All you need to know about Scalping trading strategy

Scalping trading strategy

Someone has very rightly quote that low risk, less you will earn, and higher the risk, higher you will be awarded. This approach is very much relatable to trading techniques used in the stock markets. There are a number of trading techniques and strategies used by the traders trading on the stock exchange. 


Scalping trading strategy is also one of the techniques that are widely preferred by the low-profit targeters. Seeking a low profit means taking a small chunk of risk. But a low-risk game is not always a game for beginners but it requires extreme knowledge and experience. Scalping trading is simply few minutes game that requires the right entry and exit for gaining profits.


Apart from the Scalping trading strategy, we will instigate the difference between scalping vs swing trading by revealing the key variations between the two. 


Scalping trading strategy


This is a very short-term trading technique that makes a trader sell off its trade at a small profit. Scalping traders aim at diversifying or elevating the profits by entering into multiple short tenure trades. Unlike the day trading that allows us to hold the stocks for the entire trading session, Scalping trading limits the time range as a scalp trader generally escapes from the trade within 1-5 minutes.  


They all believe in quickly grabbing the chance that comes their way, even if the opportunity is quite small. Also, the volatile market can switch the profit to loss but they don't have to wait for the profit chance. Example: A scalping trader bought 1000 units of stock and aiming to sell the positions within 5 minutes, at the beginning he was gaining but waiting for a few moves may trap him into a loss. So, entering into this fast trading technique one should grab the foremost opportunity and book the profits.


A trader using a scalping strategy is called a scalper trader and the scalpers involve in this technique can very smartly make out profits. As profits are not made by them through trading margins but the volumes of trades performed by them turn their profitability. The reason being they can make hundreds of trades during the session.


Factors that make the Scalping trading strategy successful



1. High volatility: Volatility showcase how fast the price of stocks listed on the exchange is changing. Generally, high volatile market is preferable for scalping trading as traders will be able to catch up with the hiking rate when the prices are moving at a faster pace. 

It is widely experienced by the traders that the stock market is quite volatile during the beginning and closing sessions. So, it would be an ideal time for the scalpers to do the trading activity.



2. Done for a few seconds or minutes: One is likely to face less risk if exit from the trade as early as possible. Since scalping trading is performed in highly volatile market conditions so, it can be possible that a few seconds back you were making a profit but now you are under loss. All in all the right approach is to exit at the foremost opportunity without waiting much.



3. Based on technical analysis: Technical analysis allows the traders to use the previous trends to predict the movement of the stocks. Some of the common strategies implemented by the users of the scalping technique are using RSI( relative strength index), studying the moving averages, and SAR (stop & reverse analysis). All these techniques are helpful at developing a viewpoint about the different types of financial instruments.



Scalping vs swing trading


Not every trading technique is for everyone, the difference arises because of the difference in time & investment, risk-taking potential, and variation in the objectives of different individuals. Today, we will make a comparison between the two popular trading techniques (scalping vs swing trading )that are widely used by traders trading in exchange.

Following are the factors that help us to differentiate between scalping and swing trading strategy:



1. Time: Reading the above points about scalping trading strategy it should be immensely cleared that it is done for a few seconds or minutes that allows the traders to earn a limited profit. 

On the other hand, swing trading makes the users hold the stocks for a few days or weeks as per their desired profitability levels. Also, swing trading would be more adaptable to the individuals who are unable to devote much time for trading while individuals who can commit few hours regularly make scalping strategy quite convenient to them.




2. Risk: Risk is uncertain in every kind of trading technique but the degree of risk may vary with the type of strategy used. Talking about Scalping, the risk level is low to moderate since the trader will exit the positions within a small time range but holding for a few days or weeks would be riskier since it is extremely difficult to make a judgment about the stocks or economic conditions in the future. Hence, swing trading is high in risk factors if compared with scalping.




3.Investment: Investment is the money that you put on a stake for quenching the thirst for return. But, you should be known of the fact that none of the techniques guarantees you 100% returns rather you may end up making losses. Going with a scalping strategy the investment should be high since the profits are made on the volumes not on the share's earning. While in swing trading investment is totally based on one's targets to be attained in form of desired profits.



Take Away

From the article above we gained detailed knowledge about Scalping trading strategy and further we introduce you to the key factors that make the Scalping trading strategy successful. Apart from this, we derive insight into a comparison between scalping vs swing trading that leads us to the key variations between the two types of stock trading techniques.