Scalping: Profits with short holding periods through scalping strategies 

Scalping" refers to a range of strategies based on many trades with short holding periods and small profits. According to the motto "mass instead of class", the small returns from scalping add up. In trading circles, however, scalping strategies are considered difficult to implement. 

You can find out why this is the case, what the advantages and disadvantages of scalping are and which strategies have proven their worth here. 

What is scalping?

Alongside the selection of suitable assets, the planned holding period is one of the most important factors in an investment strategy. While some investors want to hold shares and the like for years, other traders plan to sell quickly in order to take small profits. In scalping, rapid buying and selling is taken to the extreme. 

Scalping strategies rely on a high volume of trades that are closed quickly when profitable. As a rule, a period of less than 2 minutes is aimed for. A person who engages in scalping only earns a small amount per transaction, but successful scalping can lead to a considerable return. 

A solid trading strategy is required to achieve a large number of profits, and this should be strictly adhered to when scalping. A "hunch" approach, on the other hand, can quickly lead to losses, as the various scalping indicators are difficult to interpret. 

Equities, commodities, currencies and other asset classes are all suitable for scalping. In practice, trading with currency pairs (forex trading) is particularly popular, as there is a high level of liquidity and particularly tight spreads. 

Scalping poses great challenges for the trader. The ability to react, specialist knowledge and discipline are necessary in order to successfully implement the often complex scalping strategies. The time required here is also considerable: scalpers must remain at their "workplace" and act with great attention and care. Placing a trade and devoting time to other things, as is possible with less intensive strategies, is therefore out of the question. This makes scalping more like work. The more time a scalper invests, the more profits are possible. 

These assets are eligible

Scalping is theoretically possible with almost all underlying assets. However, some asset classes have proven their worth. The basic principle is that markets with high liquidity move more slowly. Professional scalpers therefore tend to focus on smaller stocks in order to benefit from the higher volatility. 

However, markets with high liquidity, such as forex trading with USD to EUR, are ideal for beginners. Commodities, especially oil, precious metals such as gold and silver or share indices such as the S&P 500 are also considered beginner-friendly. Of course, experienced scalping users can also make handsome profits here. 

Due to the slower movement of such large markets, there is a little more time to execute your own scalping strategy. In many cases, the signals of such popular assets are also easier to interpret than in small and volatile markets. Especially at the beginning, it is advisable to try out the various possible areas and find an underlying asset that suits your own scalping strategy. 

Scalping advantages and disadvantages

Scalping is a particularly fast strategy that requires a large volume of trades. It therefore differs from many other approaches and has its own advantages and disadvantages. The most important are 

Advantages

• Scalping allows traders to make an attractive profit even in "quiet markets". They are therefore less dependent on strong up and down movements.
• The risk of losses is lower due to the short term. There is simply less time in which negative influences can affect your trade. 
• The desired, small movements are achieved comparatively quickly. The chances of closing a trade with a return are therefore quite high with professional scalping. 
• Scalping is also surprisingly flexible: different markets are available, which can be analyzed and scalped using several strategies. 
• For scalping trades, usually only one or two indicators need to be taken into account. Due to the short duration, it is hardly necessary to analyze all the information. 
• Since a wide variety of leverage products can be used, scalpers can optimize their returns and adjust their risks. 
• Verluste können durch Stop-loss order begrenzt werden. Occasionally losses are completely normal with a scalping strategy and are no cause for concern. 
• Scalping has the character of a professional activity, as we have to invest time and energy in order to make profits. It therefore feels less "passive" than longer-term strategies.
• Depending on the assets used and the broker's specifications, scalping is possible with comparatively low starting capital

Disadvantages

• Due to the high volume of trades, a favorable broker must be found for successful scalping. Some brokers are even completely unsuitable for scalping strategies as they cause problems due to the high trading volume. 
• Scalping is unsuitable for emotional investors. Here, the defined strategy must be followed with precision and efficiency in order to actually achieve profits. 
• Successful scalping requires a lot of experience and practice. Only through a combination of the right strategy and skillful implementation can you make a profit from scalping
• A scalper requires a high level of attention and must be able to react quickly. Concentration naturally wanes, especially during longer scalping sessions. 
• Depending on which broker is used, the high trading volume can result in considerable trading costs. These can quickly eat up part of our profits. 
• Larger positions are necessary for a lucrative long-term scalping strategy. However, this also increases the risk of loss. 
• Scalping can only succeed with comprehensive information about the respective market. Anyone who does not have access to important signals will hardly be successful with this approach.
• Scalping, especially the interpretation of indicators, is a comparatively complex strategy. It is therefore difficult for beginners to master. 
• When scalping, we can only make profits if we actively work on the execution. We cannot simply walk away from the desk as we need to close open positions quickly and analyze new opportunities. As a result, scalping requires more time investment than other strategies. 
• It is possible to incur heavy losses if market developments are unfavorable and positions are not closed quickly enough. Leveraged products in particular increase the risk.

Attention! Scalping is associated with considerable risks, especially for beginners! You should therefore start with a risk-free trial with a Demo account or Paper Trading Account into consideration.

Scalping in trading practice: Forex scalping

The use of scalping is particularly popular in forex trading. Trading currency pairs offers a number of advantages that can make a scalping strategy particularly lucrative. These include, for example, the comparatively low margin amounts that traders have to provide here. It is often significantly lower than the requirements for other asset classes. 

The small margin allows us to use products with high leverage when scalping currencies. Such high exposure makes it possible to trade profitably even with a small budget. The forex markets are also characterized by very high liquidity, which reduces volatility and often makes developments more predictable. 

Some scalping traders, however, prefer to focus on markets with larger movements and avoid forex trading. Higher speeds also have their respective advantages. Nevertheless, trading currency pairs is a classic scalping application. 

It is also possible to automate scalping trading on forex markets. What used to be reserved exclusively for professional financial institutions with a high level of technical expertise can now also be learned by amateurs with a manageable amount of effort. Traders without programming skills can use third-party software. However, automated scalping is not "wealth at the touch of a button"! Such a concept can only work with constant care and maintenance of the programs. 

Since automated scalping executes the trader's trading instructions, we still need to define a suitable strategy. Automation can only be profitable if the software is filled with meaningful parameters by the trader. 

Typical scalping strategies 

There are numerous scalping strategies that can be used when trading various assets. The main difference is the indicators used to determine the market direction. However, other aspects, such as the duration of a trade, are largely the same. Below you will find some typical examples of scalping strategies and indicators.

It should be noted that none of the indicators can provide an absolutely reliable prediction! As always with the use of exchange-traded products, it is impossible to forecast market developments exactly. However, by combining several trend indicators, experienced scalpers are able to gain a good overview of market movements and successfully implement their scalping strategy. 

Scalping trading with the moving average

We can use moving average scalping to calculate trends in an asset. This form of technical analysis uses the price data of a share, commodity or other underlying asset over a longer period of time as a basis. In its simplest form, the "simple moving average" is used for this purpose. 

This is calculated from the arithmetic mean of the prices under consideration. A 200-day line is often formed on the financial markets, but this is often too rough for scalping trading. Such a line is calculated by adding up all the closing prices of the last 200 days and dividing them by 200. This results in a curve of average values that eliminates short-term "outliers" and is therefore suitable for a trend overview. 

Trading on the basis of a moving average is particularly popular in scalping, as trends emerge very quickly here. Scalpers usually use several moving average calculations: Two over relatively short periods as well as a longer one that shows larger trends are a typical setup here. 

We can also use the exponential moving average. This works in a similar way, but places a higher weighting on more recent data. As a result, it reacts even faster to price changes than the simple moving average. 

The actual scalping takes place - regardless of which moving average is used - by exploiting the respective trends. Short and long positions can be used, depending on the direction in which the market appears to be moving. 

Although the moving average is an effective analysis tool, there is still a strong human element to this form of scalping: Whether a trade is executed or not is up to the scalper to decide. Jumping on all trends is risky, while we run the risk of missing out on lucrative movements if we are too passive. 

Parabolic SAR indicator

The parabolic SAR indicator is based on a trading system called "Welles Wilder's Parabolic Stop and Reverse (SAR)". In scalping, however, it is not used as a trading system but as an indicator. It displays current trends and calculates points at which such a trend reverses using an accelerating "trend curve". As the result in graphical form resembles a parabolic curve, it is also referred to as a "parabolic SAR indicator". 

This curve is made up of several points that can run above or below the actual price. If the points of the SAR indicator are found below the graph, investors should (according to this technique) be in a long position. Points above the curve, on the other hand, indicate a short position. 

They are also either red if it is a bear market or green if the market is bullish. After a longer series of dots in one color, the first dot in the other color is seen by many traders as a signal of a trend reversal. This makes the parabolic SAR indicator also suitable for scalping. 

Dabei ist jedoch stets zu beachten, dass auch der SAR-Indikator keine absolut sicheren Vorhersagen liefern kann und Fehlinterpretationen möglich sind. Die angezeigten Trends sollten daher stets mit Vorsicht betrachtet werden. Aus diesem Grund kommen für das Scalping auch immer mehr als ein Indikator zum Einsatz; so kann der parabolische SAR-Indikator zum Beispiel in Verbindung mit dem gleitenden Durchschnitt, dem Relative Strength Index (RSI) oder dem Average Directional Index (ADX) genutzt werden, um bessere Trendsignale zu erhalten. 

Stochastic oscillators

In scalping, oscillators can be analyzed to discover a middle line that can signal trends. The Greek word "stochastic" refers to guesswork or a dependence on chance. 

In scalping or trading, stochastic oscillators are used to measure changes between two trading periods. A simple fact is used for this purpose: If the prices in one period were below the prices of the following period, there was an increase. If the trend was the opposite, the market moved downwards. 

When stochastic oscillators are used as trend indicators for scalping, several trading periods are used. A somewhat complicated formula is then used to try to predict trends, turning points and price movements. Together with other key figures and indicators, the appropriate entry points for scalping can be derived. 

Attention! Scalping is associated with considerable risks, especially for beginners! You should therefore start with a risk-free trial with a Demo account or Paper Trading Account into consideration.

Scalping: Trading with short holding periods and high risks

Scalping has a great appeal for many traders: the small profits that are realized after just a few seconds can add up to a handsome return. In practice, however, scalping is a high-risk strategy that can quickly fail inexperienced traders. 

Although all scalping trades only remain open for a very short time, misjudgements and therefore losses can occur. Correctly predicting market developments is the key to successfully using a scalping strategy in the long term. 

Several trading indicators are used for scalping, which enable traders to recognize trends and trend reversals. For example, we can use the moving average to determine developments over different time periods and identify broader trends. 

The parabolic SAR indicator, on the other hand, calculates upward and downward phases and can indicate a change between the two. If the typical red dots of a bear market are mixed in with the green dots during a bull market, traders know that a trend reversal appears to be taking place! The opposite can of course also be deduced with the help of a parabolic SAR indicator. 

Stochastic oscillators can be among the many possible signals. They calculate oscillations of an asset and derive a centerline from them. When looking at several time periods, we can use them to derive trends that can be important for scalping. 

There are numerous other indicators and calculations that support our scalping strategy. Only the combination of several indicators results in a reasonably reliable trend analysis for scalping. Trading on the basis of these findings can help experienced scalpers to achieve small but regular profits. The large selection of possible underlyings also speaks in favor of the method. 

Despite all the conceivable data, scalping remains a risky strategy that does not bring luck to many traders. In addition, a lot of time has to be invested in analyzing the many trades in detail and waiting for the right time to enter. Once the trade is open, fast reaction times are required to react to market movements before closing after a few seconds or minutes. This results in a time expenditure that should not be underestimated. 

FAQ - Frequently asked questions about scalping