Scalping is a popular day trading strategy that involves buying and selling assets or securities quickly – usually within seconds or minutes – to earn small but frequent profits. The goal is to make many trades throughout the day and accumulate gains from these small wins.

What is Scalping?

Scalping is a trading style specializing in profiting off minor price changes on a stock or other asset. Scalpers try to quickly make transactions and exit positions to grab small gains repeatedly over the course of a day.

The defining characteristic of scalping is the short time frame. Scalpers typically hold positions for seconds or minutes rather than hours or days like other styles of trading. They close out all trades by the end of each day to avoid overnight exposure.

How Does Scalping Work?

Scalpers capitalize on minor fluctuations in price by buying and selling rapidly, capturing profits from the bid-ask spread. They make dozens or hundreds of trades in one session, often leveraging large amounts of capital and financial leverage to maximize profits from small moves.

Scalpers employ technical analysis tools like moving averages, support and resistance levels, stochastic oscillators and volume indicators to identify trading opportunities. Price chart patterns are analyzed to predict imminent market moves.

Once a profitable entry point is identified, a market order is placed to enter the position. Profit targets are small, usually between 5 and 10 pips. Stop loss orders are tight as well to control downside risk.

Gains are realized quickly within 1-2 minutes. The position is closed out immediately at the desired profit target or loss limit. The process repeats all day long to accumulate profits from many small wins.

Why Scalp Trading?

Scalping aims to capture slight intraday price movements that larger institutions can’t take advantage of. There are several advantages of scalping for a retail trader:

  • Low Risk – Tight stops and small position sizes limit downside.
  • High Probability – Dozens of trades per day increases chances of winning.
  • Cost Effective – No need to pay for holding positions overnight.
  • Market Neutral – Profits can be earned in both rising and falling markets.
  • High Leverage – Large returns are possible with small amounts of trading capital.

However, scalping also has its drawbacks:

  • Time Consuming – Requires full attention throughout the day.
  • High Stress – Fast pace can lead to emotional decisions and overtrading.
  • Commission Costs – Frequent trading quickly adds up brokerage fees.
  • Overcrowded – Competition from HFT algorithms and other scalpers.
  • Slippage – Prices can move quickly against entry and exit levels.

Overall, scalping is ideal for disciplined traders who can handle active trading and have a good risk management system. It likely appeals more to part-time traders looking for supplemental income.

Key Strategies for Scalping

There are several scalping techniques traders use to profit from short-term volatility. The most common scalping methods include:

Range Trading

Range trading involves buying at support and selling at resistance when price fluctuates between set levels. Scalpers profit in range bound markets that lack a clear trend.

News-Based Trading

Certain news events like employment data, rate decisions and earnings reports can produce short-term volatility that scalpers capitalize on.

Order Flow Trading

By watching the order book, scalpers determine likely demand zones and supply zones for entry and exit prices. Understanding order flow helps time trades.

High Frequency Trading

Advanced computer algorithms exploit market inefficiencies for fractional profits millions of times over with small recurring gains.

Volume Spikes

Scalpers look for surges in volume to signal a potential breakout. Increased volume points to a powerful move brewing.

Momentum Trading

Jumping on accelerating moves during trend days provide quick profits as momentum feeds on itself for a short period.

Contrarian Trading

Fading temporary run ups or spikes against the prevailing trend can offer fast profits when the move stalls and reverses.

Spread Trading

Certain products like futures contracts can have prices that diverge between exchanges. Arbitrage scalping aims to profit from closing these gaps.

News Fading

Major announcements often produce knee-jerk market reactions that are overdone. Scalpers trade back in the original direction as prices normalize.

Steps for Developing a Scalping System

Succeeding at scalping involves precise market timing. Traders should follow a defined system for identifying when to get into and out of positions. Here are some tips for creating an effective scalping strategy:

  • Pick liquid assets – Focus on securities with tight spreads and active trading. Illiquid options will have high slippage.
  • Master a market – Become an expert in specific assets like the EUR/USD pair or Gold futures for example.
  • Identify entry rules – Develop criteria for trade entry like overbought / oversold levels, breakouts or volume patterns.
  • Set exit rules – Have predefined profit targets and stop losses. Know when to book gains or cut losses.
  • Check risk limits – Determine proper trade size and maximum daily loss amount you can accept.
  • Assess win rate – Backtest to evaluate the win/loss ratio and ROI of your system. Tweak entry and exit rules if needed.
  • Trade smaller to start – Refine skills with small share sizes and only increase position sizes later.
  • Review performance – Analyze trading statistics each week and adjust strategy as needed. Remain flexible.

With experimentation and practice, scalpers can design a profitable system that fits their trading style and risk tolerance. It’s critical to keep reviewing performance metrics and stick to the parameters of the system.

Scalping Tips and Tricks

Here are some additional pointers for scalping successfully:

  • Trade during active, volatile market hours. Avoid dead periods and low volume.
  • Keep stops tight – no more than a few pips away to control losses.
  • Let winners run a little to maximize profits on trades. Have targets double the size of stops.
  • Be quick taking profits when targets are reached. Don’t get greedy expecting more.
  • Don’t chase trades. Be patient for high probability setups to appear.
  • Size positions appropriately – don’t risk more than 1-2% of capital per trade.
  • Remember commissions – factor in total trading fees to determine actual profitability.
  • Use Level 2 data to see market depth and identify support / resistance.
  • Have a clear plan for the day on where to enter and exit. Don’t make emotional decisions.
  • Take breaks to avoid fatigue effects like overtrading and hesitation. Stay mentally sharp.

With the right strategies, risk management, and mindset, scalping provides a fast-paced yet rewarding trading style. It just takes practice and persistence.

Best Markets for Scalping

Scalping can be applied across most liquid trading instruments. Popular markets include:


The combination of high leverage and low spreads makes forex ideal for scalping. Major currency pairs like EUR/USD, GBP/USD and USD/JPY work best.


Futures markets offer volatility and margin that can produce sizeable profits on minor ticks. Scalpers trade futures like Gold, Crude Oil, Treasury Bonds, indexes, and more.

Large Cap Stocks

Shares of major companies provide opportunity for scalping during the cash session and around news events. Look for stocks with high volume and tight spreads.


Commodities like crude oil, natural gas, gold, and silver are packed with volatility scalpers can take advantage of.


Very short-dated options that expire within 1-2 days allow fast profits from time decay. Key is focusing on highly liquid strike prices with tight bid/ask spreads.


Digital assets like Bitcoin, Ethereum, and others see large, frequent price swings intraday that scalpers thrive in. Volatility is high in this space.

The most suitable markets have high intraday movement and liquidity. This allows scalpers to get in and out of positions seamlessly and benefit from the volatility. Less liquid instruments aren’t conducive to scalping.

Tools for Scalping

Having the right trading tools is critical for timely order execution. Here are some of the top platforms and software for scalping:

  • Direct Market Access – DMA brokers offer fastest trade routing and order fills to capitalize on fleeting opportunities.
  • Level 2 Market Data – View price depth on both sides of the market to better time entries and exits.
  • Hotkeys – Assign hotkeys to quickly open, close or adjust orders with a keyboard stroke.
  • Charting Platform – Realtime charts with indicators and price alerts assist with trade timing.
  • News Feed – Economic calendars help anticipate upcoming events that may trigger volatility.
  • VWAP Indicator – Volume Weighted Average Price identifies value areas for potential turning points.
  • Multiple Monitors – Extra displays allow tracking of prices, news, charts, and orders simultaneously.

The best scalping setups have powerful hardware and software optimized for speed. Every millisecond counts when prices are moving quickly.

Pros and Cons of Scalping

Scalping offers unique advantages and disadvantages. Here are the main pros of scalping:


  • Produces profits during both volatile and sideways markets.
  • Requires smaller capital outlay than long-term trading.
  • Carries less overnight risk than other styles like swing trading.
  • Wins can compound quickly with many small gains each day.
  • Ability to profit whether the market is rising, falling or flat.

However, there are also cons to weigh when scalping:


  • Requires constant focus and vigilance during market hours.
  • Involves frequent trading which racks up higher fees.
  • Swings for larger position sizes can produce big losses.
  • Chasing breakouts late can lead to getting trapped.
  • Significant time investment needed to monitor positions.
  • Not ideal for part-time traders or those with a day job.
  • Pullbacks and reversals can quickly erase open profits.
  • More stress and emotions due to fast pace of trading.

Overall scalping suits active traders who enjoy volatility and action. It provides great flexibility and profit potential for disciplined participants.

Common Mistakes Scalpers Make

Like any endeavor, mistakes are inevitable but serve as valuable learning lessons. Here are some of the most common errors scalpers should avoid:

  • Overtrading – Taking too many trades due to boredom or an itchy trigger finger.
  • No Stop Loss – Neglecting to place protective stops leads to large losses when trades move against you.
  • Lack of Plan – Trading aimlessly without a defined strategy leads to overtrading and losses.
  • Late Exit – Staying in a trade too long after your profit target is hit in hopes of more gains.
  • Revenge Trading – Attempting to immediately win back losses from previous bad trades.
  • Fat Finger – Entering unintended order sizes or prices leading to surprises.
  • Poor Risk Management – Position sizing too large without liimting risk per trade.
  • Curve Fitting – Over-optimizing a strategy to past price data that fails going forward.
  • No Review – Not tracking trading statistics to identify flaws in current approach.

Avoiding these pitfalls takes practice, patience and persistence. Ongoing review and education helps sharpen scalping skills over time.

Key Metrics to Measure Success

Scalpers rely on hard numbers rather than emotions or intuition. Make sure to track these essential performance metrics:

  • Profit Factor – Total profits divided by total losses provides a high level snapshot of strategy effectiveness. Look for 2.0 or higher.
  • Win Rate – Percentage of winning trades vs losing trades. Aim for 55%+ win rate at a minimum. Higher is better.
  • Gain to Loss Ratio – Average gain size relative to average loss size. Look for at least 1:1 with 2:1 better.
  • Payoff Ratio – Average win size vs average loss size. Shoot for at least 100%+ payout ratio.
  • Sharpe Ratio – Measure of return compared to volatility. Higher values indicate better risk-adjusted returns.
  • Max Drawdown – Worst peak to valley loss period. Useful yardstick for downside risk tolerance.

Consistently profitable scalping requires honing strategy performance over time. Tracking key metrics highlights areas needing improvement.

Psychology Tips for Scalping

Mindset and discipline are just as crucial as technical skills. Here are some psychology tips for scalpers:

  • Stay calm – Don’t let emotions cloud judgement during market hours.
  • Embrace losses – Accept small losses are part of trading. Don’t take them personally.
  • Think probabilistic – Focus on your edge playing out over many trades, not the outcome of one.
  • Limit size – Risk an amount per trade you can lose without impacting future actions.
  • Rest adequately – Physical and mental fatigue lead to poor decisions.
  • Avoid distractions – Eliminate non-essential notifications and apps when trading.
  • Review rationally – Reflect on trading actions objectively at day’s end.
  • Track progress – Journal progress over weeks and months, not daily totals.

Healthy psychology stems from principles like personal responsibility, patience, present-moment focus and persistence through ups and downs.

Is Scalping Right for You?

Here are a few key questions to ask to determine if scalping aligns with your trading style and personality:

  • Are you adaptable to changing market conditions quickly?
  • Can you accept and manage higher trading frequency and costs?
  • Does short timeframe chart trading appeal to your existing skills?
  • Can you concentrate intently for hours watching prices and charts?
  • Are you comfortable using trading technologies like hotkeys and level 2 data?
  • Does earning smaller but consistent gains fit your expectations?
  • Are you an experienced trader able to control risk on each trade?

If you answered yes to most of these questions, then scalping may suit your abilities and temperament. Be honest about your capabilities before pursuing this fast-paced strategy.

How to Get Started Scalping

For beginners new to scalping, follow these steps to get started:

  • Open a brokerage account with direct market access and virtual trading capabilities.
  • Obtain realtime data feeds and charting software for price analysis.
  • Develop a trading plan detailing strategies, risk parameters, size, etc.
  • Code hotkeys for quick order entries.
  • Start demo trading in a simulated environment to practice.
  • Analyze results tracking key metrics like profit factor and win rate.
  • Tweak strategy over time until statistics indicate an edge.
  • Gradually size up share amounts as skills improve.
  • Transition to live trading small position sizes applying your honed system.

Take an incremental approach focusing on consistency before increasing risk exposure. Patience developing skills leads to longevity.

Famous Scalpers

A few of the best known successful scalpers include:

Paul Tudor Jones – Top Wall Street trader who made billions scalping market crashes like Black Monday in 1987.

Timothy Sykes – Made millions trading penny stock gappers in the early 2000’s during the internet boom.

Elizabeth Larkin – Founded The Trading Mom and profited as a part-time scalper while raising kids.

Michele Koenig – Known as the “Trading Diva”, she turned $30,000 into over $1 million scalping tech stocks in the dotcom bubble.

Lawrence Leibowitz – Former NYSE vice chairman earned the nickname “Lawrence of Earnings” for scalping with an edge on news events.

Their success proves that with proper skills, strategies and discipline scalping can produce incredible profits. This trading style however takes dedication to master.

Final Thoughts

In summary, scalping aims to profit from minor intraday price movements using short time frames. Traders make frequent trades for small gains that compound over time.

This fast-paced trading method appeals to disciplined risk takers who thrive under pressure. Solid technical skills with chart reading and order execution are prerequisites. Patience and persistence are also vital.

Markets like forex, futures and cryptocurrencies with high volatility provide ample scalping opportunities. With the proper strategies, risk management protocols, tools, and psychology any motivated trader can succeed at scalping.

It offers traders great flexibility to earn during all types of market conditions. However the intense demands of active trading each day may not suit everyone’s abilities or lifestyle.

Determine if the scalping methodology aligns with your skills, personality and goals. Refine techniques through practice and build up skills over time. A patient, prudent approach allows scalping success.