What is Scalp Trading?

Scalping Trading: How does it work?

Scalping is a unique trading style that focuses on profiting off of comparatively small price changes while simultaneously making fast profits of reselling. In terms of day trading, scalping refers to a form of strategy utilised for prioritising attaining high units off small profits. 

Scalping involves having a trader determine a stringent exit strategy. This is because a large loss can restrict and even remove several small gains that the trader may have worked for attaining. Due to this, investing in the right set of tools like a direct-access broker, live feed, and etc, play a vital role to ensure the optimal success of this strategy. 

Read ahead everything you need to know about scalping, from what it is to how it works and how you can use it. 

Who Exactly are Scalpers? 

Scalpers are those individuals that trade regularly and in smaller successions. Every scalp trader requires a strict exit policy as even a single large loss can potentially eliminate small profits that he may make. Scalp trading is a work of discipline, focus, and decisiveness. The right qualities and set of tools can work wonders in helping an individual become a successful scalp trader. 

Scalp traders are often enthusiastic about the thrill that this distinctive style of trading offers. That being said, extensive experience plays a crucial role in helping scalp traders execute several technical trading straggles and techniques to determine profit opportunities in the marketplace as a whole. 

How Does Scalping Trading Strategy Work? 

Now that you know who scalpers are, you must be wondering how scalping trading strategy works. 

In simple terms, scalping trading referee to a short-term trading practice that includes investing and further selling underlying assets several times during one single day to attain profit from the price difference. It includes investing in assets at a comparatively lower price while selling them at a higher price. Determine highly liquor assets that assure regular price alterations during the day is the basis for scalp trading. It is practically impossible to scalp if the assets aren’t liquidated. Liquidity moreover assured that you only get the best price offers while entering and exiting the market. 

Scalpers suggest that making small deals is much easier and contains lower risks through the market volatility viewpoint. They can easily attain small profits before really losing the opportunities. Scalp trading is generally on another side of the spectrum. Here, traders bear their position overnight, on some occasions for as long as weeks and months together to attain bigger profits. Scalpers moreover believe that generating several profit opportunities during a small timeframe is better than awaiting a big one. 

Here are the three primary principles that Scalpers Work on

• Reduced Exposure Limits Risks- A substantial exposure in the marketplace reduces the probability of encountering an adverse situation. 
• Small Moves Happen Regularly- The stock price has to run significantly for bigger profits that require an increased imbalance in supply as well as demand. Smaller price moves are thus considered an easier catch compared to this. 
• Small Moves are Much More Effortless to Attain- Even when the market may not be as happening, scalpers try exploiting smaller opportunities in an asset price. 

While there are several other trading styles, including position trading that depend on core and technical analysis for determining traders, scalp traders mainly centre their attention towards technical trading techniques. 

Technical evaluation is the study of historical price movements of all assets, including keeping up with the current trends. Scalp traders make use of a wide range of tools and charts for this. Scalpers explore patterns and further predict future price movements while fixing a deal. 

Scalp traders utilise several timeframes and trading charts that are considered to be the shortest among all trading styles. A scalp trader can use timeframes of even five seconds or below to attain 10 to 100 trades in one single day. 

Day Trading Vs. Scalp Trading 

Day trading is quite similar to scalp trading. A day trader often uses timeframes that are of 1 to 2 hours long. They have an average account size and also trade in swift successions. However, they trade at a generally average speed. A day trader will moreover keep up with the trend. They make their trading decisions based on technical evaluation. 

Scalp traders, on the other hand, use shorter timeframes of 5 seconds to 1 minute. They take comparatively higher risks in the market and contain a larger account size. Scalp traders generally focus on attaining immediate results. The primary strength of scalp traders is their experience. 

Bottom Line

Scalp trading is a rather comprehensive topic of study that might interest many investors. This was everything you needed to know about the basics of scalp trading.