Getting To Understand Scalping And Its Advantages

by andrew n. Manager

There is no doubt that there is big money to be made in stock trading, forex trading and commodity trading. However, at the end of the day when it comes to actual success on the ground, there are reasons to believe that only a very few entities and individuals succeed. Hence, we need to find out the reasons as to why majority fail while a small minority are able to make big money in the forex and financial markets. They obviously are doing something different from the crowd and that is what makes them so successful. It would not be a bad idea to take some lessons from these successful traders and put them into practice so that it helps in more ways than one. Hence it would be interesting to find out some techniques and methods which could help you as a trader to make decent money over a period of time. It also will help you to know more about the various methods by which you can cut losses initially and then move forward to higher levels of success.

It Makes To Understand Innovative Techniques

It would be pertinent to mention here that there are many innovative techniques and methods by which one can make small money in commodities, stocks and forex trading. If you are able to master the same over a period of time, you will be able to make some big money over a period of time. One such method is known as scalping. It would not be out of place to mention here that this is often considered as a low risk high return way of trading and therefore beginners and those with little investment are very much in favor of it. On the other side of the spectrum it also would be pertinent to mention that many experienced and successful traders also use this technique and over years they have been able to build sizeable income. Hence let us try and understand this technique a bit more for the benefit of our readers and those who are desirous of seeing success through this route.

What It Is All About

Put in plain and simple words, when we talk about this form of trading, we are referring to something that is about making small profits from small changes in the price of commodities, shares, stocks and forex. This usually happens once the trade has been completed and the trader has seen some profit out of it. In many cases there could be some residual profit leftover and the same can be scalped and some smart money can be made out of it. Though the profit might look insignificant when it is done over and over again over a period of time you could end up having a big bank balance without your actually knowing it. Hence it certainly a low risk but high return option of making money in the financial and commodity market. We are happy to share some obvious advantages and also some pitfalls as far as this form of trading is concerned. This will help readers to have a balanced view and then decide as to whether it is worth getting into the fray or not.

Advantages

The biggest advantage with this form of trading is that the market conditions may not kill your strategy at any given day. Strategies of making big money in financial trading are dependent on long term trading. However, this may not work some days in spite of your best efforts. In such situations, this form of scalping would help you to cover losses and in many cases you also could end up making money.

Secondly, when you do it the way it should be done, you could end up having a much bigger profit than you might have expected. Therefore, when you make this a regular habit, it will not be long before you have an equity curve that looks more uniform rather than being zig-zag. You will be to better manage your losses which you might suffer in a few long term trading. Hence, there is no denying the fact that it could help you to balance your trading plans and strategies and have a good mix of short term and long term trading portfolios in your bag.

Finally, even experienced traders have fallen by the way side because they may have put all their eggs in a single-trade basket. If it clicks it is big money or if there is failure it could lead to total collapse of the session or even the entire trader’s portfolio. Hence, to avoid such a situation it would be better to go in for scalping because it could help to balance your portfolio and could help you quite a bit when the chips are down.

Disadvantages

One of the biggest drawbacks of this form of trading is the high transactional cost. It is about frequent trading and each trading would require you to bear some costs. Hence, at the end of the day, when you compare the costs versus benefits you may end up having nothing much to cheer or celebrate about.

Many traders often get into gambling mode when they choose scalping. Since the investments are not very high, they often go overboard. When this becomes a regular habit, it is quite obvious that it will be tantamount to gambling and it will not be long before they start losing money on a regular basis. Hence you must not how to use this to your advantage and make small margins rather than going berserk and hoping that one loss will be covered by a session of big profit. There are no big profits as far as this form of trading is concerned.

Conclusion

Hence at the end of the day, there is hardly any doubt that there are a number of reasons as to why scalping could be a useful and time tested way to make small margins. It is about building a portfolio brick by brick and it will take some time for the benefits to come to light.