Scalping(Scalping) is used to avoid investment risks, but is it really true?

The trading market nowadays is highly uncertain. Asset prices change suddenly within just a few hours. Holding stocks or currency pairs for a long time can become a big problem because they might disappear, causing investors to suffer significant losses. This has led many traders to seek trading styles that offer quick profits without bearing too much risk.

That’s where Scalping comes in — a trading strategy designed to exploit small price movements. It’s tailored for retail traders or beginners who want to invest with minimal capital. Let’s explore the pros and cons of scalping and how to get started.

How Does Scalping Actually Work?

Scalping involves identifying minor price fluctuations and profiting from them. The holding period(Hold Period) is very short, ranging from just a few seconds to a few hours, using technical analysis tools to determine precise entry and exit points.

The reason for frequent trades is that small price fluctuations occur more often than large trends that require waiting. This increases the chances of entering trades. Unlike Day Trading(opening and closing within the same day), scalping completes trades within 2-4 hours or even just minutes.

Profits are made by using larger position sizes and leverage(Leverage) together, making the returns worthwhile even if each trade yields small gains. Over the course of a day, these small profits can accumulate to levels comparable to other trading styles.

Liquidity, Volatility, and Costs Are Key to Scalping

For scalping to work well, these factors must be checked:

Liquidity (Liquidity) — The market’s trading volume this month affects bid-ask spreads. Low liquidity can cause prices to deviate by 1-2 points, potentially eroding your profits. Therefore, choose assets with high trading volume.

Volatility (Volatility) — This is the main fuel for scalpers. Small volatility is ideal for making profits. If volatility is too high, consider other strategies like Momentum Trading or Swing Trading.

Trading Costs — Since scalping involves repeated trades, commissions and spreads accumulate. If costs are too high, profits per trade decrease, requiring higher risk to compensate.

Risk Management (Risk Management) — This is the most important aspect. Set take profit and stop loss levels in advance, and calculate position sizes appropriately. Proper risk management ensures scalpers can survive longer.

Tools Scalpers Use Daily

Scalpers typically rely on almost all technical analysis tools, such as:

• Price Action — Comparing past price movement patterns to predict future movements.

• Simple Moving Average (SMA) — Used to identify support and resistance levels and trend reversal points for entry and exit signals.

• RSI (Relative Strength Index) — Measures momentum and predicts overbought or oversold conditions.

A key feature of scalping is using very short timeframes(time periods), such as 3-5 minutes or even less for highly liquid assets, to generate quick and accurate signals for small profits.

Practical Scalping Techniques

Breakout Scalping — Enter trades when the price breaks out from consolidation zones or areas tested multiple times. This method is precise but less frequent.

Range Trading Scalping — Enter trades within sideways price movements without a clear trend. This occurs more often and is a popular choice among scalpers.

How to Start Scalping

Step 1 — Study technical analysis thoroughly, as it’s the core of scalping. Understand price action and indicators to make reliable trend predictions.

Step 2 — Find suitable markets and assets, such as Forex, stocks, or indices, with high liquidity and appropriate volatility.

Step 3 — Define a rough strategy, whether to favor long or short positions, based on current market conditions.

Step 4 — Design a clear risk management system, choose entry and exit indicators, and set stop loss levels outside individual positions. This is crucial.

Step 5 — Practice with small positions to test your system and see if it works effectively.

Advantages and Disadvantages of Scalping

Advantages:

• Requires less capital but allows for accumulated profits, suitable for retail investors.
• Short holding periods reduce exposure to large market moves.
• No overnight fees since positions are closed before market close.
• No need for fundamental analysis; just focus on numbers.

Disadvantages:

• Requires constant monitoring, as split-second decisions impact outcomes.
• Can be stressful due to repeated decision-making.
• High discipline needed; plans must be strictly followed.
• Small positions with high leverage can still lead to account blowouts.

Summary

Scalping is a trading method suitable for those seeking to avoid long-term risk exposure. When applied to highly liquid markets like Forex or active stock markets, scalping can be a consistent income source, similar to Swing Trading. Its short duration minimizes unexpected market shifts, making it a valuable tool for long-term portfolio development.