In the fast – paced world of trading, scalping has carved out a niche for traders seeking quick profits. One of the most frequently asked questions in this realm is “how many pips for scalping?” To answer this, we need to explore various aspects of scalping, the factors that influence pip targets, and how different traders approach this crucial decision.
What is Scalping and the Significance of Pips
Scalping is a trading strategy where traders aim to profit from minor price movements. Instead of waiting for large price swings, scalpers make a large number of short – term trades. They enter and exit positions rapidly, often within minutes or even seconds. Pips, short for “percentage in point,” are a unit of measurement in the financial markets, especially in forex trading. In the forex market, a pip represents the smallest price movement of a currency pair. For most major currency pairs, a pip is equivalent to 0.0001 of the exchange rate.
The number of pips a scalper aims for in each trade is a critical factor in determining the success of their strategy. It directly impacts the potential profit and loss of each trade. If a scalper sets a very high pip target, they might find it difficult to reach that target quickly, and the trade could end up being unprofitable if the market reverses. On the other hand, setting a very low pip target might result in small profits that don’t cover trading costs or build a substantial overall profit.
Factors Influencing the Number of Pips for Scalping
Market Volatility
Market volatility is one of the most significant factors affecting the number of pips a scalper should aim for. Volatility refers to the degree of price fluctuations in the market. In highly volatile markets, prices can change rapidly and by large amounts.
For example, in the cryptocurrency market, news about regulatory changes, technological advancements, or major market events can cause prices to spike or plummet within minutes. During such periods of high volatility, a scalper might be able to aim for a larger number of pips. They could enter a trade when they spot a significant price movement starting and aim to capture 15 – 20 pips or more if the price continues in the expected direction.
Conversely, in less volatile markets, like some established blue – chip stocks on major stock exchanges, price movements are more stable. Here, a scalper might need to be content with aiming for a smaller number of pips, perhaps 5 – 10 pips. The lower volatility means that large price swings are less likely, so setting a high pip target would be unrealistic.
Trading Instrument
The type of trading instrument also plays a crucial role in determining the pip target for scalping. Different financial assets have their own price behaviors.
In the forex market, major currency pairs like EUR/USD and GBP/USD are highly liquid and tend to have relatively tight spreads. These pairs are also more likely to experience small, frequent price movements. Scalpers trading these pairs might typically aim for 5 – 15 pips per trade. They can take advantage of the normal price fluctuations within a trading session to enter and exit trades quickly.
Exotic currency pairs, on the other hand, involve one major currency and one currency from a smaller or emerging economy. These pairs often have wider spreads and can be more volatile. A scalper trading an exotic pair might aim for a larger pip target, say 10 – 20 pips, as the price movements can be more substantial but also less predictable.
Commodities like gold, silver, and oil also have their own characteristics. Gold, for instance, is often influenced by global economic and geopolitical events. When there is significant news related to these factors, the price of gold can move rapidly. Scalpers trading gold might aim for 10 – 15 pips during periods of high activity, but during calmer times, they might lower their target to 5 – 10 pips.
Trading Strategy and Indicator Signals
The trading strategy a scalper uses and the signals from technical indicators can greatly influence the pip target.
Some scalpers rely on simple moving average crossovers. If a short – term moving average crosses above a longer – term moving average on a short – term chart (such as a 5 – minute chart), it could signal a buy. The trader might then set a pip target based on the expected strength of the trend. If the market has been showing strong uptrends recently, they might aim for 10 – 15 pips. However, if the market has been choppy, they might lower their target to 5 – 10 pips.
Indicators like the Relative Strength Index (RSI) can also guide pip targets. If the RSI indicates that an asset is overbought, a scalper might enter a short – selling position. They could set a pip target based on how overbought the asset is and the historical price reactions in similar situations. If the RSI is extremely high, they might aim for 10 – 15 pips as they expect a more significant price correction.
Risk Tolerance
A trader’s risk tolerance is another important factor. Some traders are more risk – averse and prefer to make smaller, more frequent profits with lower pip targets. They are willing to accept a lower profit per trade as long as they can minimize the potential for significant losses. These traders might aim for 5 – 10 pips per trade.
On the other hand, more risk – tolerant traders might be willing to aim for larger pip targets. They understand that there is a higher chance of the trade not reaching the target, but if it does, the profit will be more substantial. These traders might set a pip target of 15 – 20 pips or even more in highly volatile markets.
Typical Pip Ranges in Scalping
Small Pip Ranges (3 – 10 Pips)
Aiming for a small pip range, say 3 – 10 pips, has its advantages. In highly liquid markets like the major forex pairs during normal trading hours, these small price movements occur quite frequently. Scalpers who target this range can make a large number of trades in a short period.
For example, in the EUR/USD pair, which is one of the most actively traded currency pairs, small price fluctuations of a few pips happen regularly. A scalper can enter a trade when they notice a short – term trend starting, such as a slight upward movement in the price. They can then set a take – profit level at 5 – 10 pips above the entry price. If the trade goes as expected, they can quickly close the trade and move on to the next opportunity.
The advantage of this small pip range is that it reduces the exposure time in the market. Since the trades are short – lived, there is less chance of unexpected market events derailing the trade. However, the drawback is that the profit per trade is small. Also, trading costs, such as spreads and commissions, can eat into the profits if not carefully managed.
Medium Pip Ranges (10 – 15 Pips)
The 10 – 15 pips range is a popular choice among many scalpers. This range offers a balance between the frequency of trades and the potential profit per trade.
In the stock market, for example, during the opening minutes of trading when there is a lot of activity as traders react to overnight news, scalpers can find opportunities to target this pip range. A stock might experience a short – term price increase due to positive earnings announcements. A scalper can enter a trade when they see the price starting to rise and set a profit target of 10 – 15 pips.
This pip range is also suitable for trading certain commodities. When trading silver, for instance, during periods of moderate market volatility, a 10 – 15 pips target can be achievable. The price of silver can move in small but significant increments, and a scalper can capture these movements by setting an appropriate entry and exit strategy.
Larger Pip Ranges (15 – 20+ Pips)
Aiming for larger pip ranges, such as 15 – 20 pips or more, is more challenging but can be rewarding in the right market conditions. This is often seen in more volatile markets or when trading instruments with wider price swings.
In the cryptocurrency market, during a major news event like a significant regulatory announcement, the price of Bitcoin or Ethereum can experience large price movements. A scalper who correctly anticipates the direction of the price movement can aim for a larger pip target. For example, if they expect Bitcoin to increase in price due to positive regulatory news, they might enter a trade and aim for a 15 – 20 pips gain.
However, trading with larger pip targets requires more patience and a higher tolerance for risk. The market might not reach the target as quickly as with smaller pip ranges, and there is a greater chance of the trade reversing before the target is met.
Tips for Setting the Right Pip Target in Scalping
Analyze Historical Data
Before setting a pip target, it’s essential to analyze historical price data of the trading instrument. Look at how often the price has moved in the past by the number of pips you are considering. For example, if you are thinking of targeting 15 pips in a particular currency pair, check how frequently the price has reached that level in the past few weeks or months. This can give you an idea of the feasibility of your target.
Combine with Risk Management
Your pip target should be in line with your risk management strategy. Determine how much you are willing to risk on each trade. If you set a high pip target, you might need to widen your stop – loss level, which increases the potential loss if the trade goes against you. A common rule of thumb is to have a risk – to – reward ratio of at least 1:2. So, if you are willing to risk 5 pips, your pip target should be at least 10 pips.
Adapt to Market Conditions
The market is constantly changing, and so should your pip target. During periods of high volatility, you might be able to increase your pip target. But during calmer, less volatile times, it’s wise to lower your target. Stay updated on market news and events that can impact the volatility of the trading instrument you are trading.
Conclusion
In conclusion, there is no one – size – fits – all answer to the question “how many pips for scalping?” The number of pips a scalper should aim for depends on multiple factors, including market volatility, the trading instrument, the trading strategy, and the trader’s risk tolerance. Small pip ranges of 3 – 10 pips are suitable for highly liquid markets and risk – averse traders, while medium ranges of 10 – 15 pips offer a balance between profit and trade frequency. Larger pip ranges of 15 – 20 pips or more can be rewarding in volatile markets but come with higher risks. By carefully analyzing historical data, combining pip targets with risk management, and adapting to market conditions, scalpers can determine the most appropriate pip target for their trading strategy. This decision – making process is crucial for success in the fast – paced and challenging world of scalping.
Related topics:
Is Scalping a Trading Strategy?
How Did Scalping Start: A Guide for Beginners
