What Is Scalping Trading and How Do Scalpers Make Money

Scalping is a trading style for dopamine and adrenaline junkies. Do you spend all day staring at 1-minute charts? Are you good at making quick profits by trading dozens of times an hour? Then you might have what it takes to be a scalper!

Scalping traders aim to profit from small price movements. A scalper's goal is not to make big profits from a single trade, but to earn small profits over and over again. In Korean, it's also called "danta" (short-term trading). Scalping well can make you money, but there are a few things to consider.

If you're completely new to trading, check out our article on the 7 most common beginner mistakes. Surprisingly, beginner traders tend to make almost the same mistakes.

The Concept of Scalping Trading

Scalping trading strategies can be used in a variety of financial markets, and scalpers are active in the stock, forex, and crypto markets, among others.

Scalping is a trading strategy that seeks to profit from relatively small price movements. Scalpers don't aim for big profits. Instead, they aim to profit repeatedly from small price changes.

For this reason, scalpers rely heavily on technical analysis to come up with trade ideas. Most scalpers pay little attention to fundamental analysis, which looks at an asset's fundamentals.

In short, scalpers take advantage of short-term volatility rather than large price moves. Because it requires a strong understanding of market mechanics and quick decision-making, scalping is best suited to traders who are at least intermediate level.

Short-Term Scalping Strategies

Some scalpers use a strategy called range trading. This means waiting for a price range to form and then trading only within that range. It relies on the idea that, until the range breaks, the bottom of the range holds as support and the top holds as resistance. Of course, there's no guarantee this method will always work, but it can be a successful scalping strategy. Experienced scalping traders set a stop loss to prepare for a breakout from the range.

Another scalping technique is to take advantage of the bid-ask spread. For example, if there's a significant gap between the highest bid and the lowest ask, you can profit from it. However, this kind of strategy is better suited to algorithmic or quant trading. And this space is already saturated with trading bots.

Finally, scalpers can use leverage to maximize their exposure to price movements. With leverage, even small moves can result in large profits or losses. That's why scalpers often use margin trading platforms, futures contracts, and derivatives that offer leveraged trading. In these cases, however, it's essential to take fees and slippage into account.

How Do Scalpers Make Money?

So how do scalpers make money? First, scalpers consider a variety of technical factors to make money. Scalpers generally look at trading volume, price action, support and resistance levels, and candlestick chart patterns.

Meanwhile, the most common indicators used by scalping traders include moving averages, the Relative Strength Index (RSI), Bollinger Bands, and Fibonacci retracement.

Many scalpers also refer to indicators such as real-time order book analysis, volume profile, and open interest. Some scalpers even build their own bots and indicators to gain a time advantage over other scalpers.

BinanceHow to Connect Binance to TradingView and Trade4 min read

Scalping requires finding and exploiting small opportunities in the market. However, once these strategies become known to the general public, they can become less profitable, so the strategies of expert scalpers are often kept secret. That's why it's important to create and test your own strategy.

Scalpers' trading and investment strategies can vary greatly from one person to the next. There are no perfect rules for scalping, but there are guidelines you can consider when setting your own rules. If you want to become a scalper and make money, it's a good idea to first think about what kind of scalper you want to be.

Guidelines for Scalpers

Scalping traders can be divided into two types: discretionary scalping traders and systematic scalping traders.

Discretionary scalpers make trading decisions "on the fly" based on the market conditions unfolding in front of them. They may or may not have specific requirements for when to enter or exit, but they make decisions based on the situation at hand. In other words, they consider many factors but have few rules, relying heavily on intuition and gut feeling.

Systematic traders take a different approach. They basically have a trading system with well-defined entry and exit points. When certain conditions are met, they open or close a trade. Systematic trading is a far more data-driven approach than discretionary trading, relying on analysis and algorithms rather than intuition.

So, Should You Scalp?

It's hard to know whether scalping, or short-term trading, is right for you without trying it yourself. However, most scalping is more stressful and carries higher risk than long-term trading. So if you're a beginner, it's best not to do scalping trading.

Still, if you want to find out whether scalping suits you, paper trading on the Binance Futures Testnet can be a good option. This way, you can test your scalping strategy without using real money.

Final Summary

Scalping is a short-term trading strategy that aims to profit from small price movements. To become a scalper, you need your own trading style, and deep market knowledge and quick decision-making are essential.

Have you decided to become a scalper? Great. But whatever trades you make, always remember to have a stop loss, a position size, and a risk management strategy in place.