Scalping is a trading strategy whose goal is to make profits from small price movements. Scalp traders are not targeting big profits rather they aim for small gains repeatedly. Being this the case scalp traders place many trades in a very short span of time. The idea behind this is that by stocking up on all these small gains the outcome over time will be significant. Scalpers will often rely on technical analysis – rather than fundamental analysis – before performing another trade. Technical analysis is a type of analysis that predicts the future of the market based on previous price action. Fundamental analysis examines the quantitative and qualitative factors. It determines whether or not the price of an asset listed is reasonable, undervalued, or overvalued. The strategy used by scalpers is not recommended to just anyone rather they need a broad understanding of the market and quick decision-making skills.
How do Scalpers make money?
Scalping is essentially finding small opportunities in the market and growing from there. Most often not investing in large ones rather working on several small investments and gaining profit at a slower pace. Scalpers have certain strategies and if these strategies get known by the public, they will become unprofitable. They create and most importantly test out each strategy individually in order to see its success rate. Therefore, scalpers usually keep their strategies private.
Scalpers usually make transactions fairly quickly, therefore, bringing high-frequency trading bots into the picture. They work quickly and efficiently and can process a lot of data that most humans won’t be able to do as fast.
Scalpers don’t come with a book of guidelines rather each one has its own strategy and they all differ substantially. There are certain guidelines that can be considered when setting up your individual strategy.
Scalping trading strategies:
There are two types of scalp trades one being the discretionary and the other being the systematic trader.
The discretionary traders make a decision then and there. As the market unfolds before their eyes, they make the decision on the spot. They don’t necessarily have a set time of when to enter the system and when to exit however their decisions are based on the conditions at hand. Discretionary traders rely on their intuition and gut feeling and the rules are less lenient.
Systematic traders take on a different approach. They have a set plan as to when to enter and exit the system. They are more data-driven and rely less on intuition and gut rather they go according to the data provided and certain algorithms.
Conclusion:
Scalping is a strategy of trading that requires knowledge and experience with the system. Jumping into it and trying it outcomes with risk factors. It’s a technique that requires discipline, knowledge of the current market, and the ability to make decisions rather quickly.
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