What is Scalping?
Scalping strategy is a popular trading strategy that has been around for a long time. In this trading method traders buy and sell stocks several times in a day to make a small profit.
This is usually done as soon as the trader makes a trade and makes a profit. Traders who perform this type of strategy or trade are known as scalpers, and they may make between 10 and 100 trades a day to make as much profit as possible.
Scalping appeals to traders because it exposes them to less risk and offers a greater number of trading opportunities. In addition, this method exposes them to very small returns, so they can fight greed. But while it has advantages, it also has disadvantages such as the difficulty and the large amount of work involved in carrying it out.
How does Scalping strategy work?
Scalping traders try to do scalping strategies, just like, for example, a ticket scalper. Big profits are not the goal, however, they want to accumulate tens or hundreds of small profits to turn them into a larger profit. Positions are opened and closed in minutes and seconds and profits are made quickly.
This type of trading allows very little time for traders to hold a stock, which means they have to exit a trade within minutes, even seconds. However, there are exceptions where we can hold stocks for a few hours.
Traders spot trading opportunities by looking for small price changes in the market. Precise timing and fast execution are prerequisites for scalping. This type of trading is profitable for some traders, but it also has its own risks. A scalping trader is like a marathon runner in that he needs to capitalise quickly on available opportunities.
A profitable trade can turn into a loss if one of those opportunities diminishes, as most scalpers will not wait for new opportunities to arise for the same trade. This is one of the reasons why investors try to avoid scalping. Because it exploits leverage to a large extent.
Scalpers are often advised not to trade too much or get greedy, as scalping is a way to lose money quickly:
Factors involved in decision making
- Trade the hot stocks every day according to the watch list created.
- Buy the moment a breakout occurs and you see a slight upward movement after entry.
- Sell quickly if there is no upward movement.
- The moment you make a small profit, sell half, and adjust the exit to your entry point on the remaining position, ensuring a high percentage accuracy.
- Make 3 to 5 trades until you have met your daily target or goal.
Liquidity is also an important aspect due to the fact that traders enter and exit their trades several times in a single day. It also ensures that traders get the best possible price when entering and exiting trades.
Scalpers seek to make profits by keeping up with current news and trading the most recent events, or futures, that are likely to trigger price movements; they also watch the high and low prices of a stock during a given trading session and measure its short-term direction. However, this requires high concentration and fast execution.
Another method of making money is by setting profit targets per trade, which should be relative to the share price.
Scalping strategy overview
Scalping trades come in a variety of sizes and shapes. You need access to 1 minute charts, level 2 quotes and exchange order books to carry out the more advanced types of scalping.
Many scalpers do not intend to profit from small price movements, but from the actual bid/ask spread. This requires a great deal of skill and experience, however, there are easier ways to learn scalping.
One of the simplest and most common ways is to buy a substantial amount of shares, wait for a small upward tick and unload the positions as quickly as profitability is achieved.
Scalpers can often renegotiate the same stock over and over again during the session, especially on volatile days. Beginners who want to learn scalping should look for the most liquid stocks possible.
What do you need for Scalping operations?
Since scalping requires fast trade execution, you will need software and a broker capable of keeping up with the load. Traditional slow brokers do not work for this strategy. To maximise profits, you need the right technology.
No commissions or large volume discounts
Resellers often make large numbers of trades per day. If you were charged a fixed commission for all those trades, your profits would quickly be outweighed by the transaction costs. For successful scalping a zero commission broker is ideal. Or at least one that offers deep discounts for high volume traders.
Direct market access
Since scalpers profit from bid/ask spreads or small price movements, timing is crucial. Direct market access is a must, as scalpers need an ethic on a high percentage of trades to make money. When you trade hundreds and hundreds of shares every day, you need to know exactly where and when your trade will be executed.
Advanced charting tools
Scalping requires something a little more sophisticated than the Robinhood candlestick chart. As mentioned, speed is critical for scalpers. When positions are opened and closed in less than two minutes, using 5-minute candlesticks is not very useful. Scalpers need real-time price updates and 1-minute charts to make successful trades.
Resilience and quick thinking
Scalpers can’t just look for a few winners and call it a day at 11am. They have to be prepared to stay a full day behind the screens looking for opportunities. They also need the agility to get out of trades that don’t work out, as big losses are kryptonite for stock scalpers.
To sum up…
Scalping is an arduous task that requires time and attention to the market but from which we can make profits. To know well how to carry out this type of operations, you can train with us and we will guide you step by step in your investment strategies. From Benowu we will be with you so that you can learn everything you need to know about the world of investments and we will transmit live operations so that you can use them as a guide in your movements.
