What is Scalping? | Definition, Psychology and Example


Scalping is a trading strategy focused on profiting from minor price movements in financial assets. Traders, known as scalpers, execute numerous trades in a single day, usually between 10 and a few hundred, betting on the idea that small changes in stock prices are easier to profit from than larger ones. If a tight exit plan is adopted to minimize significant losses, numerous small earnings can readily compound into substantial rewards.

Scalping in a nutshell

  • Scalping involves making profits from small price fluctuations by executing numerous trades within a single trading day.
  • Scalpers require precise timing and use short-term charts like one-minute candlesticks for analysis.
  • Traders need an account equity exceeding $25,000 to comply with pattern day trader regulations.
  • Scalping relies heavily on technical analysis, with traders using pre-programmed hotkeys for quick order execution.

Characteristics of Scalping

For quick traders, scaling is a fast-paced activity. It calls for exact timing and execution. Scalpers use a four-day trading purchasing power margin to increase earnings with the most shares in the shortest holding period. This necessitates concentrating on the charts with shorter time intervals, like the one-minute and five-minute candlestick charts. Price support and resistance levels are determined using price chart indicators, including pivot points, Bollinger bands, and moving averages.

For scalping, account equity must be higher than the required $25,000 to comply with the pattern day trader (PDT) guideline. Short-sale deal execution requires margin.

Scalpers buy high and sell higher, buy lower and cover lower, or short high and higher. They also purchase low and cover lower. The fastest methods for completing orders quickly are pre-programmed hotkeys or point-and-click execution through the Level 2 panel. Scalping solely relies on short-term price movements and technical analysis. Because of the extensive use of leverage in scalping, it is thought to be a high-risk trading method.

Additionally, think about combining candlestick analysis with other methods of analysis. If a candlestick pattern appears close to a level identified as significant by different types of technical analysis, it may become more important.

Scalping Psychology

Whenever a decision needs to be taken, it should be done so confidently. But since market conditions are constantly changing, scalpers must also be adaptable. If a trade doesn’t go as expected, they must make adjustments as soon as possible to avoid suffering a sizable loss.

Example of Scalping

Suppose a trader uses scalping to profit from price changes in the $10 stock ABC. The trader will acquire and sell a sizable amount of ABC shares, say 50,000, and sell them at good small-scale price swings. For instance, because they are buying and selling in large quantities, they can decide to buy and sell in price increments of $0.05, creating little profits that mount up over time.

How to do Scalping with Binary Options?

Scalping with binary options is a strategy focused on quick profits within short time frames. Binary options offer various expiration times, such as five-seconds, one-minute, 30-minute, and one-hour contracts, making them ideal for this approach.

The scalping trading strategy is perfect for your 5-minute or 60-second trades, as it will help you determine the performance of the market within the next few minutes. Traders can apply the scalping strategy across various financial markets, including stocks, forex, cryptocurrencies, and commodities. Here’s a step-by-step guide to use a scalping trading strategy for binary options:

1. Select a Binary Options Broker

Choose a binary options broker that offers scalping, a wide range of assets to trade and has a user-friendly trading platform. Here are three top Binary Options brokers. They focus on safety, offer competitive returns, and serve traders globally. Plus, each broker lets you open a risk-free demo account to practice trading.

Broker:
Review:
Advantages:
The offer:
Yield: 95%+
12345
5.0/5
  • Min. deposit $10
  • $10,000 demo
  • Professional platform
  • High profit up to 95%
  • Fast withdrawals
  • Signals

$10

   Visit broker

(Risk warning: Trading is risky)

Yield: Up to 100%
12345
5/5
  • $10 minimum deposit
  • Free demo account
  • High return up to 100% (in case of a correct prediction)
  • The platform is easy to use
  • 24/7 support

$10

   Visit broker

(Risk warning: Trading is risky)

Yield: 97%+
12345
5.0/5
  • Welcomes international clients
  • Offers high payouts: 90% – 97%+
  • Professional-grade trading platform
  • Swift deposit process
  • Enables Social Trading
  • Provides free bonus incentives

$ 5

   Visit broker

(Risk warning: Trading is risky)

Broker:
5.0/5
12345
Yield: 95%+
Advantages:
  • Min. deposit $10
  • $10,000 demo
  • Professional platform
  • High profit up to 95%
  • Fast withdrawals
  • Signals
The offer:

$10

Visit broker

(Risk warning: Trading is risky)

Broker:
5/5
12345
Yield: Up to 100%
Advantages:
  • $10 minimum deposit
  • Free demo account
  • High return up to 100% (in case of a correct prediction)
  • The platform is easy to use
  • 24/7 support
The offer:

$10

Visit broker

(Risk warning: Trading is risky)

Broker:
5.0/5
12345
Yield: 97%+
Advantages:
  • Welcomes international clients
  • Offers high payouts: 90% – 97%+
  • Professional-grade trading platform
  • Swift deposit process
  • Enables Social Trading
  • Provides free bonus incentives
The offer:

$ 5

Visit broker

(Risk warning: Trading is risky)

2. Sign up a Trading Account

Register for a trading account with the chosen broker. This usually means giving your basic personal information, creating a secure login, and verifying your identity as required by regulations. Some brokers may offer quick registration through social media profiles.

3. Use a Demo Account or Fund Your Account

Try out your scalping strategy on a demo account to get used to the platform. When you’re confident, deposit funds into your trading account using a secure payment method accepted by the broker.

4. Choose the Right Assets

Choose assets with high liquidity and volatility, as they are ideal for scalping. Currency pairs like EUR/USD, GBP/USD, and USD/JPY are popular choices. Stocks and indices with significant price movements can also be suitable.

5. Timeframe Selection

Since scalping involves making quick trades, choose short-term expiry times. This could range from a few seconds to a few minutes, depending on the platform.

6. Investment Amount

Decide on the amount you’re comfortable risking on each trade. Starting with a small percentage of your total trading capital is recommended to effectively manage risk. Remember that in the event of an unsuccessful binary options trade, you risk losing the entirety of your invested capital.

7. Technical Analysis

Use technical analysis indicators to identify short-term price movements. Common indicators used in scalping include moving averages, Bollinger Bands, RSI (Relative Strength Index), and MACD (Moving Average Convergence Divergence). These indicators can help you identify entry and exit points. Determine whether you anticipate the chosen asset to rise (Call option) or fall (Put option) within your specified time frame.

8. Execute Your Trade and Monitor

Execute the trade by choosing either a “Call” (Higher) or “Put” (Lower) option once all settings are in place. Some brokers may require additional verification steps before proceeding. Monitor the trade until it expires and consider early closure options if offered by the broker. If your prediction is correct, you can expect a payout ranging from 75% to 95% of your initial investment, depending on the broker.

Conclusion

The trading practice, known as “scalping,” allows traders to benefit from minute price swings in a stock. If the trader consistently employs an exit strategy to limit losses and realize gains, the modest profits made with this method can grow.

About the author

Percival Knight
Percival Knight is an experienced Binary Options trader for more than ten years. Mainly, he trades 60-second trades at a very high hit rate. My favorite strategies is by using candlesticks and fake-breakouts

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