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A complete intro to scalping

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This article is published in collaboration with Scutify, where you can find real-time markets and stock commentary from Robert Marcin, Cody Willard and others. Download the Scutify iOS App, the Scutify Android App or visit Scutify.com.

Introduction:

Trading is famous for profits. However, it is not everybody's game. One has to know the basics of trading in order to reap benefits in long term. However, the trading market also has those investors who invest on short term basis and make small profits. Many people, who are not so well-versed with the trading market, opt for such type of investment. But on the other hand, there are those who get small benefits with this type of trading. So, investing in a particular trade and exiting it soon after a small change in price to take profits is called scalping.

More about scalping

While there is a trade happening in boursicoter technique to make small profits, Scalping can also be related to selling and buying of a trade for many times in the same day in order to make a small profit. With this type of trading, there is a need for a strict exit strategy so as to keep on with the small gains and avoid any big losses. For this type of strategy, there is also a need for have many trades. This indicates that one is buying at lower price and selling at higher price. This strategy can also be reversed sometimes if the investor prefers to stay active in the market. And these trades are carried out based on the concept of liquidity. If the trade is not liquid, then there is no scalping taken over on it. SO, in scalping, one trades for very small amounts and takes small profits too. Hence, there is no particular time or guidelines that describe on entering and exiting scalping and this is purely one's wish.

So, how does this work? The whole concept of scalping is based on a simple assumption of movement of stock. It believes that every stock will move in a particular direction for a short period from where it's movement becomes very uncertain. This means, every stock has some amount of profit until a particular point and from there onwards; some may move forward or stop their profit. Hence, one who believes in this will try to make as many small profits as he could. Hence, one is aiming at the number of wins rather than the size of win. This means, a successful scalper can easily have many wins while his profits will more or less be at the same level each time. Hence, scalping is the style that gets you profits in a short while of the trade.

Types of scalping:

There are 3 types of scalping which are done based on the price of the price change in the stock.

1. The first type is famously known as "market making", where the scalper posts a bid and offer simultaneously without any huge change in the price. Mostly successful in immobile stocks in large quantity, this type of trade is a bit difficult to get success. It also has a very less profit, but the trader has to keep an eye on both the bid and offer and create a competition in the market price.

2. In the second type, the scalper purchases a big number of shares which are being sold for a very small change in the price. As the trader purchases a huge number of shares, he waits for a small change in the price which is usually very as small as some cents. Hence, to trade in this type of scalping, the stock has to be highly liquid which allows the trader to invest in a big number of shares at a time.

3. This is a traditional way of trading, where the scalper gets some shares at any point and exits the system at the first signal which means this is just 1:1 reward of either profit or loss.

Contributing factors:

1. There cost for transactions like fees and commission to carry the transaction should be minimized which would help to increase the volume,=.

2. As scalping is all about entry and exit at any point for small profits, the computer and its software/hardware should be adequate as any slip at any point will prove to be big enough when you calculate the overall profit. Also because the trader is dealing with big numbers of shares.

3. AS there is repetition of small profits, it is important to have a strategy that is able to give greater volume of trades possible.

4. Like discussed earlier, the most important factor is to have liquidity. This is only possible in a market where there are a huge number of buyers and sellers.

Advantages:

1. As the trader is trading only for a short term, he is avoiding greater risks in bigger markets. With many small profits, his overall profit is sure going to be good.

2. With this type of trading, he can also profit from slow moving markets or even rotational markets. Trading in small markets is sure the best way to make profits.

3. By investing in small markets, one is also avoiding the need of a directional market for a profit as the small changes in price are good enough to make some profits.

Disadvantages:

1. Most of the disadvantages of boursicoter are related to the trader's psychology and his discipline. That being said, scalping is all about making small profits in a short time and avoiding risks. With this type of thought, the trader is also avoiding the lucrative markets where he could get good price changes. With this, he misses the big profits. But it's not that the trader in unaware of this. This fear of losing on big profits might impact his discipline of trading and can even change his psychology which can change his performance.

2. Scalpers often get big amounts of leverage to get big profits. If the trade goes wrong, his liability can increase drastically.

Conclusion:

Scalping is sure one of the best ways for small profits and even the most opted one by many people for the ease of trading from their desk. Scalping can really give profits if the scalper has a good strategy, has a close observation and focus, thinks fast and has proper pairing of shares. Successful scalpers trade during the busy hours of the day when it is more liquid and also target for double spreads for the cases where the market is not going good.


This article was written by Adam Monson for on .

This article published in collaboration with Scutify, the best app for traders and investors. Download the Scutify iOS App, the Scutify Android App or visit Scutify.com.

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