Everything You Should Know About Scalping Trading Strategy
It is no secret that the goal of trading is to make profits in the stock market, and quick ones at that. Whether you are a scalper or any other that uses a particular trading strategy, you know that you must open Demat account to trade in the stock market. After you do that, you can use any strategy and plan you wish to trade.
A common technique that is employed by day traders or intraday traders is known as scalping. It’s a potentially valuable tool to make potential profits.
What is scalping?
Scalping defines a stock trading strategy that aims at profiting from tiny stock price changes. Traders who execute this technique may place anywhere from 10 to a hundred trades within the same trading day having the idea that small shifts in stock prices are relatively easier to take advantage of than large shifts.
Traders who use this technique are called scalpers. These traders are normally day traders. Several small profits can very well grow into large returns if a disciplined exit plan is implemented to mitigate large losses.
Understanding What a Scalper Trader Does
Scalping utilises large position sizes to achieve small price returns in the shortest duration of holding. As mentioned before, since short periods and small returns are involved, scalping is performed by intraday traders.
The primary goal of scalping is to purchase or sell several shares/stock at the ask/bid price and then swiftly sell the shares a few rupees higher or lower to make some profit.
The holding periods may vary from seconds and minutes to many hours. Whatever the case may be, the position has to be closed before the close of the complete market trading day.
While this may seem like the best intraday trading strategy, scalpers must exert discipline and have to stick to their trading plan very stringently.
Nonetheless, scalpers have to also show flexibility because market conditions can be somewhat fluid and if a trade doesn’t go as expected, they need to deal with the issue as fast as possible without undergoing substantial loss.
Characteristics of Scalping
Scalping is fast-paced and considered by some traders as the best intraday trading strategy, suited to nimble traders. It requires accurate timing and precise execution. Scalpers use day trading power to buy bulk shares and hold them for very short periods.
Typically, scalpers focus on the shorter time frame intervals in charts like the 1-minute and 5-minute candlestick charts available to scalpers.
Momentum indicators are also used to gauge signals, and these include stochastic, the relative strength index (RSI), and moving average convergence divergence (MACD).
Price chart indicators are also useful to scalpers, like moving averages, pivot points, and Bollinger bands, mainly employed as reference pivot points to indicate price support and resistance levels.
Strategies and Mistakes
A scalper trader buys low and sells high, buys high and sells higher, or shorts high and covers low, or shorts low and covers lower. Scalpers tend to route their orders to the most liquid market movers as quick executions of trades are required.
They use pre-programmed hotkeys as the fastest process for the quickest filling of orders. Scalping is purely and rigidly based on the principles of technical analysis and short-term fluctuations in prices. Owing to the considerable use of leverage, the method of scalping is considered a trading style that is high on risk.
Some common errors that scalpers make are poor strategy and execution, avoiding stop-losses, late entries, over-leveraging, overtrading, and late exits. Scalping generates substantial commissions due to the high number of transactions.
A per-share commission pricing system is advantageous to scalpers, particularly for those who are prone to scale smaller amounts in and out of positions.
Should you become a scalper trader?
Every trading strategy may not suit every kind of trader. Furthermore, intraday trading, whether you use scalping or any other strategy, requires extensive monitoring and a large number of transactions in a short period.
Scalping is an extremely detailed type of intraday trading that may not align itself with all traders. It requires discipline and flexibility to profit off minor price shifts on large orders.