What Is Scalping in Trading?
What is scalping in trading?

What Is Scalping in Trading?

What is scalping in trading? Scalping is a strategy associated with profiting off small price changes. Learn more about this strategy here.

Dr. Clemen Chiang
Dr. Clemen Chiang

Anyone interested in making money online considers stock trading at some point or another. Trading is a lucrative opportunity that has created an income stream for many people, all around the world.

There are many types of trading strategies, each with its own pros and cons. Scalp trading is one of the most popular, especially with new traders.

But what is scalping in trading? Scalping is the strategy of identifying small price changes and getting into and out of a trade within seconds or minutes.

It's the shortest-term trading strategy, as you never want to hold your trades for more than a few minutes or hours.

Read on below to learn more about this stocks investment and trading strategy.

Most Common Trading Strategies

Trading is the process of buying or selling securities like stocks, cryptocurrencies, or foreign currencies and making a profit when the price changes. You can even use it when trading commodities.

But many strategies exist, depending on how long you'd like your trades to be, and how much profit you want to take on each trade.

For example, trend trading (or position trading) is a long-term strategy. Traders using this strategy will hold trades for months, if not years, to capitalize on huge gains.

Swing trading is a shorter time-frame strategy, with most trades held for a few days, or a few weeks at most.

Day trading is a short-term strategy where trades are held for a few hours but are closed at the end of the day. Day traders do not hold trades overnight.

But scalping is the shortest-term strategy. Trades are entered and exited in a few seconds or minutes. Rarely are they held more than an hour.

With scalping, your goal is to make a tiny profit, many times per day.

What Is Scalping in Trading?

On any given trading day, prices on stocks, foreign currencies, cryptocurrencies, and other assets are constantly fluctuating. Most of the time, these fluctuations are very small.

But these tiny price movements are happening all the time. So if you can learn to profit off these tiny price movements, you will have an almost unlimited amount of trading opportunities on any given day.

This is scalping. Scalpers identify these tiny movements, enter a trade right away, and close their trades as soon as it turns a profit. Because scalpers exit trades so quickly, they usually complete dozens, if not hundreds of trades in a day.

It's fast-paced and requires constant monitoring. Scalpers also need to set strict trading rules to ensure none of their losses are too large. One large loss can wipe away many small gains.

Benefits of Scalping

The main benefit of scalping is that trading opportunities are abundant. Some days, day traders and swing traders don't find any opportunities to enter a trade. They need to wait for the market to provide a trading opportunity.

But with scalping, the opportunity is available all day, since the price of an asset never stays the same. With stocks trading, it's much easier for a stock to move $0.01 than for it to move $1.00.

So even when assets are ranging for days or weeks at a time, scalpers don't need to sit on the sidelines, as there is still money to be made.

Also, risks are much lower for scalpers. Even on a losing trade, a scalper isn't going to lose very much, as long as strict stop-losses are used.

But since profits on trades are so small, it's imperative that a trader wins more trades than they lose. This means lots of practice, education, and training are required before you even trade with real money.

Requirements for Scalping

So what does it take to become a successful scalper? The most important asset is time.

Scalping is a time-intensive strategy. In order to enter and exit enough trades to make a profit, scalping requires many hours of monitoring charts, patterns, and price movements on the screen.

You also need to trade at the right time. Scalping is most effective when liquidity and volatility are higher. This correlates to the times when most people are trading.

For example, in Forex, this is during the overlap of the European and US trading sessions. During slower trading periods, opportunities for profitable trades will be lower.

Lastly, you need to manage your costs. Because profits are so small, commissions paid on each trade can eat into your profits fast. You need to trade assets with tight spreads, and use a broker with the lowest fees.

Finding Success in Scalping

Becoming a successful scalper is all about technical analysis. With short-term trading, you aren't considered as much with market sentiment or fundamental analysis, though you should always be aware of major headlines.

Learning how to identify chart patterns and which indicators you use will determine your success as a scalper.

Certain indicators are better used in short timeframes. These include the moving average ribbon, relative strength/weakness, and the multiple chart scalping indicator.

By mastering just a few indicators on small timeframes, you can develop a reliable trading strategy of your own that works in any market.

You can also automate the process of gathering information that may affect your trades. With a platform like Spiking, you can figure out exactly what top trading experts are doing and determine which direction the price will move in next. Dr. Clemen Chiang developed Spiking to make the data of insider trading available to anyone using AI data, in a completely legal way.

While many traders scalp full-time, you don't need to in order to profit from this strategy. Traders that focus on position or swing trading will often use scalping as a supplemental strategy while investing in other positions long term.

Want to learn more strategies of trading?

So what is scalping in trading? It's an opportunity for novice and experienced traders alike to make more trades on any given day. It's the process of capitalizing on the many small price movements that are happening all the time.

Dr. Clemen Chiang, Ph.D., has spent over 20 years as a Wealth Coach to more than 50,000 students. His proprietary methodologies and strategies help people all around the world.  If you want to speed up your journey to becoming a wealthy trader, be sure to join the free webinar or sign up for the trading masterclass, so that you can learn to trade, invest, and build generational wealth in the best ways possible.

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