Table of Contents – What Are Indices, Guide To Indices Trading
In this article, you’ll learn about scalping, and how it’s different to other styles of trading like day trading. We’ll also answer the question “Is scalping trading illegal in Australia?”
Let’s take a closer look at scalping and learn what is scalping in trading.
What is Scalping in Trading?
Scalping trading is a sharp in-and-out trading style. Scalping focuses on profiting from small changes in price. Even the smallest unit of price movement available to your given market whether that be a cent, tick, pip etc.
In day trading, a scalper will take advantage of high volume creating fast price action. The quick-moving price action allows a trader to enter and exit the trade in as little as minutes, or even seconds.
A day trading scalping strategy suits highly volatile markets. Because of this, it’s important to time trades well. Even more important is the exit strategy and risk management. If the market moves against the trader too much, the scalping trade can wipe out prior winning trades.
Is Scalping Trading Illegal In Australia?
Scalping trading is legal in Australia and allowed by most brokers. Some brokers may not provide scalping trades due to the number of executions over a short period of time.
Though scalp trading is not illegal, some brokers consider this form of trading to be too risky. Scalp trading can be risky to any trader unable to time trades. The trader must understand the correct risk management techniques for the trading style.
Scalping Trading Strategy
Every scalping strategy must focus first on risk management. It is important to keep losing trades small. This is one of the most important things we teach people when they learn to trade.
Scalping differs from day trading and swing trading strategies, you need a high success rate to remain profitable. Other forms of trading may remain profitable at a 60% win rate. A scalping trading strategy needs a higher win/loss ratio.
It’s also important for a scalp trader to keep winning trades equal to or larger than losing trades. This will put less strain on the win/loss percentage requirements.
A scalper should look to place at least 10 scalping trades per day to take advantage of small price moves. Your scalping strategy requires strict rules to ensure you minimise losses.
How Slippage, Execution Speed, and Costs Affect Scalping Results
When it comes to scalping, even the smallest detail can make or break your bottom line. Three key factors demand attention:
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Slippage: In fast-moving markets, the price you expect to get and the one you actually receive can sometimes be worlds apart. If a scalp trade enters or exits at a less favorable price—even just by a tick or two—it chips away at your potential profit. Managing slippage is especially important when scalping, given your target profits per trade are so small.
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Execution Speed: Timing is critical in scalping, as prices can shift in seconds. Any delay in order execution means you might miss prime entries or exits. A slow platform, laggy internet connection, or broker delays can all hamper your ability to lock in those small, consistent gains.
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Transaction Costs: Scalping relies on frequent trades, and fees can quickly add up. Commissions, spreads, and other trading charges—like the ones you’ll see with brokers such as IG, CMC Markets, or Saxo—can eat into your profits fast. That’s why tight spreads and low commissions are essential for anyone pursuing this strategy.
In short, successful scalping isn’t just about finding the right trades—it’s about keeping these “hidden” costs and slippages to a minimum. Pay close attention to these elements as you build and refine your approach.
How Much Capital Do You Need to Start Scalping?
Scalping doesn’t require a massive bankroll to get started, but you do need enough capital to handle multiple trades—and the inevitable losses that come with them. Typically, many scalpers begin with at least $5,000 to $10,000 in their account. This range gives you room to maneuver, manage your risk, and cover transaction costs without overexposing yourself on a single trade.
A larger starting balance also helps absorb the impact of frequent trades and provides flexibility if the market moves against you. Remember, your capital acts as both your safety net and your fuel. Keeping each trade small in proportion to your account size will help you stay in the game long enough to let your edge play out.
Managing Emotions: Fear and Greed in Scalping
Fear and greed can quickly become a scalper’s toughest opponents. Fear often makes traders hesitate, exit trades too early, or sit on the sidelines when opportunity knocks. Greed, on the other hand, tempts you to overtrade or let winning trades run too long—both can unravel your strategy in moments.
The key to mastering these emotions is discipline. Sticking to a well-developed trading plan, complete with set entry and exit points, takes much of the emotional guesswork out of your trades. Don’t leave decisions to fleeting feelings when the action heats up. Instead:
- Rely on pre-defined rules to guide every trade.
- Log your trades and review them regularly to spot emotional patterns.
- Remind yourself: the goal is consistency, not chasing the “big win” or dodging every small loss.
Over time, practicing emotional control will help you execute your scalp trades confidently—so your focus remains on following your plan, not following your emotions.
5 minute scalping strategy
Most scalping strategies take advantage of day trading indicators. As do day and swing traders, but they also look at chart patterns. It’s useful to understand some trading patterns to identify support and resistance levels. But indicators can take a lot of the technical analysis out of scalp trading.
A popular form of scalping in trading is to trade off momentum. With momentum in the market, it’s implied there’s potential for price to continue, and possibly accelerate.
A scalping strategy may use 2 indicators to speculate direction of price action. The 20 EMA (Exponential Moving Average) and the MACD (Moving Average Convergence Divergence). Using these indicators, a scalper can identify potential entry and exit points.
The 5 minute scalping strategy uses these indicators on a 5 minute chart. This is to identify short-term momentum swings. But, it is important to note that this strategy may not be suitable for all traders and market conditions.
What is the 20 EMA?
The EMA is a calculation that determines the average of a set number of prices.
An EMA assigns more weight to recent price changes than a simple moving average (SMA). The SMA applies an equal weight to all price changes.
This means the EMA is more responsive to recent market movements. Thus the EMA can give a more accurate representation of current market trends than the SMA.
Using the EMA a trader can identify trends and potential entry or exit points for trades.
What is MACD?
MACD is a technical indicator used in scalping to indicate changes in market trends.
To calculate the MACD, take the 12-day EMA and subtract the 26-day EMA. A 9-day EMA of the MACD is then calculated, which is the ‘signal line’.
If the MACD line moves above the signal line, it’s considered to be a bullish signal. This implies that the asset price may soon experience an upward trend.
When the MACD line crosses below the signal line, it’s considered a bearish signal. This suggests that price may head in a downward direction.
Another use for the MACD is to display the divergence between indicator and the price of the market. This can be a signal of a reversal in trend.
Which is the best scalping moving average?
The moving average is the most widely used set of trend-following indicators. Moving averages smooths price data by calculating the average price over a given period. But, the question remains, which is the best moving average for scalping?
The answer to this question depends on the trader’s preference and trading style. Some traders prefer SMA due to its ease of use and straightforward calculation. Others favour EMA because it gives more weight to recent price movements, making it more sensitive to short-term changes in the market.
The SMA gives equal weight to all prices over the specified period. The EMA gives more weight to recent prices.
So which is the best moving average for scalping? The indicator that suits the trader’s trading style, and provides accurate signals.
It’s important to note that no indicator is perfect. A scalping strategy should use a combination of indicators to increase probability.
Can scalping work in both trending and ranging markets?
Scalping can be applied to both trending and ranging market environments, but the tactics will look a little different.
- In trending markets, scalpers often look to ride the momentum. Here, indicators like the EMA and MACD can help spot short bursts in the direction of the trend, allowing traders to quickly enter and exit as the price continues its movement.
- In ranging markets, scalpers tend to focus on price bouncing between clear support and resistance levels. The aim is to capture small gains as the price oscillates within the range.
In both cases, adapting your approach to current market conditions—and sticking to sound risk management—remains crucial. The effectiveness of scalping hinges on recognising the environment you’re trading in and using the right tools for the job.
Will a Scalping Strategy Work in all Markets?
While a scalping strategy can be profitable, it’s not suitable for all markets. The success of a scalping strategy depends on liquidity of the market, volatility, and the bid-ask spread.
Scalping is more effective in liquid markets such as Forex and Futures. This is because price movements are frequent and significant. It may not suit less liquid markets like stocks, where the bid-ask spread can be wider, and there’s less price movement.
Scalping takes a lot of concentration. A trader needs to make decisions quickly in order to get in and out at the right times.
Before considering a scalping strategy, first evaluate the market conditions. Decide whether you have the skills required, to determine if it is a suitable strategy.
Scalping Trading Conclusion
Scalping is a popular trading strategy used by some traders to make quick and easy profits. Make sure to learn all you can about scalping before you try it out. You may choose to consider taking one of our trading courses for beginners.
Some countries have laws and regulations on scalping trading. In Australia, scalping trading is not illegal. But, traders must adhere to strict guidelines set by the Australian Securities and Investments Commission (ASIC).
In conclusion, scalping trading can be profitable for experienced traders. Scalping requires discipline, and focus, which beginner traders may not have yet.
As with any investment strategy, traders should research before implementing a scalping strategy.
Join us for our next free trading workshop to learn more about our scalping trading strategy.
Scalping FAQs
