What is Scalping (Scalping)?

Scalping is a short-term trading strategy that is based on opening many positions and closing them with a small profit. The small profits are compensated by a large number of trades during the day.

 

What are the characteristics of scalping trading?

Traders who choose to play the scalping formula are characterized by a specific strategy – they open many positions, often for a period of a few minutes or a few seconds.

The rest of the traders choose to hold positions in their portfolio for days, weeks, months or even years, so we cannot count them as scalpers.

What is crucial for a scalper?

First of all, sensible capital management. This primarily involves excluding the possibility of holding large losses due to the fact that profits are usually booked very quickly.

As a result, a situation could arise in which it would take too many profitable transactions to return to the previous account balance.

In this regard, the scalper’s self-discipline is very important, because by opening a very large number of transactions each day, one can succumb to the emotions associated with particular price movements. This applies to both positive and negative emotions. It is necessary to keep one’s wits about one’s head, regardless of whether one suddenly gains or loses.

It is very important to stick to a certain base strategy.

The most important principles of scalping

Most scalping strategies involve committing a significant amount of capital to 1 trade, while limiting the maximum loss to a few or a dozen pips.

In addition to this, scalping implies trading on the instruments characterized by the highest volatility, with the highest volumes of concluded transactions. It is recommended that these strategies be used during the trading hours that are characterized by the highest interest among all market participants.

Scalping involves making profitable trades much more often than any other trading strategy.

The psychology of scalping

Due to the fact that scalping is characterized by long periods of focus and ad hoc reactions to the current situation in the market, it is important to remember to plan breaks in trading and not to forget about mental and physical fitness.

It is important because in this model it is very easy to so-called overtrading, i.e. excessive, senseless opening of positions. Lack of stop losses can result in rapid burnout and loss of a significant amount of capital.

Experienced traders recommend focusing on successful trades and using them as scalable models for taking further action.

Scalping investment models/strategies

There are several popular models of scalping that are very popular. These include:

Ichimoku Kinko Hyo Scalping System

The model was invented by Japanese journalist Goichi Hosoda before World War II, but only described in 1968 after more than 20 years of testing on the part of the author.

In direct translation, the name of the strategy means “balance at a glance.” It consists of 6 different indicators, which should be used simultaneously and considered as elements of one coherent Ichimoku Scalping system.

If the Senkou Span A line is above the Senkou Span B then the market is in an uptrend. If, on the other hand, it is the other way around, it means that the market is in a downtrend.

Tenkan Sen, on the other hand, is a fast moving average, which should be regarded as a dynamic support or resistance level and a signal to open or close a trade.

Kijun Sen and Chikou Span act in the same way as Tenkan Sen – while giving indications for the longest and longest timeframe.

It is worth remembering that the Ichimoku 1 min scalping system should be used when strong market momentum is evident.

Signals to open positions in Ichimoku scalping strategy are:

• Intersection of Kijun and Tenkan lines
• Candle breaking out of the cloud and closing outside the cloud boundary

Counter-trend plays are used when:

• The candle pierces the Tenkan line and closes heading towards the Kijun line below (the so-called short position).
• The candle pierces the Tenkan line and closes heading towards the Kijun line, which is above it (the so-called long position).

It is worth knowing that with countertrend openings, the closing of all or the first part of our order should occur when the price contacts the Kijun line.

We use a total closure when the candle closes on the Kijun line, or very close to it.

We use partial closure when the candle passes the price dynamically and continues towards the cloud boundary.

Renko Scalping System

Renko scalping system is based solely on charts capturing only the movement of the price within certain ranges, depicting its volatility in the form of successive blocks of price appearing on the chart.

These charts completely disregard the passage of time, perfectly filtering out market “noise” and periods of indecision that many players find very hard to digest.

By acting in this way, the scalper can easily avoid overtrading. On the other hand, market sentiment and periods of short distribution/accumulation, where prices may bounce due to the execution of huge orders, will be completely invisible to the scalper.

Depending on the personality of the scalper, aggressive scalping can take place with a change in color or direction of the block, or upon confirmation of a change in the direction of the moving average or using any other oscillator.

Sometimes the ATR indicator is used to determine the behavior of the market (mainly to estimate the maxima reached).

Scalping on the DAX

The DAX 30 is a German stock market index that brings together the 30 largest German companies. It is characterized by high but predictable volatility and high trading volume. This is dictated primarily by the quotations of the cash index, which are a key factor indicating the condition of the European economy, and estimating futures contracts based on the index, which trade at very high volumes.

For Forex traders, this is one of the basic strategies used in the market. According to some of them, if you manage to master scalping on the DAX then you can certainly cope with scalping other instruments as well.

Scalping the DAX should allow you to make money on big swings, and effectively filter the so-called “market noise” resulting from cosmetic changes. Taking these factors into account, one can definitely conclude that Renko Scalping or Ichimoku Sclaping will be the right solution.

Why is the type of account with a broker very important when scalping?

A key aspect is to have an account with a broker, where the execution of orders is instantaneous, because in many situations it is milliseconds that determine the price at which a position will be opened – especially during periods of increased volatility.

Why is scalping for experienced traders?

This is due to several factors. First of all, the scalping game requires very large amounts of self-discipline and knowledge. In addition to this, it requires dedication of a large amount of time, which novice investors – most of whom work full time – usually cannot afford.