Risk management for scalping


By Vladyslav Yudashkin Updated November 21, 2022
BikoTrading Academy

Risk management in trading is the first thing a trader should know. It is risk aversion which ruins most traders. Understanding these principles is important both in trading and investing.

You must constantly study the system, the slightest fluctuations in the market. But, having read all possible information, you should not be too confident. You cannot 100% predict how the market situation will unfold. Even if you have read the data many times, and plan trading actions correctly. When a person invests all of the available funds in one transaction, he runs the risk of having his account devastated by a trading trend that started moving in the wrong direction.

You do not have to complete every trade successfully in order to succeed in forex. And there is no need at all to expect that the sums earned must be huge all the time. Even if success comes in small steps but over a long period of time, you can consider yourself a successful trader. By entering the market every day, one must spend some time doing one’s own research, build a chart based on one’s own conclusions. This is the only way to earn large sums.

Money Management in Scalping

The key to success as a trader is to find the right balance between risk per trade and desired profit that you are aiming for. In addition, this balance should be realistic and in line with your trading strategy. A beginning trader, after making his first profit, tries to earn more and more in his first working hours. Giving in to temptation, you can completely forget about your strategy, overestimate your strength. The result will be heavy losses.

Regarding money management, scalping has the ratio of risk to profit which is small, usually 1:1, but with high probability of profitable deals (up to 95%). The risk/profit ratio in daytrading is usually 1:3, but also the probability of positive trades is lower than in scalping. To calculate the minimum required risk/profit ratio for your trading system, you should check its signals on the chart history and calculate the ratio of profitable/loss-making signals.

It is important to remember that you have to increase your profits carefully and cautiously. It is important to be able to control yourself and stop working in time so as not to suffer a crushing failure after a big profit.


Low Risk Scalping Strategy

Suppose you open 20-30 trades a day, taking a profit of 0.5%-1% on each trade. The strategy you apply allows you to make a profit 50% of the time. Then even keeping the ratio of risk to profit 1 to 2, for a day you will earn at least 5-7.5% of your deposit, i.e. within a month you can earn 100%-150% of your deposit. And this is taking into account low profitability of the strategy and minimal risk-to-profit ratio.

It may seem to novice traders that numerous trades are a quick way to millions. But it is not all so optimistic. An investor interested in scalping should know that this system, in most cases, will not yield huge profits in the short term (the first 1-3 months). Only with time, when they will gain experience and develop a certain trading strategy, it will be possible to talk about serious earnings. It is worth mentioning once again that despite low risk some transactions will cause losses and large amounts of opened deals in minus may burden a trader’s account considerably. Therefore, a scalper should always be clear about the amount he can lose. Often it is equal to the allowable profit.

Also it is possible to limit the risks by special settings of the trading software. It is good in itself, but this method will not save a trader from losses if the trader does not have a good trading strategy. Experienced traders test dozens of various trading strategies during their career, picking them up, and once the appropriate trading system is developed, they constantly adapt and modify it to constantly changing market conditions.

It is especially difficult for beginners. Even after you have read many specialized books and practice trading on demo accounts it is very difficult for them to start earning on the market right away. A beginner needs to see and analyse real trading strategies, which is impossible to do independently on a high quality level. We help you learn the best scalping strategy techniques in our course THE 5 DAYS OF SCALPER TRAINING . As a result, beginner traders can not only trade the stock market on their own, but also use the trading strategies of our top scalpers.

Tips for Novice Scalpers

If a trader sets up operations in the stock market on his own, the profit or loss from trading will depend solely on the trader and the effectiveness of his/her trading strategy. It is known that financial losses, especially of beginners, occur more often due to two reasons: the first one is difficulty or not attentive enough studying of the trading terminal interface which leads to the fact that a trader makes mistakes when pressing the button – and loses the money. But more often the losses in the market are caused by wrongly chosen and complete lack of trading strategy plus lack of experience in the stock market.

In the first case all you need to do is not rush straight into action trying to make a lot and fast, but study the software beforehand. Learning the intricacies of the profession with our top expert in the industry on a specially designed course will allow the trader to conduct test trading without the risk of incurring any financial losses. In the second case the solution of this problem should be divided into 2 parts: using additional conditions when trading and protecting your already opened trading positions as well as work on optimizing your trading strategy.

Additional conditions for scalping are risk management settings, which prohibit a trader, for example, to open trading positions in a particular account or make new orders to buy/sell an asset in case of violation of the restrictions set by the trader, such as exceeding a daily loss. In addition, some trading terminals can implement functions of automatic protection of open trade positions. For example, placing protective Stop-loss or Take-profit orders, which allow the trader to limit the loss on the position or fix the profit. Or setting a “trailing” stop order, which moves automatically following the price of the asset, thereby minimizing the risks.

Trading the markets is not a guessing game, but an analysis, following a plan. It is not possible to make a winning scheme in a few minutes, it will take you many hours, especially for beginners.

Scalping as a Supplementary Style

One of the peculiarities of scalping strategies on Forex is the great amount of performed deals. The scalper may make from 30 to 500 deals during one day. There are plenty of scalping strategies for different time frames and currency pairs. But the main principle of all these strategies is “take profit on time”.

Scalping forex strategies are popular among professional traders, either as the main or additional asset. Lots of mid-term traders use scalping as an additional trading style. Short-term movements on the market are practically always present. On higher timeframes the price can stay in the range for a long time (weeks, months). On small timeframes, such as 1 minute or on tick charts small short-term impulses occur almost every trading day.

Scalping requires great concentration and psychological stability. A trader makes an entry/exit decision within seconds. Several hours of such trading causes extreme emotional overload. Not to lose heart and not to fall in the state of tilt or get stressed, traders must be calm and cool, but at the same time, make decisions fast. As the main and only trading method, scalping can be very exhausting for both beginners and experienced traders, so it is often used as an additional trading method when the market is especially volatile (and this strategy is most productive in times of high volatility).


What is the best scalping strategy?

Your profit should at least cover the spread. For example, if the spread is 2 points, then the deal should be closed when the price rises by 3-5 points. Most scalpers operate with a profit of 5 pips in each trade. Use the one-minute (M1) charts. The 1-minute chart is the most suitable for scalping strategies because it shows the fastest fluctuations.

Which timeframe is best for scalping?

The smallest timeframes used in scalping trading are M1 and M5 (less frequently M15). Some of them use non-standard timeframes: 30 sec, 90 sec, etc. The choice of small timeframes is explained by the fact that a short time frame allows opening more deals and it is also possible to earn even on the small price movements. It is also possible to earn even in case of small price movements. But choosing the time frame is individual because it should be convenient and understandable for scalpers first of all. We provide more detailed information on the different timeframes in our course THE 5 DAYS OF SCALPER TRAINING .

Is scalping a good strategy?

Scalping has many advantages over other strategies, it is easy enough to be used and is not difficult to learn for beginners under the guidance of a skillful trader. There is no need to study fundamental and technical analysis, as trading is based only on rules of opening and closing trading positions. But it is worth remembering about negative moments, which no trading can do without. In this case, pay attention to the presence of increased risks due to the use of high leverage, as well as strong emotional tension and the maximum concentration of the scalper during the trade.