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Algo Trading | April 10
What is Scalping Strategy in Algo Trading Platform

What is scalping?

Traders use many peculiar strategies for generating risk-adjusted alpha in the market.

 

Scalping is a short-term trading strategy which involves a trader trying to beat the bid/offer spread (as with any currency, there are both bid and offer prices. The difference between these two prices is known as the bid/offer spread) and make some profit out of skimming a few points before closing the trades. In most cases, scalpers have an interest in downturns in the market and how they can take advantage of them and this is mostly reviewed through the order flow tool.

 

The main advantage of scalping is the ability to gain profit from small price changes within the shortest time frame possible, which is often augmented by a larger position size. This is an intra-day type of trading which means that positions are closed before the end of the trading day or session. Scalping is known for its pace and quick executions.

 

In the most maximal examples, trades are opened and closed within a few seconds, if a sufficient price movement has been made. Due to its high-speed nature, traders need to be precise with their timing and execution.

 

Scalpers will take many small profits, and not run any winners, in order to seize gains as and when they appear. The aim is for a successful trading algo trading strategy through a large number of winners, rather than a few successful trades with large winning sizes.

 

Scalping is about placing the right trades every day and trusting the process with the help of algo trading platform. Make no mistake about it; the process is what is going to make you successful.


How to Create a Scalping Strategy?

If you decide that scalping is the trading style for you, you will need to define a set of rules or guidelines to follow that will create your trading plan. Furthermore, scalpers cannot have reliance for real-time market depth analysis to get the buy and sell signals they need to book multiple small profits in a typical trading day. They can tailor themselves to the modern electronic environment and use the technical indicators that are custom-tuned to very small time frames.

 

  • Time frame: Principally,1 minute or 5-minute time frame should be good. As a scalper, your entry and exit are extremely important. This is because you are only making 10 to 20 pips each trade and your stop loss for such trades are usually very tight. Scalping is one of the most challenging styles of trading to master. Many traders want to instrument a scalping strategy, but don’t know where to kickoff. The truth is, you can develop a simple scalping strategy in as little as three steps.
  • Find the trend: The first step to scalping is finding the trend. Finding the trend is important because it helps create our trading unfairness for a currency pair.
  • Time your entry: The next step in developing a scalping strategy is to decide on an entry mechanism.
  • Manage risks: The last step of any trading strategy is to manage risk. While there are a variety of ways to place stops, traders should also consider the told risk associated with their trade.


SCALPING Vs TRADING

  • Trade length

Scalping- Ultrashort

Trading – Short

 

  • Time Span

Scalping- 5-15 minutes

Trading – 15-60 minutes, daily 

  

  • Trading Trait 

Scalping- Indicators

Trading- Price actions and indices

 

  • Number of Setups 

Scalping-More than 5 days

Trading- 1-3 per day

 

  • Account Size

Scalping- Big account size as they take high risk in the market

Trading- Average account size


  • Results

Scalping- Ultrafast result

Trading- In a day

 

  • Stress Level 

Scalping- Medium to High

Trading- Low to medium

 

  • Risk of Loss

Scalping- Risk of High losses

Trading- Large losses can be made

 

  • Trader Personality 

Scalping- Alert and precise

Trading- Patient

 

  • Profit taking mentality

Scalping- Small, multiple and fast

Trading- Fewer with longer holds

 

  • Trending Types

Scalping- Mostly Trend following

Trading- Varies from trader to trader

 

Experience 

Scalping - Scalpers are the seasoned traders who know the market, understand trends, use a complex combination of tools and fundamental or technical analysis very fast, and can decide a matter of seconds.

Trading - While beginners in trading can take the middle approach, combining scalping with day trading strategies, the best scalpers have years of experience. On the other hand, even beginner day traders who have patience understand the market and aim for longer, but safer results can gain profits when they follow the more extended holds method.


CONCLUSION

Scalping has become one of the most popular short-term trading strategies algorithmic trading India used by both retail and institutional traders, provided with a pragmatic approach, open to fresh trading opportunities, alertness, vigilance, and fast decision-making skills. Furthermore, for good reason: it’s a relatively low-risk strategy that works in any market conditions.

However, when developing a strategy, it’s important to backtest and paper trade it to ensure that it produces the expected results and is the right fit for you.

 

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