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This is one of the most common trading methods that many traders learn about at the beginning of their journey. Scalping allows a trader to speculate based on the small changes in an asset’s price. It is widely used by day traders, who open anywhere from 10 to hundreds of short deals, generating the outcomes of numerous deals. Let’s have a closer look at how it can be used. How does it work? The system of a scalping analysis is very straightforward. Normally, scalping is performed intraday, which means that all the deals are opened and closed within one trading session (before the market closes). Scalpers’ goal is to acquire a positive outcome over multiple short deals with small returns and manage the risks involved. Consequently, the length of the deals is also quite short. Depending on the market and the trader’s approach, a deal can last from several seconds or minutes to several hours. Scalpers may quickly close deals in order to move on to the next one and acquire results from a sequence of small trades. What tools to apply? Since this analysis is all about making short-term deals, the convenient chart types to use may be bars and candles. This allows the use of candles and bars of short intervals (one-minute, five-minute ones and so on). Traders may also use technical analysis in order to improve their understanding of where the market is currently heading. For short-term trading such indicators as moving averages, RSI, Parabolic SAR and Stochastic Oscillator may be used. These indicators may show potential entry points and identify the trend direction over a certain time period. Pros and cons Scalping has its advantages and disadvantages and each trader may decide if this approach works for them. The pros of this analysis are evident. It provides traders with the opportunity to open and close deals within the same day, without having to wait for their investments for a long time. Though the understanding of the market is very important for any type of strategy, Scalping itself does not require any complicated calculations. The cons of the Scalping approach are associated with the high risk of the strategy. Scalping requires the use of leverage in order to maximize the potential outcome and leverage increases the risk of losses in case the market goes against the trader. Besides, Scalping requires great self-control from the trader. A scalper has to be disciplined and make sure to stick to the trading schedule that they have planned for themselves. At the same time, scalpers need to make fast decisions when it comes to closing deals. They have to be able to act quickly in case the deal goes the wrong way not to go into a deeper loss. Every trader needs to understand that there is no strategy that works perfectly well every time. It is important to combine any approach with a strong risk management plan since there is never 100% guarantee that false information could not be presented from time to time.

There are no fixed rules in trading, and everyone follows the strategies and trading plans that work specifically for them. However, there is one important concept that everyone should remember: what matters is how much you lose, not how much you earn. If a trader builds up their account, but then risks 100% of their funds in a deal and loses, it is not a successful trader. That is why today we will look into the question of what the ideal amount of investment might be and why. Long-term investing and savings Investing and savings might be a way to potentially grow revenue overtime and the amount of investment may depend on the investor’s age, income, determination and other factors. When it comes to long-term investing, there are different numbers that specialists advise on. But the number that is considered to be appropriate by many experts for long-term savings or investment is 10 – 15% of the annual income. With that said, it is an amount that might be put in savings, but it is definitely not the amount with which one should trade. Unlike savings, trading is highly risky and it can result in losses. Let’s see what the right investment amount could be for trading. Investment amount in trading Talking about trading, there is one risk management rule that is, possibly, the most important one. If a trader continuously loses a significant part of their trading balance, no matter the payouts they make, very soon there will be nothing left of their capital. It is just simple math. Trading with 10-15% of the capital could lead to substantial losses that will be hard to recover from. According to professional traders, the optimal and balanced investment amount in a deal is 1-3% of a trader’s capital. For example, if your deposit is $100, the investment in a deal should not exceed $3 for a balanced risk management strategy. But it doesn’t mean that this amount stays fixed as your balance grows. The investment is always a percentage of the capital, so if the capital grows, the investment amount grows with it. Another way of implementing this rule is for example to exit deals as soon as the loss amount approaches 1-3%. However, this would be harder to control, unless a stop loss level is set, but even then it is easy to get carried away, so cautious traders might want to stick with a lower investment amount instead. Pros and cons Why is this approach favored by experienced traders? This rule helps a trader manage the amount of losses and doesn’t let them lose all capital in one trading session. No trader wins every single time and investing only a small percentage of the balance is a good way to potentially manage losses. However, this rule may go against certain trading approaches like scalping, so traders whose trading style depends on investment amount variations should think about their trading plan ahead of time and set their own risk management rules. Note, that even with the lower investment amount, a trader may still experience losses, so it is necessary to combine it with other risk management techniques.