Scalping represents the shortest-term style of trading, even shorter than day trading. It attempts to skim small profits off of a large number of trades throughout the trading day. Scalpers believe that it’s easier to catch and profit from small moves in stock prices. Rather than from large moves.
Scalping is Technical Analysis
Scalpers are usually technical analysis traders, as opposed to fundamental traders. Technical analysis focuses on a security’s past price movements. Usually with the help of charts and other data analysis tools. Traders use the historical price to predict the future movements and set up their trades.
Fundamental analysis usually involves using a company’s financial statements. Or discounted cash flow modeling and other tools to assess a company’s vital value. Scalpers may trade on news or events that affect a company’s value immediately after its release. In some cases, they may also use short term changes in fundamental ratios to scalp trades. But they focus most of the time on the technical charts.
Scalpers use technical analysis but within this style, either discretionary or system traders. Discretionary scalpers will make each trading decision in real time. Whereas system scalpers follow a scalping system without making any individual trading decisions. Scalpers use the market’s prices to make their trading decisions. But some scalpers also use one or more technical indicators. Such as moving averages, channel bands, and other chart patterns.
Trading Time frames
Scalping chart time frames and the amount of time that each trade is active are the shortest of all the trading styles. For example, a day trader might use a five-minute chart, and make four or five trades per trading day. With each trade being active for thirty minutes.
In contrast, a scalper can use a five-second chart, where each price bar means only five seconds of trading. And make anywhere from 20 to 100 or more trades per day, with each trade being active for a few seconds to a few minutes.
Styles and Techniques
As with any other style of trading, many different methods of scalping exist. The known scalping technique is using the market’s time and sales to determine when or where to make trades. Scalping using the time and sales is sometimes referred to as tape reading. Because the time and sales used to display on the old-fashioned ticker tape, known as the tape.
Some scalping techniques are like other trading styles in that they use bar or candlestick charts. And traders determine when and where to make trades using price patterns, support and resistance. And also technical indicator signals.
The Trading Psychology
Scalping is most suitable for a specific type of trading personality. Scalpers must be very disciplined, especially in the case of system scalpers. Because they must be capable of following their trading system with precision.
Scalpers must make decisions without any hesitation and without questioning of their decisions. But they must also be flexible enough to recognize when a trade is not proceeding as expected. Or hoped and take action to rectify the situation by exiting the trade.
To Be or Not To Be a Scalper?
If you’re a trader using daily charts to make your trading decisions over the course of an entire evening. you won’t make a good scalper. But, if the thought of waiting several days for your next trade drives you insane and you prefer quick trades then scalping would be suitable for you.
Scalping can appear easy because a scalper might make an entire day’s profit within a few minutes. But, in reality, scalping can be quite challenging because there is very little room for error. If you do decide to try scalping, make sure that you do so by using a trading simulator. Until you no longer make any beginning mistakes, such as not exiting your trades when they move against you.