What is scalping in trading? This is a common question asked by beginner traders so I hope I can help you out with an understanding….Scalping is a very specific style of trading. In order to understand what it is, you need to know how it contrasts with the other styles… Let me explain!
What is Scalping in Trading? – Background
So just to give some background, there are many different types of traders, and what distinguishes you as a trader, from an investor to begin with, is that you hold positions for shorter periods of time and selling them on quickly. Within the sphere of trading, however, there are different styles again – and some of these styles can be categorised based on how long the position is held open as with trading versus investing. There are ‘swing’ traders who typically hold positions overnight or for a few days, and there are day traders who are in and out of trades within the same day. Then there are scalpers…
So what is Scalping in Trading?
A scalper trader jumps in and out of the markets many times over, within the space of just minutes. They execute many trades over the course of a day, accumulating profits slowly in small increments. I hope you are starting to understand the answer to the question, what is scalping in trading.
Positions are typically held for a few seconds to a few minutes. Traders who trade in this way, tend to focus on markets with high liquidity, so that they can enter and exit position easily. (If there are many buyers and sellers it helps them get in and out multiple times). They trade the smaller timeframe charts.
What scalping strategies are available?
There are many scalping strategies available to follow and many higher time frame strategies can be used on the smaller timeframes too. You can find a lot of traders on YouTube sharing their scalping strategies with you. My advice would be to test one with very small risks at first (risk only, say, £1 per trade) until you know it works, as there are many traders on YouTube who are misinforming people.
Is Scalping better than Swing trading?
This is a very difficult question to answer, because it depends on what you need and want from your trading. You may say, well, just money! However, the other details can be important for some traders. For example, I am a female trader, and the aim of this blog is especially to encourage other women to have the confidence and knowledge on how to trade the stock market. If a woman has small children, it may not be a suitable strategy for her to employ, as she will have many distractions and scalping may require high levels of concentration over a period of time. Unless of course she has childcare or periods where the kids are with Granny, hubby etc. This is in contrast to swing trading, where the trader can probably set a stop loss and target, and walk away for several hours or days.
Some traders are also more comfortable with deciding slowly and carefully, what the plan is, and executing it – and placing orders to safeguard it, whereas other traders may prefer to make decisions quickly in the moment! For some traders, the speed at which you need to make decisions as a scalper, will terrify them. It probably depends heavily on your preference for handling other things in life – do you like working under extreme pressure, or do you like to go carefully and slowly, and take your time? Only you can answer this.
What types of indicators are common in a scalping strategy?
Scalping traders commonly use indicators like the moving averages, the RSI, the MACD, and bolinger bands as indicators on where to get in and out of the markets. I personally use the MACD indicator a lot, and I know it can be used on the smaller timeframes, but it must be applied with discipline when the ‘direction’ of the market, is clear. I am not a scalper, however.
If you would like to understand more about the MACD indicator and some of the other ones I’ve mentioned, you can refer to the technical indicators section of this blog:
Technical indicators – Trader Pro – Learn how to Trade the Stock Market
I hope you found this article helpful in understanding the answer to the question, what is scalping in trading.
Disclaimer!
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