What is CFD Scalping?
Many traders want to be scalpers, but few know what scalping is or where to begin. Ultimately, scalping can be a viable short term trading methodology for both CFDs -gold, silver, US30 and Forex currency pairs. Today, to help you get started, we will look at what scalping is and who can be successful with a scalping based strategy.
What is a Scalper?
If you’re interested in scalping you first need to understand exactly what is in store for you. A market scalper is considered anyone that looks to take advantage of small fluctuations in price, while trading one or more positions throughout a trading day. Normally, these positions are based around market volatility as momentum and prices fluctuate throughout a particular trading session. Scalpers look to enter the market, and preferably exit positions as quickly as possible.
With this in mind, it makes sense that scalpers ultimately employ technical analysis to plan their trades. CFD scalpers should have a clear idea when and why they wish to enter into a position. This does not mean a scalper completely forgets market fundamentals, but will ultimately plan their entry and exit around charting prices. An economic calendar which includes earnings releases for large companies along with fundamental news releases regarding a countries economic health may also be used to help determine when market volatility will increase for specific CFD shares, stock indices, commodities, and forex pairs.
What Scalping is Not
There is a strong misconception that all scalpers are high frequency traders. So how many trades a day does it take to be considered a scalper? All high frequency traders are scalpers, but not all scalpers are high frequency traders. In order for you to qualify as a scalper you only need to take 1 position a day! That is one of the benefits of scalping CFD’s and currencies. You can trade as much or as little as you like within a given trading period.
This also falls in line with one of the benefits of the Forex market. Due to the variety of CFDs available trading is offered virtually around the clock. This means you can scalp the market at your convenience. Take advantage of the quiet Asia trading session, or the volatile New York /London overlap. Trade as much or as little as you like. As a scalper the choice is ultimately yours to make!
Example Trading Gold with Stops and Limits
Risks
There are always risks associated with trading, but especially so when implementing a scalping strategy. A trade can move in your favor very quickly, but just as easily move against you. This is why short term traders area always working on perfecting their risk management skills. This way, in the worst case scenario, you always have a plan of action for limiting your losses and exiting the market as quickly as possible.
This brings up another misconception; scalpers are very aggressive traders that can be prone to large losses. One way to help combat taking unnecessary risk, is to make scalping an almost mechanical process. This means that all of your decisions regarding entries, exits, trade size, leverage and other factors should be written down and finalized before approaching the charts. Normally as a rule CFD scalpers normally risk 1% or less of their account balance on any one position taken!
Past performance is no indication of future results.
Who can Scalp?
So this brings us to the final question. Who can be a scalper? The answer is anyone with a passion for trading that is willing to work on and develop a technical trading strategy. Despite its misconceptions, being a scalper does not have to require extensive chart time, or participating in high frequency trading. If you already have a trading strategy and have a plan for managing your risk, you are well on your way to actively trading CFDs.
When you’re ready, try out your scalping strategy on a free CFD Demo offered by most brokers. This will allow you to get comfortable with the market as well as see how your scalping strategy is developing in real time!
