Of the infinite number of stock trading strategies being used today, scalping may be among the most popular. It’s so common that you may be a scalper and not even realize it. Here’s how to tell if you’re a scalp trader.
WHAT IS SCALPING?
Scalping involves going for quantity over quality when it comes to returns. Scalp traders quickly enter and exit trades aiming for only small gains on each trade. Scalpers aren’t looking to hold out for large gains that stocks can make over days or weeks at a time. Instead, they are often looking for less than 1 percent moves in a matter of minutes.
Scalpers aren’t looking to hit home runs. Their goal is to bunt for singles over and over and over again until they’ve scored a bunch of runs. The money in scalping comes from large order sizes and/or consistently pocketing small gains repeatedly over time.
HOW SCALPING WORKS
The idea behind scalping is that stocks can be more predictable over extremely short periods of time than they can be over the medium-term. If you are more comfortable predicting the direction a stock is headed in the next 15 minutes than you are predicting where it is headed in the next 15 days, you are probably a scalper.
Scalpers are only looking to capture the first stage of a move before a stock reaches a potential inflection point and either continues in the direction of the trend or reverses. Scalpers are willing to sacrifice relatively larger gains to ensure they are not exposed to relatively larger losses if they guess wrong.
WHAT IT TAKES TO BE A SCALPER
Scalping requires a clearly defined exit strategy for every trade and a disciplined trader that will stick to that strategy. Do you get the urge to book profits as soon as a trade turns profitable for you? You might be a scalper. If you seesaw back and forth on a decision before placing an order, you are most definitely not a scalper.
Scalping also requires access to real-time charts, news feeds, and information. Scalpers can’t afford to be even a minute or two late in getting breaking news or real-time data, so these tools are an essential part of successful scalping. Finally, scalpers can’t afford to be distracted. Scalpers are required to make many daily trades, so they must maintain focus and closely monitor the market for extended periods of time each trading day.
A WORD OF CAUTION TO SCALPERS
Consider this your disclaimer. In order to be successful at scalping, you need to be reflexive in your trading. Scalping requires you to have a solid understanding of intraday volatility and price patterns. It’s not for the beginner trader, but rather the trader with several years of experience under his or her belt. Many scalp traders have selective short-term memories. In other words, they’re quick to move on from mistakes and always believe they’re going to succeed next time.
And due to their high trading volume, scalp traders may end up paying…
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