If you are new to trading, one essential tactic that you should always keep in mind is scalping. Scalping may be crucial, but it’s pretty effective and highly profitable for a trader who knows what he is doing.
Scalping is a term used to describe a trading technique that focuses on making low-risk short-term profits by opening and closing trades within minutes or even seconds. Although there can be more significant gains during the day, the main focus of this tactic is to minimize losses as much as possible.
Hence, even if your average profit per trade may not be high, you still have the opportunity to make a lot of money from many small over time rather than trying to hit it big on one trade. The key to this technique is not picking the top or bottom of a stock. Instead, it’s about catching small trends and cashing in on them.
Although high-frequency trading has been banned in Malaysia since 2009 , the Singapore government regulates daily market activities very carefully, so scalping is perfectly legal in Singapore. Scalpers can open and close positions within seconds.
You will still receive full credit for your trades, meaning that it doesn’t matter if you hold positions overnight before closing them because there is no such thing as an overnight risk when you use this method. Although the overnight risks are eliminated when using this strategy, traders who implement these techniques must be aware of the market conditions to implement them successfully.
Although many brokers have high minimum account balances, scalping is one of those strategies that does not require significant capital. Scalping can be done with as low as US$500 in your account, so if you are starting out or even someone who has only a bit more than that, then this might be something for you.
However, the essential requirement is a fast internet connection since you will have to place your orders instantly and monitor price fluctuations using charts and graphs without delays. If you lack a fast internet connection or sometimes experience disconnections during trading hours, then scalping will probably not be the best strategy for you. You should be familiar with candlestick charts and technical analysis because these are the tools used for detecting trends in the market.
Scalping is one of those trading styles which require patience, discipline and constant monitoring to pull off successfully since it’s not like any other type of trading where you can leave your trade overnight after you’ve already locked in profits. Scalping can quickly turn into losses if you miss a slight fluctuation in price or do not act fast enough when something big happens in the market.
It would be best to keep in mind that scalping requires continuous monitoring, so sitting in front of your computer all day will render this tactic useless. Once again, there is no such thing as overnight risk here, so you must be constantly aware of what’s happening in the market.
One massive benefit of scalping is that it protects you from overnight risk, which means even if you get stopped out after hours, overnight or when the markets are closed, your losses will be minimized since you can’t lose more than your maximum risk per trade. Since this technique requires active trading, the brokers(Saxo capital markets pte) usually have lower commissions compared to other types of trading, so not only can you make a decent profit, but your costs won’t eat away at it too much.
Scalping is also great for traders who want to hold positions for more extended periods but deal with high volatility since they can easily adjust their stop-losses according to price fluctuations without having to exit trades.
High volume currencies are the best for this type of trading method since they are liquid enough to allow several trades while still being volatile. You will need a high-frequency connection to keep your trades open while monitoring price fluctuations.