What is Scalping trading strategy?

Scalping is one of the most popular strategies in the industry. It’s when traders buy and sell an underlying asset multiple times on the same day. By placing short-term trades with small price movements, scalpers expect all these small profits to accumulate.

Scalpers usually trade in the busiest times of the trading day, focusing on smaller winning trades. This type of trading normally requires tight spreads and liquid markets. It’s one of the quickest strategies used by traders.

Scalpers take advantage of market swings and focus on high volatile assets. They also use 1-to-5-minute intervals on short term charts which makes it easier to execute under pressure.

Scalpers can also use different technical indicators to identify entry and exit points and spot opportunities, either when markets are extremely volatile or with less liquidity.

The most popular scalping trading strategies are Stochastic oscillator strategy, Moving average, Parabolic SAR indicator and RSI Strategy

Stochastic Oscillator

Stochastic oscillator can identify potential turning points, making it easier to make decisions of the current price action to its recent range.

*EUR/USD 5-minute timeframe with default of 5(%K) and 3(%D) *

Scalping with the use of the above oscillator sports moves or identifies signals in a trending market. The lows of the stochastic in the above chart detects entry points when both %K crosses %D line.

Scalping with Moving Average

Scalp trading using the moving average can also identify trends using 2 short period MA and a long one, known as the simple moving average and the exponential moving average to locate price trends.

*NZD/USD 5-minute timeframe with 6 (Green) and 12 (Red) short period and 96 long-period (Purple)*

Using the MA above, Scalpers can take positions when crossovers happen, for instance when the price moves above the 96 SMA (purple), and the 6 period SMA crosses above the 12 period SMA it identifies a long position.

And when the price moves below the 96 SMA, and 6 SMA crosses below the 12 SMA it’s a short position.

Scalping with Parabolic SAR

Scalping using the parabolic SAR (Stop and Reversal) indicator spots potential reversals, by changing the direction of the indicator according to the trend.

Scalpers can take a short position (Sell) when the price of the index in the below chart goes below the SAR dots or long (Buy) when the price goes above.

*Nasdaq 5-minute timeframe with SAR 0.01 step*

The red arrow suggests a sell position while the green suggests a buy position.

Scalping using RSI

Scalp trading using the RSI (Relative strength index) is a momentum oscillator that measures the speed and change of price movements. Scalpers can identify signals from divergence of the trend.

*US OIL 5-minute chart*

When the RSI drops to 30 or below, it gives a potential entry long position and when the RSI moves to 70 and starts to reverse, it gives a potential sell position.

Scalping is a strategy that requires a quick response and a lot of time to monitor multiple positions. It’s a more difficult strategy especially when it’s not your day-to-day job. Sudden moves are quite common and therefore require patience and a good amount of experience to prove successful.

Additionally, Scalpers usually opt for high leverage trading magnifying profit but also magnifying losses. It’s definitely one of the strategies that needs constant focus on the market.