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Guide to Scalping Stocks and Benefits for Your Trading Performance

There’s a lot of happening in the market right now, and I have seen many people getting more interested in scalping than any other type of trading. That’s why I decided to give it a try, and this is what you should about scalping futures or stock before you even try it.

trading charts on a laptop

What’s Scalping?

Scalping is a trading style that is characterized by holding positions for less than five minutes or so. A technique where the trader attempt to make many small profits from the price fluctuations of an asset in a short period of time.

A scalper usually enters and exits trades quickly, usually within seconds or minutes. A scalper will usually take a lot of trades, but it is important not to have too many open positions at one time because this style of trading can be risky if you’re not careful.

How Scalping Works

Scalpers base their technique on the supposition that a stock will fully reach the first step of a movement, ignoring where it will go from there.

Let’s put it more simple with an example:

Imagine that you’re seeing a trading pattern for a long position, you saw your green candle and enter the trade and saw another green candle, but it suddenly starts to consolidate instead of going up. A scalper will profit from the first stage of the movement, the first candle and/or the second green candle, entering and exiting the position within those two candles.

Unlike day trading or swing trade, the scalping technique doesn’t follow the same trading mindset of optimizing the results by rising the size of the trades. Instead, the scalping strategy follows the mindset of rising the number of win trades with less size, this means more trades in a day but smaller sizes.

Another way to see this is a trader using a longer time frame can achieve good results with only a few winning trades (since they are bigger in size) that are bigger than the losses. On the other hand, a scalper can have a higher winning ratio (more winning trades) in comparison with its losing trades, this keeps all the profits equal or bigger than losses.

Benefits of scalping

The biggest advantage of scalping is that you can get started with little money, this means you don’t need to invest a huge amount of capital in order to make a profit and build up your portfolio.

Some other advantages of scalping:

  • Less exposure to the market is never a bad idea. A quick run-in with it will often lower one’s chances of running into any adverse events.
  • Scalper traders often make really small moves, and those moves are more frequent than big ones, even in quiet markets. Traders who are always looking out for choppiness can take advantage of these small movements.
  • Smaller price movements are easier to achieve: For example, it’s far easier for an asset to make a $0.5 change than a $5 move.

As you can see scalping has many benefits and cons too, it tends to be a high-risk technique since a single loss can outweigh all your smaller gains, so, a scalper needs to have strict exit rules to follow