Scalping is a trading strategy that attempts to make profits on small price changes, and normally it involves establishing and liquidating a position in short time intervals. Some of the benefits of scalping are that it involves low risk due to the relatively short periods per trade and small moves are much easier to capture as markets are usually confined in narrow ranges.
This article looks at the steps a trader should take when scalping.
1. Assess market conditions
Identifying the technical market conditions is the first critical step as the different market conditions require different trading strategies. The three most common market conditions are Range markets, Breakout markets and Trending markets.
- Range Market
Fig 1: Range bound market condition
As in Fig 1 the price movement is confined to a range and quickly reverses should it become overbought or oversold upon touching the boundaries of the range which act as support and resistance.