Scalping, in stock and other financial markets, refers to a trading strategy where traders make numerous trades throughout the day to profit from small price movements.
The Main objective of scalping is to accumulate small gains that can add up over time.
Traders who use scalping as their trading strategy are known as scalpers.
Scalpers typically hold positions for a very short duration, often just minutes or seconds, and rely on high trading volume and liquidity to execute their trades quickly.
Scalping requires a keen eye for market trends, high-speed execution, and often significant transaction costs.
Scalping vs. Intraday
Both scalping and intraday are short term trading strategies used by traders to make money.
As discussed, scalping involves a high number of trades per day due to the short duration of trading.
In intraday trading strategies, traders hold positions for a single trading day, from minutes to hours. The main objective is to profit from larger price movements than scalping but within the same trading day.
In intraday, traders take fewer trades compared to scalping, but still involve multiple trades per day.
To summarize, in scalping, traders try their best to make numerous quick profits, while in intraday trading, they try to capture larger price moves over a day.
Traders can use both scalping and intraday strategies based on the trend of the market and stock.
Methodology and indicators used in scalping
In order to capture small price movements in financial markets, scalpers use the following indicators and methods to trade.
Scalpers prefer to trade highly liquid markets with tight bid-ask spreads, such as major currency pairs in Forex or large-cap stocks. High liquidity helps scalpers to execute trades quickly at a desired price.
Based on their scalping strategy, scalpers rely purely on technical indicators. Most popular technical indicators used are moving averages, Bollinger bands and RSI.
Moving averages help scalpers to identify trends and potential entry/exit points. RSI measures the speed or momentum of the stock or financial security to identify overbought or oversold conditions.
Bollinger Band and channel is used to identify volatility and potential reversal points.
In addition to technical indicators following parameters are considered for effective scalping in the financial market.
High speed execution: Scalpers prefer high speed trading platforms to ensure their orders are executed accurately at desired price.
Risk Management: Tight stop losses are used by scalpers to limit losses and manage risk. They also fix their daily stop loss limit as high volumes of trades can accumulate small losses if not managed properly.
News and Economic Date: Economic data release and news could cause sudden price movement . This helps scalpers to book quick profit out of the volatility created.
Scalpers require intense discipline and concentration to get high level accurately with perfect risk to reward trade. They used to have proper planning to avoid emotional decisions.
