Is Scalping Really a Useful Trading Tactic in 2022?
March 2, 2022 (Investorideas.com Newswire) Traders are increasingly concerned about deteriorating market conditions in 2022, given that risk sentiment can take a tumble on the back of elevated inflation globally, tightening monetary policy, and waning fiscal support. Thus, long-term exposure to any asset is clouded by uncertainty, which pushes people towards strategies that aim to take advantage of short-term price movements.
Scalping remains a popular trading strategy among individuals trading independently, mainly because there is no need to focus on fundamentals, but mostly on technical analysis and spotting momentum hypes.
A short-term approach when uncertainty is high
"Compared to long-term investing, scalping means opening and closing a trade within the span of a few seconds or minutes," explain the analysts at XProMarkets, a new and emerging global retail trading brokerage. "If prices are volatile and have a clear directional bias, even this short period is enough to bank a small return, which over time can add up."
The main reason why traders are increasingly inclined to choose scalping strategies does not have to do only with the potential to generate returns, but also with global economic prospects. GDP growth figures for 2022 are being revised lower, even though it's just the month of January. In case this trend continues, more revisions might be needed down the road, with significant implications on assets like stocks, bonds, indices, or currencies.
Timing the market - difficult to do?
However, scalping has some drawdowns as well. It's all about accuracy and timing the market correctly. With so many variables that might impact prices, a trader needs to have a solid set of rules in place, and stick with them at all times. This way, consistency is guaranteed in such a challenging market approach as scalping.
Luckily, when trading with brokerages such as XPro Markets, traders have access to advanced trading software that integrates a generous pack of price analysis tools. By combining different indicators, it is possible to build a system that can generate reliable trading signals.
At the same time, due to its short-term nature, scalping is an online trading strategy that requires a lot of time in front of the charts from traders' behalf. It's not possible to open a trade and then walk away, as one can do when investing with a longer period in mind.
Trading on highly-liquid assets
Ultimately, scalping can be an effective strategy in 2022, if traders stick to liquid assets. Stock market indices have been under pressure, but are still close to all-time highs. The same goes for currency pairs, which also remain relatively stable. Stocks belonging to companies with large market capitalization are also the place to be right now.
The idea behind trading liquid instruments is that moving the price from point A to point B requires a lot more capital, compared to assets where daily liquidity is thin. Reversing the trend requires a larger volume of funds, a fact that gives traders confidence in a certain move.
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