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Factors to Consider When Scalping Trading
The financial markets are highly volatile, with prices of currencies in fiat and crypto changing rapidly from time to time. When you look at the market charts, the currency fluctuations for BTC, ETH, USD, and EURO, occur within seconds. Seasoned investors have been taking advantage of the market changes and making fortunes using a trading strategy dubbed scalping.
Scalping trading is a type of financial market trading involving opening and closing trades in a minimum duration. The idea behind scalping is earning income from the short market volatilities. Therefore, scalpers will open and close trades in seconds or very few minutes.
In scalping, the belief is that it’s less risky to benefit from short-term market changes than waiting for large market movements. A scalper can decide to do manual scalping or automated scalping.
Manual scalping involves using lots of time in front of computer screens to analyze market movements to make decisions. The basis of the decisions made is the manual real-time market analysis.
On the contrary, autonomous scalp trading involves setting algorithms that automatically carry out buy and sell decisions once certain thresholds reach. This software operates like a manual trader. Thus the full-time presence of the investor is unnecessary.
Whatever the investor’s choice, either manual or autonomous, the scalper should consider a few factors to succeed in trading.
Time and Availability
Time as aforementioned, is vital in scalping. When discussing time, the things to consider include trade duration and trading availability.
Availability involves your presence since manual scalping trading requires constantly checking the real-time market data. Therefore, you must spend most of your time in front of screens analyzing the market to take advantage of the slightest changes.
Moreover, trading time/duration requires serious consideration. An investor must be able to open and close trades quickly and remain in a gaining position. An experienced trader can quickly complete multiple trades in just an hour and make excellent profits.
The time factor also involves identifying the perfect time to enter and exit the market without losing.
The availability of capital is another factor to consider if you want to try scalping trading. It’s possible to begin trades with very little and make significant profits at the end of the day. First, however, you need to have a reasonable startup amount.
Take, for instance, an investor who wants to earn $100k by the end of the first trading year but has only $100 as capital. Unfortunately, the investor may make one wrong decision that may end their entire trading life.
Capital has a direct mathematical relationship with returns and risks. As you increase the capital, you increase the possibility of getting higher returns but expose yourself to the risk of losing more money. Therefore, ensure you have just the right amount of capital to thrive.
Fees or Cost Requirements
Every business, however small or large, has to pay expenses. Apart from the capital required, there are general expenses for trading or using a particular broker service. These expenses are often called transaction fees or costs and include broker spreads, commissions, and taxes.
Every broker or brokerage firm has its way of deciding the costs. It’s vital to choose the broker with the lowest spreads per trade.
Since every investor’s goal is to make profits in trading, ensure your return per trade will cover the costs involved in trading, leaving you with a surplus. Some trades may have higher fees than the income gained, thus leading to losses per trade.
Consideration of transaction charges will help you choose;
- The right trading platform with favorable charges
- The right amount of capital you’ll need to invest per trade
Market News and Trends
The financial market, i.e., forex and crypto markets, are easily affected by prevailing political, economic, and social conditions. For instance, a slight change in petroleum prices could affect the forex markets, causing currency inflation.
Therefore, as an investor, beginner, or experienced, always keep in mind the market news. Understanding the news will help you choose investment assets wisely, thus hedging against the risks.
After reading news that could directly impact the market, it’s advisable to wait a few minutes to analyze the impact before investing.
There are multiple crypto trading strategies that investors can use in scalping. An investor needs to choose the best strategy that suits their income needs.
Common scalping strategies include psychological, breakouts, momentum, reversals, etc. However, according to some experts, the breakout could be the best strategy for scalping.
In breakouts, a trader keenly follows an asset’s resistance and support level. When a stock price breaks below its support level, the trader enters the market with a short position.
However, it would be best to research the best strategy that suits your needs.
Scalping trading is one of the common investment styles of our day. Any investor using this style can make large incomes in minutes. Trades in scalping are fast and thus do not involve lots of long-term human emotions. Although profits per trade may be small, an investor earns high incomes by continually trading.
However, scalping has cons that an investor should know before using this trading strategy. For instance, the risk is high in scalping; if you are not careful, you may lose a lot in minutes. For a serious investor, having good capital is vital to participate in multiple trades in seconds.
Often, in the long run, an experienced investor will enjoy using this trading trick. However, a beginner should consider using demo accounts without wasting real money for some time to garner trading experience.