Is “Scalping” a Risky Day Trading Strategy?

Published in

InsiderFinance Wire

4 min readAug 9, 2023

A potentially profitable strategy for day traders is scalping. The goal is to repeatedly profit from small price changes. While this approach can be a reliable money maker it takes discipline to repeatedly enter, manage, and exit trades while always setting stop losses in order to avoid a loss that far outstrips all of the gains a day trader accumulates over a day, week, or month. Is “scalping a risky day trading strategy or one that can be trusted to return profits with diligent effort? With a strict exit strategy, a direct-access broker, a live data feed, and a lot of stamina, this can be a successful approach to day trading. With a thoughtless and sloppy approach, scalping can be a risky day trading strategy that results in terrible losses.

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Defining Scalping as a Day-Trading Strategy

Scalping is the ultimate day trading strategy. Scalpers specialize in entering and leaving trades very quickly. The goal is to make a small profit many times a day and to have more profitable trades than losing trades. Scalpers can profit in rising markets, falling markets, and markets that are trading sideways. They focus on technical cues much more so than on market fundamentals. Scalpers often put in more time at their trade stations than other day traders because they are constantly searching for scalping opportunities throughout the entire day.

Pros and Cons of Scalping

Because scalpers work with small trade sizes, their cost per trade is generally small. However, the cost of fees and commissions mounts up because there are so many trades in a day. The risk per trade in scalping is generally quite small. However, because scalpers need to manage many trades throughout the day the possibility of mistakes creeping into their trading can increase. When scalping it can be easier to get to price targets because scalpers only need small market movements to gain a profit. Unfortunately, this sort of assembly line work can take both a physical and emotional toll on the person who uses scalping as his or her only day trading strategy.

Common Risks Associated With Scalping

A common practice when scalping in the Forex market is to trade with leverage. The more the leverage the greater the potential for profit and the greater the risk of large losses as well. At Day Trade Safe we teach how to be a disciplined trader when entering, managing, and exiting one’s trades. A distinct risk in day trading is that when one engages in many trades during the day the possibility of a single mistake and large loss erasing all previous profits goes up.

Strategies to Minimize Risk When Scalping

Routinely setting stoploss orders with each and every trade is essential for managing risk when scalping. Also, managing position size is important. The point of scalping is to spot opportunities and take quick and easy profits throughout the trading day. The temptation may creep in to increase position size in order to ramp up profits. When greed creeps into your scalping routine it can be dangerous. When a trader is looking for a big payout with a single trade they are generally no longer engaging in scalping. The most important part of scalping as well as day trading in general is to maintain discipline in each and every trade.

Considerations Before You Start Scalping

The first consideration applies to all day trading. Do you have sufficient capital that you can afford to lose? Have you spent the time needed in simulation trading on a trading platform like NinjaTrader to the point where the majority of your trades are profitable? Have you worked with someone who teaches day trading and developed the discipline to enter, manage, and exit many trades throughout the day. Perhaps the most important consideration in regard to scalping as opposed to other approaches to day trading is if you are willing to spend virtually all day at your trade station earning money on multiple small trades instead of waiting for opportunities to profit more handsomely on a few targeted trades?

Tips for Evaluating Opportunities When Scalping

An attractive part of scalping as a day trading strategy is that one can profit in rising, falling, and level markets. The profits come from the small ups and downs that occur throughout the trading day. As a general rule someone who wants to profit from scalping will look for markets that are highly liquid and trade in high volume. This makes their technical indicators more accurate and reduces the likelihood of getting trapped in a position in an illiquid market that just took a nosedive.