/ 6 tips on Forex scalping

In stock market trading, there are many different strategies that suit different types of traders and people. Scalping is one such technique that stands out for its complexity.

However, many novice traders have a false idea about scalping, seeing it as a way to make quick and easy profits. In reality, there is nothing simple about this trading technique, and using it correctly requires a lot of work, effort and knowledge. In this article, we will share with you 8 basic rules that you need to know in order to succeed in scalping trading.

What is scalping?

Scalping is an ultra-short-term trading technique that involves making small trades in large volumes. The number of such small and quick trades can reach up to a hundred during the day. Thus, scalping is focused on the number of trades.

Scalping can be relatively low-risk because it involves making a large number of trades with small price changes and small bets. Losses can also be relatively contained with proper money management. But it becomes very risky if a lot of leverage comes into play, which can either be attached to positions or be an integral part of the derivatives being traded.

Leverage is a double-edged sword, allowing you to gain significant capital gains if a trade is successful, but potentially incurring significant losses if a position fails.

Scalping - 6 top tips

 1-Choose one asset for scalping

You need to realize that each asset is different from the other, despite their similarities. This means that each asset has its own features, characteristics and nuances that need to be understood and mastered.

You will have to wade through and internalize a huge amount of information, which can quickly become complex depending on the asset and the person's initial skills. Thus, diving into the specifics of multiple assets at once can be extremely problematic. In turn, focusing on a single asset reduces the amount of information that needs to be analyzed to avoid getting confused by everything and focus on one area.

2-Heavy Asset Scaling.

There are different types of assets, some of which are known as light assets and others as heavy assets. The difference between the two is due to various factors, but simply put, a light market is more fragile in the face of very large orders, so volatility (price fluctuation) will be higher. Conversely, the “heavy” market is better adapted to large lot sizes, so volatility will be less sudden.

Of course, there are other, more complex factors. For example, starting out in a “heavy” market will allow a novice trader to take slower and better action.

3-Choose an asset with a structural trend

When we talk about trends, the opinions of many investors tend to be divided. Some define a trend using moving averages, while others use Dow Theory or other methods. However, it is important to remember that trends can be broken down into several layers and that the dominant trend is based on the structure of the asset, not the indicator. In other words, a trend is a collection of many factors that are important to analyze and consider when trading.

When talking about trend structure, there are a number of factors to consider such as asset composition, functionality, perception, strength, exposure to various geopolitical, economic and financial conditions and so on. By analyzing all these factors, we can determine whether an asset is in a dominant downtrend, dominant neutral or dominant uptrend.

4-Scalping trader: choosing one intervention direction

Choosing one intervention direction is similar to rule 3. Many novice traders want to buy and sell the same asset according to their own rules. This is a mistake because buying and selling the same asset doubles the risk of unsuccessful trades.

If, for example, the asset in question has a structural uptrend, looking to buy only will be much more profitable because the trader will always be in the structural direction of the dominant trend. With proper money management, the trader may be right in the short, medium or long term, but he will always be right because the trend will be right. Buying and selling at the same time, on the other hand, will only result in double the number of trades, which will therefore be against the trend.

5-When scalping, use a bounce strategy rather than a breakout strategy

In my opinion, breakout trading is more complicated than bounce trading. Breakout trading is a stock market strategy that is based on the fact that prices of stocks or other assets can change dramatically when they “break” important levels where they were previously stopped out. Rebound trading is a strategy that is the opposite of breakout trading. Whereas there a trader waits for the price to break a level and move on, in rebound trading you assume that the price will not break the level, but instead will push off from it and go in the opposite direction.

So why is it better to favor the rebound strategy? First, from the psychological point of view, a breakout has a negative connotation (destruction), while a rebound has a restoring connotation.

Secondly, from a technical and financial point of view, when trading breakouts you should look for something new, a new price, a new target, while when trading rebounds you should look for a price correction. For example, if an asset should be at 1,500 and it is at 1,300, it means that the price is undervalued and a correction should be expected. This correction amplitude gives the amplitude needed for the trade. Finally, the amplitude and risk/reward ratio is much more interesting on a bounce than on a breakout.

6-Use non-interpretive tools for scalping

Many novice traders use well-known indicators like RSI, Bollinger Bands, Stochastic, etc. In my opinion, this is a mistake. Because these are interpretive and adaptive tools. A trader will have to interpret every piece of information and ask themselves questions such as:

• Is the moving average curve correct?
• Is the slope strong or not?
• Why was my signal correct 2 minutes ago and now it is invalid?
• Am I using the correct parameters for my indicator?

The problem is this: almost any trader's interpretation will be biased.

In conclusion, scalping is a complex but potentially profitable strategy for experienced traders that requires discipline, attentiveness and a deep understanding of the market. Success in scalping is achieved not only due to the speed of execution of trades, but also due to a strategic approach, competent capital management and accurate analysis of market trends. By following the suggested tips and continuing to study the peculiarities of the selected assets, novice traders can gradually develop their skills and increase their chances of success in scalping trading.