Inherent Pitfalls of Scalping
To maximize trading profits, traders may decide to use a greater amount of leverage, to magnify the effects of smaller moves. However, this can really work against the trader when he hits a loosing streak. One big loss can wipe out the fruits of several small trades, which is why a scalper must maintain good money management and follow the trading strategy. Regardless of what a scalper does, losses must always be kept small.
It is true that a 5 minute chart will show many more trading opportunities than a one hour chart. However, a trader can protect him or herself, from the tendency to overtrade, by trading for only a predetermined length of time, preferably when the major markets are opened. The risk of making errors while scalping is especially great when the markets are flat, such as when the major markets are closed. While dramatic market swings can occur in aftermarket hours, the character of the market is to remain flat outside of the regular trading hours; it is better to trade when trade volumes are perceived to be higher.
Missing out on significant market moves is a disadvantage of using a scalping strategy. While looking at a small timeframe, it’s easy to miss a big move. When the market it moving quickly and decisively it can look like the profit targets are already reached on the small timeframes. As a result, scalpers are predisposed to closing good trades too soon, which is a natural result of not focusing on the big picture.
However, because markets tend to trend and consolidate most of the time, talking small profits is not a bad trading strategy. The trader only needs the discipline to periodically look at the larger timeframe to ensure that the bigger picture is not being missed.