Love market action and crave more? Scalp trading is a strategy that can offer multiple rapid trades per day. It’s not for the faint of heart … it requires intense focus and real-time data.
This strategy demands quick reflexes and lightning-fast decisions. Make a mistake? There’s no time to fret over what went right or wrong. You need to quickly move on and eagerly plan your next move.
Underwhelmed with the long game of watching trends? Scalp trading might just satisfy your appetite for a challenge. It’s not a stress-free strategy. You need more than a trading plan — you also need a solid grasp on what you’re getting into.
It’s all part of your education and preparation. You need to adjust your trading mindset so you can manage your expectations.
This long-standing trading strategy remains one of the most popular methods to date. Not every trader will take a shine to this style. But if executed well, it might just suit you. Let’s check it out.
Scalp Trading: The Basics
Scalp trading, or scalping, involves small stock movements. Traders act quickly, with real-time charts and minute-to-minute updates that can allow for profits on minor price fluctuations.
These trades move FAST — typically from a few seconds to several minutes. For each share, profits and losses generally measure anywhere between 5 to 20 cents.
This strategy isn’t about trends. Instead, scalping allows traders to focus on small, frequent gains. Traders who primarily use this style may place anywhere from 10 to 100 trades in a single day for minuscule profits.
The scalper’s goal is to profit from stocks’ daily fluctuations. These small movements happen as large traders and institutions buy or sell stocks, moving the prices up or down.
Should you try this strategy? Let’s run through a quick list:
- Are you highly disciplined?
- Are you keen on details?
- Do you love a challenge?
If you answer yes to those questions, it might be a good fit. But if you’re indecisive in your trades or lack clear exit strategies, this trading method is likely a poor fit. The stress may be too overwhelming.
The Drawbacks to Scalp Trading
There are benefits to scalp trading, and I’ll get to those in a bit. But again it’s a better option for those tend to thrive in high-paced, stressful environments. It’s totally OK if that doesn’t sound like you — there are other great options like swing trading or position trading.
Here are some downsides to scalping:
- Commissions and fees: When you trade multiple times each day, commissions and fees can add up quickly. Every trade can eat away at your bottom line. That means your profits can quickly evaporate if you’re not careful and diligent with your strategy.
- High stress: Scalping might be the most stressful trading style of all. You need to make lightning-fast decisions, for hours on end. It can take a toll on your mindset, especially day after day.
- Small risk/reward ratios: Traders usually risk exactly what they plan to make for each trade. So, you may risk 5 cents to make 5 cents on each share. With this tiny wiggle room, you can’t afford to lose often due to commissions and fees and hope to still profit in the end.
- Technology investment: For speedy decisions, tech matters. Scalping doesn’t mesh well with lagging internet speeds or clunky, old computers. If you’re considering scalping, thoroughly assess your entire setup. You may need to upgrade your internet speed and equipment. That’s another cost to consider.
That’s the worst of it … Now let’s talk about the benefits of this trading method.
The Upside to Scalp Trading
Scalp trading can contrast the greed that’s typically associated with trading stocks. Of course, scalpers want to do well. But it’s also about the challenge and discipline. Do you have the stamina for multiple wins and losses all in a single trading day?
Only you can answer that. But in the meantime, here are a few pros of this strategy:
- Short time frames: Scalping requires little time in trades. You may be in the market for just minutes at most. That’s one way to avoid hits from major negative shifts in a stock’s value. Plus, you can bypass overnight-holding risk.
- Tons of trades: Scalp traders usually make between 10 and 100 or more trades a day. That said, the quantity of those trades can lead to fast gains.
- Consistent opportunities: Overall market conditions don’t usually limit trading opportunities for scalpers — they’re not looking for big price moves. Instead, order flow can create opportunities, shifting prices up and down. Because this happens independently of the economy and market, there’s almost always an opportunity.
- Trends are irrelevant: With scalping, you don’t look for potential trends. You’re looking for marginal changes in price. Even if a stock falls after you exit the trade, you’re not really concerned. You got in and out, hopefully with a profit, and you’re moving on to the next deal.
Conclusion
Evaluate and weigh the pros and cons of scalping to determine if this style of trading suits you. No trading strategy will fit every trader, and as with anything, scalping has its downsides. It’s a question of whether you can manage those downsides and the stress that can come with this method.
If you’re intrigued by this trading method but aren’t quite ready to risk money, you can practice! The StocksToTrade platform comes with a paper trading option. It’s a smart way to explore the rapid-paced world of scalping without laying down a dime.
If you love it, you have some experience under your belt before you hit the real market. And if it doesn’t work for you, you gained knowledge without losing.
Check out StocksToTrade’s paper trading features and more. With StocksToTrade, you’re covered for all your stock trading needs. It’s the one-stop shop for serious stock traders.
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What’s your experience with scalp trading? Share your scalping thrills in the comments below!
