Is scalping strategies profitable?

Often in trader circles you can hear about all sorts of scalping strategies . On sites and forums devoted to the subject of exchange and  trading (especially on, you can find many traders who call themselves scalpers.

Therefore, at first glance, the question of the profitability of this activity may seem inappropriate. After all, if in trading, in principle, there is the very concept of scalping and there are so many people engaged in it, then it certainly brings some money.

However, as practice shows, not all that glitters is gold. And the path of trading, all the more, is full of such a huge number of myths and conjectures that it is just right to question everything and everyone. Well, judge for yourself, if a huge mass of people still believe in miraculous trading robots that can turn any newbie into a multimillionaire (you just need to spend a little money first and buy such a miracle from a kind uncle on the Internet).

Or this boundless belief in the possibility of getting rich quick in trading. Ninety-nine percent of newbies (or even all hundred) come to trading with bright dreams of a “silver platter”. They dream of earning hundreds or even thousands of percent a year (and for some, even a month!).

The same goes for scalping. Many traders generally have a vague idea of ​​what it is, but, nevertheless, zealously rush into the stormy waters of this occupation. Below is an attempt to shed some light on the very essence of scalping. And if you have a desire to engage in this area of ​​trading, then take a few more minutes and read this article to the end.

What does a trader need for successful scalping strategies?

To do this, he must first of all find a financial instrument that would have a fairly high liquidity with a minimum spread . The scalper closes a position almost immediately after opening it when the minimum profit is reached, which is why a small spread and sufficient liquidity are so important.

In addition, a rather important detail for a scalper is the amount of commission charged by the broker for each of his transactions. After all, the number of transactions during scalping can reach several hundred per day, and if the broker rips off decent commissions for each of them, then it will be quite difficult for a trader to make any profit at all.

Ideally, there should be no broker commission at all. But we all live in the real world and we understand that the broker will still receive his money, and if not at the expense of the commission, then at the expense of the spread, so the essence of the task comes down to finding a less greedy broker.

Scalping pitfalls

But the scalper’s problems do not end with the choice of a liquid financial instrument and a reliable broker with minimal spreads and / or commissions. Now he must manage not to waste all his trading capital, which is quite easy to do with scalping on the first few trades.

The fact is that the scalper closes the position almost immediately after it has shown profit. And in order for an open position to show profit, it is necessary for the price to change by a sufficient number of points and cover the size of the spread (or commission). And no matter how small the spread or the broker’s commission is, it will have a significant impact on the mathematical expectation of a trader’s winnings.

Let’s also assume that the spread for a given currency pair is 2 pips and besides this, the broker does not take any commission. In this case, in order to get the minimum profit of at least 1 point, the trader must wait for the price to rise by 3 points (3 points – 2 points of the spread = 1 point of profit).

For all that, since a trader takes a profit at the level of 3 points, then he should close losses when the price decreases from the moment of the transaction by no more than the same 3 points ( the stop loss level of a sane trader should not exceed the take profit ).

So, what do we have in the end. With equal values ​​of stop loss and take profit (3 points), the profit size (in case of a take profit) will be 1 point, and the level of loss (if a stop loss order is triggered) will be 3 points! That is, the scalper is knowingly in a potentially unprofitable position from the point of view of the elementary theory of probability!

Who does scalping at all?

Scalping as one of the types of intraday trading has become quite widespread among traders lately. For many, scalping is the main type of trading in financial markets, someone practices it in addition to other, more conservative trading methods, and there are also those, mostly novice traders, who use it unconsciously (impulsively).

Beginner traders often close positions almost immediately after opening them due to uncertainty and fear of getting a bigger loss or losing a runaway meager profit. In this case, it is probably impossible to talk about scalping as such, especially since such actions of newbies almost inevitably lead to the drain of the entire deposit.

Experienced traders who practice long-term or medium-term trading strategies sometimes also resort to scalping, allocating a certain (usually a very small) percentage of trading capital for these purposes. They can both earn and lose, but ultimately the essence of their scalping is more about warm-up (entertainment) than making money. They make money on longer term strategies.

Finally, there is a category of traders whose main type of income is scalping, let’s call them professional scalpers. Professional scalpers make money from short-term surges in the prices of financial instruments . The role of financial instruments can be stocks, exchange rates, futures, etc., the main requirement for them is high liquidity with the lowest possible spread . High liquidity is needed in order to be able to easily close a deal at any time (this is simply necessary for scalping), and a minimum spread is necessary in order to get at least some profit from this close.