpers trade in very short timeframes and always within a day, they are often referred to as day traders. So why choose to scalp over day trading? Your trading style all comes down to your risk tolerance. Because scalpers make frequent trades with less risk of loss but also smaller wins, it is ideal for the more risk-averse beginner. On the other hand, day traders, in comparison, trade less frequently but with higher risks and potential gains.
How Can Beginners Use A Scalping Strategy?
Beginners need to weigh up the advantages and disadvantages of a scalp trading strategy.
Advantages of Scalping:
- A high percentage of successful trades.
- Reduced exposure to trend reversals.
- Focus on technical analysis rather than in-depth market knowledge.
Disadvantages of Scalping:
- Critical need for stop losses.
- Risk of accumulation of substantial losses.
Part of a good scalping trading strategy for beginners is choosing the right broker. But which Broker is Best for Scalping?With a broker, you can try out a free trial or practice account. Taking advantage of the opportunity to practice both trading methods, day trading and scalping strategies, mean you can see what suits you best before opening yourself up to risks or losses.
Why do scalp traders use stop-loss orders? It is essential for a beginner scalp trader to manage risk, including having stop-loss. A trader reduces the risk level by putting essential stop-loss orders in place. Keep in mind that traders often place stop-loss orders around five pips below the market entry. Another way for a beginner to reduce the level of risk is by using lower leverage.
Top Four Scalping Trading Strategies
There are different strategies to make the most of the small moves in the market when scalping. Whatever the method, a scalp trader will open around five positions in a day. Each scalping strategy involves technical analysis, and some of the top methods include the following:
Moving Average:
This scalp trading strategy is the most popular, placing the most weight on the recent data points. With this strategy, the trader uses the EMA (Exponential Moving Average), and settings can be adjusted depending on the amount of signals a scalper prefers.
Parabolic SAR indicator:
The Stop and Reversal method works by indicating the direction in which a market is moving.
Relative Strength Index:
This strategy looks for the more extreme market conditions. Using the RSI method, traders watch the market for volatility and open a short position.
Stochastic Oscillator:
This strategy looks for oversold and overbought market conditions. Scalpers look to take advantage of short-term price changes and open a long position.
There are basically two approaches, one where you scalp in the same direction or an opposing direction. Still, whichever tool or method you use will require attention to detail and focused monitoring of your charts. Usually, these charts range between one minute and 15 minutes max.
It would help if you had a high level of discipline, as scalping requires your full attention. If you are looking to trade as a side hustle, there may be better options than scalping. However, scalping may be a suitable option if you can dedicate time to monitoring trades and respond quickly to market movements.
Conclusion
As a novice trader, it will take some time to familiarize yourself with the different charts and methods. Whatever tool or strategy you decide to use, it is best to trade during the most dynamic times of the trading day, always put stop-loss orders in place, and trade the most liquid instruments, such as forex.
This article is for information and educational purposes only and does not form a recommendation to invest or otherwise. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.