What is Scalping in Day Trading?
Scalp trading, or scalping, is a popular trading strategy that has been around for a very long time. In this trading method, traders buy and sell stocks multiple times within a day for a small profit. Traders who scalp often take advantage of the volatility of the market to make quick gains on their investments.
Scalping Strategy Overview
Scalping comes in many different types. You need to know what kind of scalping you are doing because you need 1-minute charts, Level II quotes, and an order book for the trading.
Many people who work in the stock market don't try to get a lot of money from each trade. They get it from the difference between what someone is willing to sell for and what someone else is willing to buy for. If you have a lot of skills, this can be an easy way to get money.
People are doing something called scalping. It is buying a lot of shares, waiting for them to go up a little bit, then selling the shares.
For example, a trader enters an order to buy 5000 shares of YYZ at $0.98, which is the closest support level. Once YYZ falls to $0.98, the trade is executed and the scalper watches how it moves on a 1-minute chart.
A minute later, the stock has jumped to 1.02. The scalper's equity increased from $4,900 to $5,100 during this time because of this trade. They made a quick decision to close the trade for a $200 profit and then they moved on to do more trades.
Scalpers can trade stocks and other types of securities many times in one day. Beginners should look for the most liquid stocks possible.
Shares can be hard to sell if they are not doing well. It's important to use technical signals, like moving averages and stochastic oscillators, to find the best time to sell your shares.
Different between other strategies
"Let your winners run" is one of the oldest suppositions in trading. Sell only when you have reached your predetermined profit goals. When stocks are going up, they stay in an uptrend. Day traders are used to jumping in and out of positions in short time frames, but scalping takes it to another level.
Another unique thing about scalping is that you need to make a lot of trades. Day traders are told not to trade too much. If you trade on anger, your transaction costs go up and your profits go down. But if you do not overtrade, then it will work for your strategy.
What You’ll Need to Execute Scalp Trades?
The lightning-fast trades that happen when you scalp stocks need special software and a good broker to do them. Slow traditional brokers won't work for this. For the already small profits in scalping, you need the right technology.
No commissions or heavy volume discounts - Many people make a lot of trades in a day. If you have to pay a flat commission, your profits will be eaten up quickly by the cost of the fees. To trade successfully, you need to use a broker that has no commissions or offers discounts for high volumes.
Direct market access - Scalpers profit by making money on the difference between the bid price and the asking price of stocks. You need to know when your trade will be executed. This is called direct market access.
Advanced Charting Tools - To be a scalper, you need something better than the candlestick chart. When we talk about speed, it is important to understand that scalpers trade with trades that last less than two minutes. If you use the 5-min candles then you can't track as quickly as a scalper would want.
Endurance and Quick-Thinking - If you want to celebrate 10 baggers, scalping is not the strategy for you. Scalpers cannot just hit on a few winners and take the day at 11 am. You will need to stay in front of your screen for a full day and look for opportunities. You will also need fast reflexes to move out of trades that are.