*Originally published in French on abcbourse.com, February 17, 2012. The French original is still online at abcbourse.com. Read it there if you want to check this translation against it. Translated, not rewritten: what follows is the original argument as it was made, including what time has since proven wrong. Where that happens, you'll find a note from the desk, dated 2026.*
Scalping is about trying to win small, but very often.
The scalper picks a product (usually he specialises in a single one). Then he tries to grab gains of a few cents, or pips for currencies, on each of those trades. And he repeats it, again and again, every day he devotes to his trading.
I've seen scalpers place five hundred trades in a day. Incidentally, the most prolific aren't necessarily the best. The scalper runs an extremely tight risk process and won't accept losing more than a few cents.
Ideal trading conditions
There are two types of scalper. Those who prefer calm markets, and those who go hunting for lively ones. It's interesting to note they both do about as well as each other.
The first type looks for calm markets and aims for extremely small gains, 2 or 3 points on the indices, 4 or 5 pips on Forex. It's hard to pin down a single method for finding their entry point. There's no real constant to it. In fact, one of my clients told me not long ago that entries weren't very important to him. It was really managing the exit point that made his trading work. Sometimes he had no particular read on the market and just took his entries at random, one long, one short. What mattered most was spotting the possibility of an exit in profit.
The second type, by contrast, hunts for lively markets. They aim for slightly larger profits. Generally they know three or four products inside out, and when they trade, they only ever hold a position in one of them at a time.
On that note, last year, talking to a trader of this kind, I said to him: "It's odd, trading four products and really only being profitable on one" (the other three were slightly up or slightly down). He answered: "I never know in advance which product's going to pay me the most. That's why I know four of them very well, and they're all quite different. That way, depending on the news and what's going on in the markets, I'll always have one product paying off while the others sit and wait."
He added that it was impossible for him to predict how long his run of success on a given product would last, otherwise he'd have simply stopped watching the others. That's exactly why he keeps scalping all four at once. But once he's made his choice, he focuses solely on that one product for at least a full day, sometimes two or three, depending on how lively it's getting.
Then, once the calm returns, he goes back to watching all four at once, looking for the next candidate. Scalpers trading lively markets are all hunting for the same thing: an acceleration they can jump on mid-move and ride for a few points.
Advantages
The big advantage of this technique is how short the positions are. Often anywhere from a few seconds to, at most, a few minutes.
The second advantage, mentioned in every account I've heard, is how easy the stops are to manage and stick to. With a short stop, you hesitate far less about placing it, and about respecting it, than with a stop set further away.
Psychologically, it's easy to explain: the short stop is part of the method. Because it sits so close to the entry price, there's no reason to second-guess it. On top of that, the sheer frequency of positions helps you move on quickly, and lets the scalper keep going over the long run.
If a stop sits further away, the problem is always the same: that little voice in the trader's head telling him: what if, right after the stop gets hit, the market turns around and proves you right after all...
A stop set some distance from the entry price is inevitably far more subjective than a tight one. It's impossible not to let the psychological side creep in. And very often people forget that the stop is fundamental to enforcing the discipline of taking a loss. Whether the market turns around straight afterwards, 100 points lower, or 1,000 points lower, makes no difference whatsoever. Once the stop is executed, that position belongs to the past, and it's time to move on to the next thing.
Another point in common with top-level athletes. If you live in the past, if your bad calls leave scars, you'll never reach the real top level. You have to learn to live in the present. What's done is done, it's the past, and there's nothing you can do to change it. What matters is now, and whatever comes next.
Part of a series. This article belongs to Trading Styles: Every One Sends You a Bill. Related: Scalping: Holidays, Regular Gains and Fatigue and Counter-Trend Trading: The Key to Success. Background: scalping in the Ouinex glossary.
About the author. Samuel Rondot has traded financial markets since 1995 and is self-taught. He wrote a book on technical analysis, published a long run of trading columns between 2009 and 2016, and now runs the algorithmic trading desk at Ouinex.
Trading leveraged products carries a high risk of loss.
