● Scalp trading is a day trading strategy targeting quick, small profits.
● Traders using this strategy make money by adding up their small profits.
● Scalp trading doesn't work for everyone as it requires a strict exit strategy, a lot of focus and quick decision making.
Scalp trading, or scalping, refers to a day trading strategy that traders enter and exit trades in a matter of minutes if not seconds.
This trading strategy targets small returns from individual trades. Traders who use such a strategy, known as scalpers, usually open large positions multiple times and close them within a day. Normally, they will never hold positions overnight.
Examples are provided herein are for illustrative purposes only and not intended to be reflective of results any investor can expect to achieve.
How scalping works
Scalping is an intraday strategy with the shortest time frame, profiting off of small price changes.
It sometimes requires traders to make decisions within seconds, which demands high concentration and prompt execution.
Typically, scalpers are well-versed in technical analysis and various trading methods.
For example, momentum indicators such as MA, Bollinger Band®, MACD, and RSI are commonly used to pinpoint support and resistance levels.
After setting a profit target, usually 1% or 0.5%, scalpers tend to track stocks with the most violent intraday price moves and place orders based on Level 2 data.
In addition, scalpers look for trading opportunities by keeping tabs on news and market updates. They even bet on future events that may trigger price movements.
Pros and cons of scalp trading
One of the key advantages of scalp trading is that traders are exposed to relatively lower market risks as they have short trade times.
Moreover, scalpers can leverage small price changes, making it easier to enter and exit trades.
However, scalpers need to be disciplined and stick to their trading regimen to be successful.
If traders fail to keep up with market changes, they may face major losses.