Scalping – Trading Styles

Scalping is an intraday trading style, which capitalizes on small price movements. It is the fastest paced and widely considered the most difficult style of trading. A scalper is in and out of a position very quickly, often within seconds. It is not uncommon for a pure scalper to wrack up hundreds of trades in a session capturing small profits, which add up over the course of the trading session.

Scalpers typically use leverage and oversized positions to maximize the profits of these small price movements. This type of trading requires the trader to be very fast in decision-making and quick on the keyboard. If a trade goes against the scalper he or she will kill the trade without hesitation. Hesitating can wipe out profits fast and send an inexperienced trader into a tailspin of revenge trading which can ultimately destroy an account.

Successful scalping requires a specialized set of trading skills such as mastery of price action and/or tape reading, emotional control, decisiveness, intense focus and the ability to strictly adhere to their trade plan. He or she shows no loyalty to a trade. If the trader is in a long position and the tape or price action tells them something different they will exit or even reverse the position in a split second.

A scalper will usually stop trading when their plan tells them to. Generally this is when they have hit their predetermined daily profit target or max loss, the market is no longer accommodating their entry and exit strategy or the are simply mentally fatigued, distracted and/or unable to maintain the required focus. Understanding yourself and knowing when you are not performing at your peak is paramount to being a successful scalper.

Good and Bad

Commissions can make scalping a prohibitive trading style for the small retail trader. Because of the number of trades a scalper takes commissions can stack up quickly, outweighing profits. For a trader with the skills, account size and discipline, however, scalping can be a very lucrative style of trading. Professional scalpers typically have high win rates and limit their time exposure in the markets. A pure scalper will never hold a position overnight. Mastery of this style takes time and discipline but a master scalper can generate consistent profits which amount to astounding annual returns.

If you think scalping may be the right style of trading for you, you should find a successful trader who can train you in this style of trading and consider practice on a demo account or with very small size until your entries and exits become repetitive and you are able to stick to a plan and consistently profit from the markets. When you enter the markets with real money and size you will likely experience heightened senses and emotions. It will be important to have a foundation of repetition and confidence in your strategy.