What is Scalping?

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Video Transcription:

Hello, traders welcome to The Scalping Course and the first module Introduction to Scalping. Now in this lesson I’m going to tell you what scalping is and I’m going to define it to you and I’m going to make the difference between day trading scalping and the misconception about scalping being high-frequency trading.

Now let’s start with the real question here…

What is scalping?

Well, scalping is a trading style specializing in taking profits on small price changes. Generally speaking, scalpers aim to trade session momentum mainly focusing on high probability breakouts and important news releases. Scalpers have minimum concern with the overall market structure and direction. Now here’s the key on what scalping really is. Scalpers only care about the immediate price changes and the immediate price direction. Scalpers don’t care, or they don’t actually look at, the four-hour chart for overall market structure or overall direction for overall bias to see whether they will be looking for longer or short opportunities. They don’t care. When there’s a breakout or a momentum opportunity, they take it with, of course, a system that they have already prepared and they’ve already practiced and, of course, a very good risk to reward scenario.


Now scalpers will buy and sell the same assets throughout the session if the opportunity presents itself and this is the main difference between scalpers and day traders. Day traders will choose a very volatile asset or an asset that is actually moving. They will see the overall market direction or the higher time frames that they will choose whether to buy or sell that asset and hold that position throughout the day. Now scalpers don’t care about that. What they care about is where there is volatility, where there is momentum and, of course, where prices break into the upside or to the downside. So they don’t look to the higher time frames for overall market direction or structure. They just focus on analyzing the immediate price action. And this is what we’re going to teach you here in this course and the cool thing about this is that these small profits or small price changers tend to add themselves into a very nice profit at the end of the month. But, psychologically speaking, scalpers need to have a cool head when trading because they’re trading is more frequent than medium-term traders and string traders and they will experience more losses and this is normal and this is actually logical. If you trade more, you will experience more losses, okay?

For example, if you have a 70% success rate on your system if you take 10 trades you’re going to lose three out of the 10 trades but if you take 50 trades, you are going to have more losses throughout the day. Do you understand what I’m saying? It’s not about scalpers lose more money or lose more frequently than day traders. It’s that because they trade more than day traders, they will experience more losses so they have to be very cool-headed when they are in front of their charts. This means that it’s easiest for a new scalper to start revenge trading and move away from his system and this is actually the ruin of every new scalper. They can’t stand the strings or the bad trades that may come to them and they start revenge trading because they think that this long opportunity didn’t pay out and it move against me and stopped me out on a loss. Now I’m going to immediately go short. That is revenge trading and that is a big no when we are scalping. And we are going to cover this on the psychological part of this course.

Scalping can be very profitable if we maintain good risk to reward scenarios and only trade the highest probability setups. And this is very important, too. We need to always have a better than one to two risk to reward ratio because we are making so many trades per day. We are not making hundreds of trades per day, but there will be some days that you will make at least 20 trades if you’re scalping, okay? And this is why you need to always have a better than one to two risk to reward ratio and only trade the highest probability setups because you’re going to get a lot of setups throughout your session and even more if you are looking at, let’s say, six or seven currency pairs. So you have to know how to filter out the mediocre setups and only take the highest probability setups.

Now there’s a big misconception between scalpers and high-frequency traders. High-frequency traders what they do is actually they trade the spread and they are in and out of the market hundreds of times per day and high-frequency traders are more likely to be algorithms than actual humans behind the charts. So scalpers are people like you and me that are aiming just to take a few pips [SP] here, maybe 20 pips there, maybe 10 pips over here on momentum or on high volatility and high-frequency traders trade algorithms.

Now scalping is not about getting in and out of the market constantly absolutely not. It’s about learning how to profitability trade the lower time frames and learn how to filter out mediocre setups. Personally speaking, my favorite time frame to trade or to scout from is the three minute charts but in this course I’m going to teach you how to trade one minute that three minute and a five minute profitably. And yes you trade them differently because the difference between trading the one minute and the three minute or the five minute is that your trades are going to be shorter and I’m going to show you how to trade the three different time frames because you might want to choose what you want to trade from. And this is very important because you will get tons of setups every day and you have to learn how to only trade the ones with the highest probability of success, okay?

So to cover everything we have said so far, in this course you will learn how to read intraday price action, how to look for a high probability setups, how to enter the market, where to place your stops and when to take profit, and how to make constant profits from small price movements day in and day out. Now I think the most important thing that you will learn is how to profit from both sides of one single move. This means that if the price moves to the upside you are going to learn how to capitalize on that move but if price hits a strong level and turns on you, you are going to learn how to profitably trade that reversal. Now I wanted to show you this chart because this is the difference between a scalper and a day trader.

Scalping vs Day Trading

Now this is a three minute chart of the GBP USD. You can see right here on my rulers that we have the GBP USD three minute chart and I wanted to show you a simple way or what could we have done today on the GBP USD. And we could have gotten long here at the break about this strong area of resistance and ridden the price all the way up here and get stopped out on a trading stop then price came all the way down here, of course, I said before that we might be able to trade both sides of the move but we are not always going to do that because there is really not a level here. But I’m going to teach you how to understand this later on the course. Now you can see that price came all the way down here to a trendline. It tested the trendline once and this area of support and then tested the trendline twice. We have a very nice long set up with a very good risk to reward scenario and we take profit right here at the previous highs, okay?

Now you can see that we broke with the up structure. We can take a small short position for 10 pip gain and of course right here we have a triple top at a very strong area of support so we take another 22 pip winner and then we have a retest of the main ascending support for another 24 pips and you can see that we made 104 pips on five trades. And the difference between this and this is that this is the actual same price action only this is on the 50 minute chart and you can see that, right here, price broke to the upside but because it broke with such momentum we weren’t able to grab the long opportunity here so we have to wait for a rebound on a previous area of resistant and support and we take the trade all the way up to the area of resistance and once again we can do it right here.

Now this is day trading and you can see the difference between day trading and scalping. If we were day trading the GBP USD, we would only have taken 65 pips on two trades and that is if we were able to take the long opportunity right here at this area of support and most of us would have not been able to do it because this was a very strong and very fast dip so I think we would have taken about 25 pips on the first and 20 pips on the second. But the difference between trading the 15 or day trading the 50 minute chart and scalping is that the entries are more precise. We take the entries when momentum is really strong and we have defined areas of taking profits. Now if you follow us on this course, you are going to learn how to be a great scalper.


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Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

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