Scalping can be an extremely profitable trading strategy for those with the skill and discipline to capitalize on small intraday price movements. However, the fast-paced nature of scalping also comes with inherent risks and challenges. This comprehensive guide covers everything you need to know about scalping techniques for successful short-term trading.
Table of contents
- What is Scalping?
- Scalping vs Day Trading vs Swing Trading
- 3 Scalping Techniques to Master
- 5 Proven Scalping Tips & Tricks
- Key Scalping Risks & Drawbacks
- Scalping Secrets
- Final Tips
What is Scalping?
Scalping refers to a trading style that seeks to make numerous small profits on minor price changes, typically by opening and closing trades within minutes. The goal is to accumulate repetitive gains that add up over the course of a day’s trading session.
Scalpers aim to capture volatile market moves that occur on one-minute to five-minute charts. They may only seek 5 to 10 pips in profits per trade but can execute hundreds of trades daily. With leverage, these small profits can translate to impressive returns.
Some key characteristics of scalping strategies:
- Extremely short-term: Trades held for just minutes at a time
- High volume: Large numbers of positions taken each day
- Small targets: Seeking small price movements for gains
- Strict risk management: Using tight stops to limit losses
Compared to longer-term swing or position trading, scalping requires far more precision in execution and risk management. The fast pace also demands full-time attention to the charts during active trading sessions.
Scalping vs Day Trading vs Swing Trading
Though often used interchangeably, scalping differs from other intraday trading strategies in a few key ways:
Scalping vs Day Trading
- Hold times: Scalpers hold trades for 1-15 minutes only, while day traders may hold for several hours.
- Profit targets: Scalpers aim for smaller profit targets (5-10 pips) than day traders (20+ pips).
- Risk tolerance: Scalping has a lower risk tolerance – seeking tiny gains with tight stop losses.
- Number of trades: Scalpers execute far more trades in a day (hundreds) than a typical day trader (dozens).
Scalping vs Swing Trading
- Hold duration: Swing traders hold positions from days to weeks while scalpers enter/exit within minutes.
- Technical tactics: Scalpers use faster chart timeframes (tick, 1-min, 5-min charts) than most swing traders.
- Profit objectives: Scalpers have much smaller profit targets, though risks are lower per trade.
- Time commitment: Scalping demands full attention during market hours, unlike swing trading.
In summary, scalping focuses on very short-term trades seeking smaller profits compared to both day trading and swing trading strategies. The pace is extremely fast, but risks can be kept small with disciplined risk parameters.
3 Scalping Techniques to Master
Now that you understand the scalper mentality, let’s examine three proven scalping approaches:
1. The 1-Minute Scalping Strategy
This straightforward strategy relies solely on 1-minute price action charts to scalp small profits during strong intraday trends.
The rules involve identifying levels of support and resistance and combining that with simple indicators like moving average crossovers to trade in the direction of the short-term momentum.
Buy and sell signals will occur frequently, so traders must act decisively on every perceived opportunity while quickly exiting losing trades. Stop losses are kept very tight, typically between 3-5 pips from entry.
These small stops combined with fast 1-minute chart signals allow scalpers to capture micro price swings as the market oscillates up and down in a range of trends temporarily higher or lower for brief bursts. This high-probability scalping approach works especially well during volatile news events, economic data releases, and at market openings when 1-minute charts often see spikes in short-term momentum.
2. The 5-Minute Scalping Breakout
This reliable strategy trades breakouts from channels, flags, triangles, and other short-term patterns you can spot on 5-minute charts. Zooming out slightly to a 5-minute chart allows you to identify overarching support and resistance levels that frame the market’s movements.
When the price nears the upper or lower boundary of the channel, experienced 5-minute scalpers watch for breakouts to new highs or lows as a sign momentum is shifting.
Entries are taken as the price confirms the breakout with a close outside the pattern or channel boundary. Stops are placed below the channel support on long breakouts above resistance or above the channel resistance on short breakouts below support.
Partial profits can be taken near the first take profit level with a trailing stop to lock in gains as the price extends the breakout move. These trades typically last 2-15 minutes and may offer a 2:1 or 3:1 profit vs. risk reward when planned properly.
3. The Simple Scalping Support Bounce
This straightforward scalping strategy capitalizes on short-term oversold bounces off major support zones, including:
- Previous swing points
- Trendline support
- Round numbers (1.3500, 1.3600, etc.)
During downtrends, monitor key support levels on 5-minute charts, waiting for bearish momentum to pause or stall near one of these zones. Dips that see bullish RSI divergences, long lower wick reversals on the candlestick chart, or an oversold stochastic crossover help confirm a support bounce scalping opportunity.
Entry orders are placed just above the support level to trigger as the price rebounds, while stop loss orders are placed below support. Profit targets can be set at fixed pips levels or using trail stops to maximize potential gains if the bounce continues in your favor. These trades typically play out in 1-10 minutes with approximately a 1:1 to 3:1 profit potential if planned intelligently.
Mastering just one or two scalping techniques like these can generate astounding returns due to the high trade frequency and leverage available to short-term traders.
5 Proven Scalping Tips & Tricks
Beyond the specific trading strategies, applying these universal scalping tips will improve your execution and consistency:
1. Choose Liquid Markets
Focus on the most liquid currency pairs like EUR/USD, GBP/USD, and USD/JPY when first learning to scalp forex. Greater liquidity results in lower spreads, faster order fills and reduced slippage on entries and exits. This ensures you capture small profits more reliably – essential to scalping success.
2. Use Level II Data
Level II (market depth) data displays live orders and bid/ask queues entered by institutions and other large market players. Seeing this order flow provides an informational edge for your scalping strategy by revealing true supply/demand imbalances as they emerge.
3. Set Alerts on Key Levels
Rather than manually monitor charts all day, set mobile or email alerts on price levels where you anticipate buy or sell signals may trigger. This ensures you capitalize on high-probability entries in real time without missing opportunities.
4. Use Mental Stops
Given scalping strategies’ ultra-short holding times, traders don’t always enter automated stop-loss orders. However, know exactly where you’ll exit before entering any trade based on technicals or volatility.
5. Focus Your Watchlist
Following just 2-4 highly liquid instruments at a time ensures you adapt to their unique price action nuances. Overtrading dozens of markets leads to mistakes and frustration. Quality over quantity serves scalpers best for finding reliable setups.
Implementing even one of these universal best practices amplifies the profitability potential of the best scalping techniques.
Key Scalping Risks & Drawbacks
While scalping offers massive profit potential, the rapid trading frequency also comes with notable downsides to consider before use:
- Requires full attention to charts during volatile market hours
- High stress and intensity trying to capture fleeting price swings
- Overtrading or revenge trading out of boredom or greed are common pitfalls
- Increased transaction costs from high trade volume
- Tight fixed spreads are essential for profitability (see ECN brokers)
Accepting these challenges is key. Scalping suits active traders who are able to dedicate their full focus to trading short-term price action during busy market sessions. It’s certainly not suited to everyone.
Implementing wise risk and account management principles also helps buffer the risks that come with this high-leverage trading style.
While scalping looks easy in theory, this fast-paced trading style takes immense skill, discipline, and experience to execute profitably over the long run.
Here are insider tricks used by professional scalpers:
Successful scalping requires a single-minded focus on the price action, order flow, and one’s trading plan. Distractions cause missed trades or mistakes. Total concentration and mindfulness pay off over thousands of trades.
The best scalpers diligently research and then plan their trade setups, entries, stops, and targets each evening to capitalize on with precision all day. They don’t just randomly trade market noise and hope for the best.
Profitable scalpers have master order entry down to a science. They instantly spot opportunities and then execute with speed and accuracy using hotkeys or one-click order tools. HESITATION KILLS the potential of fast-moving scalp trades.
Does scalping still seem miraculously easy? It’s not – scalping successfully over months and years requires extreme mental stamina and an obsessive perfectionism to continue executing flawlessly on a repetitive basis.
Begin developing your scalping skills cautiously and remain patient with yourself above all. This trading style appeals to many, but profits only a select few are able to repeatedly manage risks and execute trades flawlessly for years.
Some final tips:
- Start scalping small positions to reduce pressure and risk initially.
- Focus solely on executing a proven strategy profitably over many trades before scaling up position sizes.
- Measure your stats religiously – detailed metrics reveal when you achieve true consistency.
- Keep a trader journal to stay accountable for mistakes and capture learnings after major wins or losses.
Learn from scalping millionaires Mike Bellafiore, Ross Cameron, and Kunal Desai: persistence through self-criticism drives peak performance over years, not weeks or months.
Stick with these core principles of longevity and continuous improvement, and your own scalping success story may one day inspire future generations of short-term speculators.
What percentage of scalping trades are profitable?
Experienced scalpers can achieve a profitability rate of 60% to 80% over hundreds of trades. However, beginners will likely only win on 40-50% of trades as they learn how to manage risks and master order execution.
How much money do I need to start scalping?
Most brokers allow mini and even micro-lots scalping, so you can start with an account balance of as little as $500. However, $2,000+ is recommended to effectively utilize leverage while withstanding normal short-term losses.
Is scalping illegal?
No, scalping is entirely legal as a short-term trading strategy. It is, however, banned under certain broker trading conditions, so always check your broker’s policies before scalp trading currencies, futures, or stocks.
Can you make a living from scalping?
Yes, there are professional traders who earn six figures strictly from scalping the markets in the short term. However, it requires immense skill, focus, and consistent execution across thousands of trades to reach this level of profitability. Begin slowly day trading.