Scalping Trading

Scalping Trading: Definition, Strategy and Profits

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Scalping trading is a low-risk trading method by profiting from small price changes and making faster profits from the resale. In the world of day trading, scalping is a strategy of prioritizing high volume sales with small profits.

Scalping is a trading method that requires traders to have a strict exit strategy because one loss from a large transaction can eliminate many small gains that were previously obtained by the trader.

A successful scalper must have a much higher profitable resale ratio than the loss ratio. In this case, he should always keep the profits roughly equal to or slightly greater than the losses. In a day a scalper can make a lot of transactions maybe even hundreds of transactions.

How Scalping Techniques Work

scalping vs swing trading

Scalping is based on the assumption that most stocks will complete a price movement. After that initial stage is complete, some stocks stop rising, while others continue to rise.

A scalper intends to take as many small profits as possible. It tries to optimize positive trading results by increasing the size of profitable trades.

Also Read: Top 5 Best Cryptocurrency Day Trading Strategies for Beginners

Scalper Techniques for Beginners

scalping vs day trading

With more and more people entering the trading world, the number of people trying to do day trading and other strategies, including scalping, is increasing. Newcomers who want to try scalping trading need to make sure this trading style suits their personality because it requires a high level of discipline.

Traders need to make quick decisions, spot opportunities, and constantly monitor computer screens. Those who are looking for safety and are satisfied with small profits are very suitable for scalping trading.

However, scalping trading is not the best trading strategy that is easy to do for beginners. This is because scalping trading involves rapid decision-making, constant position monitoring, and frequent switching of short positions. However, there are some tips that can help you to understand the technicalities of scalping trading.

Order Execution

A beginner needs to master the art of efficient order execution. Delayed orders can wipe out some of the profits earned and even result in losses. Since the profit margin per trade is small, order execution must be accurate.

Frequency and Cost

A novice scalper should make sure to keep costs in mind when trading. Scalping trading involves a lot of trading transactions which can cause the transaction fees to pay the broker to be high. Frequent buying and selling will definitely make the broker’s rates or commissions expensive so that it can reduce profits.

That’s why choosing the right online broker with competitive commission fees is absolute. This is so that the transaction costs when doing scalping trades do not swell.

Understanding Trends Before Plunge

Being able to understand the pulse of the trend, as well as its momentum, will be a very useful skill for a scalper. Once a scalper is able to identify this, the trend and trading momentum will become waves that can provide profitable flows.

Technical Analysis

Beginners to scalping trading should equip themselves with an understanding of the basics of technical analysis to combat the increasing competition in the world of day trading. Not to mention the fact that most stock and other commodity trading now takes place away from exchanges and does not report real-time trades.

Since scalpers can no longer rely solely on real-time market analysis to get the signals they need to make a profit, it is recommended that they use technical indicators aimed at very small time frames.

Also Read: 32 Ways to Make Money from Internet without Capital

Volume

As a technique, scalping is a method that requires frequent entry and exit decisions over a short period of time. Such a strategy can only be successfully implemented when the order or orders can be filled, and this depends on the level of liquidity. High volume trading requires very high liquidity as well.

Advantages of Scalping Trading

Scalping trading can be a very profitable method if a trader is able to apply the correct exit strategy. Scalpers can take advantage of small changes in stock prices that may not necessarily reflect the overall commodity price trend for the day.

Scalpers also don’t have to follow basic fundamentals as the fundamental analysis doesn’t play a significant role when dealing with very short timeframes. For that, traders do not need to know much about stocks.

Another advantage of this strategy is that the market risk involved is very small. This method is designed to limit losses, you also don’t need to know exactly where the market is going as long as you can take advantage of it.

Weaknesses of Scalping Trading

However, there are also disadvantages to using scalping as a trading strategy. Scalping involves a large number of transactions compared to other strategies. Opening a large number of trades will incur higher transaction fees because you have to pay a commission for each trade.

With scalping, you have to take advantage of a high amount of trading volume to make enough profit.

Also Read: How to Invest in Real Estate: 5 Ways to Get Started

Conclusion

If you are interested in day trading, you should understand one of the alternative trading styles, namely scalping. Scalping is a method that can be very profitable for traders who decide to use it as a primary strategy, or just as an alternative method.

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