5 Reasons – Why you should not use scalping strategy
Scalping is referred to as the aggressive trading strategy. Usually, the trader places trade big volume based on lower time period analysis. Though this strategy can boost your profit factors to a great extent but considering the long term outcome, it is a very risky approach to secure your financial stability. In fact, the conservative investors in Singapore consider it as a short way to get poor. You are joining the trading industry to make your life better. So, thinking to trade the market using such an aggressive method should not make you happy.
Let’s find some of the key reasons for which it’s better to avoid scalping strategy.
(1) Requires high leverage account
The scalpers always use high leverage to execute big orders. Leverage has the potential to increase risk and profit factors. So, if things go right, you can make a big sum of money. But predicting the market is not so easy.
Losing trades are very common and there is nothing you can do. It becomes hard to accept the losing trades and the traders start taking excessive risk to recover the loss. Though such an approach might help them for the time being but considering this profession as your business, you are actually gambling. In fact, it might cost your entire investment. On the contrary, if you use a position trading strategy, you can make some big trades without risking big money.
(2) Requires perfect understanding of the market
Without having the perfect understanding of the market it’s really hard to make some good decisions. Most of the time, the traders find it hard to filter out the quality signals in the trading platform. But if you learn about the price action trading strategy, you can improve your trading skills to a great extent. Most importantly, you will need to develop the ability to find trades with a high level of accuracy. And for the novice traders, it’s a very hard task. Without having complete knowledge of the three main forms of market analysis, you can secure quality trades. And to learn fundamental analysis, it requires more than one year.
(3) Developing the problem of overtrading
Over trading is one of the key issues for which the traders fail to make a profit. The scalpers always think by trading more they will make more money. But after some time they develop the habit of over trading. Once you develop this bad habit saving your investment becomes really hard. Most of the time, the retail traders get confused by the concept of over trading. They think they are placing trades by maintaining quality but actually, they are just participating in the market. You can’t make a profit by becoming an active participant. To change your life you must focus on precision. And the only way to do so is to use the conservative approach.
(4) Force to trade with high risk
The scalpers are always trading the market with high risk. They ignore the basic concept of risk management and push themselves to the edge to earn more money. Though it might help them at the initial stage a few losing trades’ makes them frustrated. This is when they start breaking the rules of money management. On the contrary, conservative traders rely on a simple trend trading technique. They ride the market trend with accuracy and make a decent profit from a single trade.
(5) News trading becomes hard
If you trade the major news, you can easily make money by using the position trading method. But if your scalp during the news, you will get confused and lose a big sum of money. Even the spread becomes wider and the executing process becomes slower. For this reason, you need to gain access to the high-end broker. But having such access to the high-end broker doesn’t give you the guarantee to make a profit. So, to stay on the safe side during the major news release, avoid scalping the market.
Hi, I am Nikesh Mehta owner and writer of this site.
I’m an analytics professional and also love writing on finance and related industry. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business.