Scalping Trading

Different stock market traders use different trading styles based on how long they take between opening and closing their trades. There are traders whose trades last for a longer period while others prefer short period trades. It all depends on the trader’s experience and preferences. Scalping trading is one of the commonly used trading styles based on how long a trade stays active.

Scalping trading with a mobile phone on a trading app.

Ever heard of scalping trading before? Well, this article will bring you everything you need to know about scalping and how it relates to swing trading.

What is scalping trading?

Scalping is a trading strategy that targets small changes in stock prices. Traders frequently enter and exit the trading sessions to earn profits. Generally, scalping involves multiple trades with short holding periods, lasting between a few seconds to minutes.

Wondering what holding period means? It is the amount of time between when a trader buys a stock and when they resell it. For instance, if a trader buys an asset at 11:20 am and sells it at 11:22 am, the holding period is 2 minutes. This is a perfect example of scalping because the trade only lasts for minutes.

Since scalping involves small holding periods, scalpers’ gains on a single trade are generally low. Therefore, to make significant profits, scalping traders perform hundreds of trades on a single trading day.

What are the key features of scalping trading?

Here is a compilation of some of the notable features that define scalping trading:

  • Short holding period (ranging from seconds to minutes).
  • Traders rely on 1-to-5-minute charts or tick charges to analyze trades.
  • You can perform hundreds of trades in a day
  • Involves rapid decision-making.
  • It requires constant tracking throughout the entire trading session.
  • Traders target small profits from minor stock market price changes.

What does it take to be a scalping trader?

Expert scalpers make significant profits while reducing the market risk, thanks to the short holding periods. The following are some key tips for a scalper:

Strict trade exit strategy

One big loss can wipe out all your gains from the previous trades. Therefore, exit timing is crucial as it can save the day. Poor timing can risk losing all of your trading day’s profits in a single trade.

Have the appropriate tools

Since a scalper makes many trades, the transaction costs are high. This implies that they must have the necessary tools like a direct-access broker, stamina, and live feeds to enhance their ability to make as many trades as possible.

Be a devoted trader

Scalpers rely on short-holding-period trades to make profits. As a result, they can’t make any significant profits within a single trade session. Therefore, they need to make many trades within a single day to make substantial profits. That said, you must stay glued to the stock market and trading platform to realize higher benefits.

What are the advantages of scalping trading?

  • Reduced market risks – scalping trading is designed to minimize significant losses from a single stock by tightening stop-loss points.
  • Scalpers don’t need to follow primary fundamentals because the holding periods are short.
  • Scalpers can quickly automate scalping trades within the trading platform in use. The case is so because this trading style is based on a specific technical criteria series.
  • It’s profitable when executed with a restricted exit strategy.
  • It’s a non-directional trading strategy. Therefore, scalpers don’t have to wait for stock markets to move in a specific direction before trading.

Disadvantages of scalping trading

  • Large transaction costs – this trading style involves making as many trades as possible. For each trading session, scalpers pay a commission. This means that they pay more commission, reducing its profitability.
  • It is a time-consuming trading style. The case is so because scalpers must maintain high concentration levels and make many trades in a day. Therefore, they must stay active for long hours to make substantial profits.
  • It requires more to make significant profits. Scalpers make small profits per trade, meaning that they must trade more to make significant profits.
  • Not suitable for beginners. It requires exceptional mastery of the industry to enhance one’s ability to make quick trading decisions. Therefore, it’s not ideal for beginners with limited trading experience.

How does scalping trading relate to swing trading?

Swing trading is another trading style that involves discovering a trend, then trading based on it. Unlike scalping, swing trading has a longer holding period. It can range from several days to weeks, and in extreme cases, months.

One of the key similarities between scalpers and swing traders is that they rely on charts to inform their trading decisions. However, while scalpers rely on 1-to-5-minute charts, swing traders rely on weekly or daily charts to identify patterns. Also, they both need to monitor the market. However, scalpers monitor the market frequently than swing traders.

Scalping trading crypto

Scalp trading in crypto allows cryptocurrency traders to profit from relatively minimal price movements without targeting enormous profits. This trading approach is labor-intensive. Therefore, crypto traders using it must place as many trades as possible. Besides, these trades have a limited holding period.

Unlike day crypto traders, crypto scalpers rely on complex technical analysis over fundamental techniques. They depend on resistance and support levels, candlestick chart patterns, among other indicators like Fibonacci retracements and Bollinger Bands. Typically, cryptocurrencies are more volatile than usual forex. Therefore, before diving into scalp trading crypto, you should be aware of the risks it poses.

Different cryptocurrencies differ in volatility. Therefore, beginners should consider scalping trading the less volatile options like bitcoin. As they master the scalping technique, they can advance to more volatile cryptocurrencies like Ethereum.

Scalping trading forex

Forex traders specialize in selling and buying currency pairs. Scalping trading in forex involves forex scalpers selling or buying currency sets with a short holding time, aiming to make multiple quick profits. Often forex scalpers target small gains between 5 and 20 pips per trade. Therefore, they can only make substantial profits if they make many trades in a day.

Forex scalpers rely on several indicators to inform their trading decisions. They use standards like stochastic oscillators, Keltner channels, and Bollinger Bands to study trends and patterns on various price charts. These tools enable them to monitor the forex market and spot trading opportunities.

Final thoughts

There exist several trading styles based on the holding period. While scalping trading has a shorter holding period, swing trading has a longer one. Regardless of the holding period, there is no ‘ideal strategy’ for all traders because each option has its rewards and risks. Therefore, traders must select a trading style based on their temperament skills, the amount of time they can dedicate to trading, account size, and trading experience.