Scalping
It is a very short-term trading strategy where positions are opened and closed in seconds or minutes to obtain tiny but frequent profits from small price movements, accumulating benefits over many quick trades, requiring high discipline, speed, and low commissions to operate in markets like Forex or stocks.
The objective is to capture liquidity and the spread (difference between the buying and selling price) and to reduce exposure to market risk, given that positions last very little time.
Key features of scalping:
- Trade duration: From seconds to a few minutes, much less than day trading.
- Frequency: Many trades are made per day, sometimes dozens or hundreds.
- Profits: Small per trade (a few cents or pips), but accumulation is sought.
- Markets: Common in Forex, indices, stocks, where spreads are tight.
- Requirements: High execution speed, low latency, good internet connection, iron discipline, and low commissions.
- Risk: Minimized by the short time in the market, but large sums can also be lost quickly if there is no control.
How it works?:
- Identify opportunities: Look for very small price movements, often using low timeframe charts (1 minute, 5 minutes).
- Enter and exit quickly: Open a position and close it as soon as costs (spread) are covered and a minimal profit is obtained.
- Take advantage of liquidity: Sometimes trades are made to capture the difference between the bid and ask price.
- Tools: Strategies like looking for breakouts of key levels, retracements, and areas of confluence are used.
This strategy is ideal for traders who enjoy fast action, make quick decisions, operate under pressure, and are very disciplined, as it is one of the most demanding forms of trading.
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