A guide to Profitable Scalping (why waste a price action)

2023年12月5日

In the world of trading, many participants find themselves constantly waiting for the perfect confirmation for swing positions or entries, often missing out on the rapid movements that characterize financial markets. This is where the art of scalping comes into play, a strategy vastly different from swing trading, yet equally, if not more, compelling for those who master it because it offers way more opportunities to make money. In this blog post, I'll guide you through the essentials of becoming an effective scalper, focusing on market structure theory, the significance of Break of Structure (BOS), and the nuances that set scalping apart from swing trading.

Understanding Market Structure Theory
To excel in scalping, one must first be well-versed in market structure theory. This theory is the backbone of understanding how markets move and why they behave in certain patterns. It involves analyzing price highs and lows, trends, and ranges to predict future price movements. For a comprehensive understanding of market structure theory, this resource offers an in-depth explanation, it's not complete, but the best one freely available so I suggest you understand the content properly.
youtube.com/watch?v=TCB0qkk3vmk&t=650s&ab_channel=IliyaSivkov-TradingFanatic


The Role of Break of Structure (BOS)
A critical concept in scalping is the Break of Structure (BOS). When we observe a confirmed BOS to the upside or downside, it indicates a significant shift in market sentiment. The order block that caused this break becomes a focal point of interest. This is because, in the realm of scalping, these points often act as magnets for price, offering high-probability entry points.

Capitalizing on Order Blocks
Once a BOS is identified, scalpers must pay close attention to the order block that instigated this shift. When the price returns to this order block, a reaction is typically expected. This reaction is the bread and butter of scalping. Unlike swing traders who seek to capture larger market moves over extended periods, scalpers thrive in these quick, precise moments.

Scalping vs. Swing Trading: A Different Focus
The primary difference between scalping and swing trading lies in their respective focuses and timeframes. Swing trading involves holding positions for several days to weeks, aiming to profit from substantial price moves. Traders in this domain often focus on potential targets for a trade, analyzing broader market trends and economic factors.

Conversely, scalping is a short-term strategy where trades last from a few minutes to hours. The focus here is not on the potential extent of a price move but, on the risk, -to-reward ratio. Scalpers typically aim for a 1 to 3 risk-reward ratio, meaning they risk one unit to gain three. This approach requires quick decision-making so it's much more involved than swing trading.

Before we go on to see some examples following are the key things to remember to be effective in scalping

To be an effective scalper, you need to:

1. Develop a proper Understanding of Market Structure

2. Identify High-Probability Order Blocks

3. Master Risk Management: Given the high-speed nature of scalping, managing risk is paramount. This involves setting strict stop-loss orders and having a clear risk-to-reward ratio for each trade.

4. Stay Disciplined and Agile: Scalping requires discipline to follow your trading plan and agility to adapt quickly to changing market conditions.

Examples: Scalable OBs with results.

This happened today: on SPX and NAS100

NAS100:


SPX:



How to pick an order block to trade for scalping:

Entry for Scalping should be between 0.25 to 0.5 level inside the Order Block, you can use FIB tool to get these levels, this is highlighted in the Images above.

1. Do not go above 4h TF for this strategy.
2. Make sure Order block is caused a BOS
3. Notice the time frame of BOS, Pick the Order block in relation to the BOS timeframe.
4. Makes sure Prior to BOS the Order block resulted in FVG
5. Make sure the Order Block is not too big as it will result in greater risk, which I do not prefer.
6. If price does not hit your entry do not chase price, move on to next one.


I want to emphasize here again , the goal of scalping is to capture the small move , not the whole move , so your focus should be one getting 2X or max 3X of your trade once , you do you get out and move on to next one , the good thing about this strategy is you can always find multiple assets where BOS is happening on anywhere from 1h to 4H TF.

Finally, nothing in the world of trading is 100% so it's possible this may not work sometimes, which you should be okay with as long as it works more than 50% of the time. I
n my experience it works more than 80% of the time.

Conclusion

Scalping is a dynamic and potentially lucrative trading strategy that requires a unique skill set, distinct from swing trading. By understanding market structure theory, focusing on order blocks following a BOS, and maintaining a disciplined approach to risk management, traders can exploit the rapid movements of the market for steady income. Remember, the key to successful scalping lies in quick, informed decisions and an unwavering commitment to your strategy.

Like and Leave comment to this post to seek further clarifications if needed.
Happy trading!