Project Description

“The most unprofitable item ever manufactured is an excuse.”  – John Mason

Scalping With 3 Simple Steps | Techniques

Published By: Andy Cheong
Date: 4th of October 2018

Definition 📚

Scalping; a strategy that favors traders whom like to enter and close trades in a short period of time. Here are the 3 basic tools you can use for your trading. In case if you’ve missed the basics to scalping, you may head here.

Risk Management💡

There is always a degree of risk management when it comes to scalping and it plays down to how you handle it. Previously we have mentioned how this strategy has a relatively high win/loss ratio. We also suggested leveraging 15% of the buying power for each scalp trade. Now we need to explore the management of risk on each trade to your trading portfolio. Below are the 3 steps:

1. Aim For Lower Returns ✅

As a scalper, try aiming for lower returns per trade, while shooting for a higher win/loss ratio. Meaning, your risk per trade should be small, hence your stop loss order should be close to your entry.

2. Do Not Risk More Than 1% ⛔

At this point, try not to risk more than .1% of your buying power on a trade.Let’s see how a tight stop would impact the stochastic/Bollinger bands scalp trading strategy.
Example: Stop Loss Order Scalping Trade

3. Profit Example 🤑

  • We shorted Oracle at $39.06 per share, with a stop loss at $39.09, 0.1% above our entry price. The price began decreasing and 14 minutes later, Oracle hit the lower Bollinger band. We exited the trade at 38.95, with a profit of 0.28%.
  • After hitting the lower Bollinger band, the price started increasing. The stochastic lines crossed upwards out of the oversold area and the price crossed above the middle moving average of the Bollinger band.
  • We went long on this signal at $39.04. Our stop loss is located at $39.00, 0.1% below the entry price. This trade proved to be a false signal and our stop loss of .1% was triggered 2 minutes after entering the trade. The final signal took over 40 minutes to develop.
When scalp trading, you need to have a considerable bankroll to account for the cost of doing business.  You are going to find it extremely difficult to grow a small account scalp trading after factoring in commissions and the tax man at the end of the year.