Scalping: The Fastest Way to Profits!
More specifically, scalping is the purchasing or selling of a security and then immediately buying it back or selling it back to the market for a quick profit. Scalping is also known as high volume trading because of the technique it employs, which is that of getting in and out of the market quickly, and doing this multiple times throughout the trading day. If you do decide to try scalping as a trading method, it is important to have a well funded account along with a lightning fast computer and broadband internet connection at least. The reason you will want a well funded account is because scalpers, in the true sense of the word, will make anywhere's from 5 to 100 trades in a day, and your account has to have the buying power to make that many trades. You will also want the best computer you can get as well as the fastest internet connection, because many scalpers will go for just a few ticks before closing the trade, so your entry price is crucial; it can be the difference between profits and losses.
Scalping, in my opinion is a great trading technique, no matter what you're trading. Although this is a relatively new trading technique, there are many pro's that come with it. For starters, scalp trading implies much less overall exposure to the market and its swings. This is because of the speed at which you execute the trades, giving you less overall risk to your account, compared to holding a position for a long time and having to deal with the ups and downs of the market as well as your account balance. Smaller moves in price also occur more often and they are easier to obtain, instead of waiting for longer price movements to occur in the market. Many traders use larger volume when scalping because they are going for such small fluctuations in price, and these profits can add up depending on how many trades they make. Other positives that come with scalping include:
- Helping traders keep focused more on the market, because they have to pay close attention to price movements.
- Having the flexibility to trade nearly any market in the world, as well as any kind of market, from trending to sideways.
Although scalping can be a great trading style, it does have its negatives as well. Liquidity for one thing is extremely important; if you try to scalp a market with low liquidity then you risk the possibility of getting bad fills on your position due to the low volume in the market. So, if you wish to scalp, you will need to trade only the markets with the most liquidity (many traders involved), like:
- Index futures such as: the Dax, DJ Eurostoxx 50, E-mini S&P; commodity futures like Crude Oil, Gold; currency futures like the Euro, as well as the forex market.
Another aspect to consider about scalping is the more trades you take the more you will pay in commissions. These commissions add up and take away from your profits big time! Also, depending on the success rate of your scalping technique, you can easily destroy your account by taking many small losses without enough winning trades to counter balance it. And unfortunately scalping is not meant for undisciplined traders, scalpers have to follow strict rules and follow them at all times, if this doesn't sound like something you could do, I would highly suggest just looking into the many other ways of successfully trading.
Although scalping is a specific style or technique of trading, there are also many different techniques/types of scalping. Here are just a few ways of scalping the markets:
- Systematic: Scalping with the use of automated systems (also known as expert advisors).Many scalping techniques are performed by unique computer algorithms that can place multiple trades in a matter of seconds. The positive side of having a computer trade for you is there are no emotions involved, but this is a double-edged sword because at times a humans can react to price movement before a computer would, at times resulting in less losses.
- Discretionary: This is where a trader makes decisions in real-time; yes there are more emotions involved, but a truly disciplined trader will follow their rules, especially when applying a scalping technique. Discretionary traders can also use a number of tools to help them trade, a few of my favorite are:
- The Time & Sales window- also known as - TAPE
- Technical analysis- analyzing price movements and volume.
- Spread scalping- many traders scalp the spread, or the difference in price between the Bid/Ask. The way this is done is they buy the Bid and sell at the ask price to profit from the difference, this process can be performed within a matter of seconds, depending on the technique
Source : sooperarticles
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