Scalping is probably one of the trading techniques that has scarcely any risk involved. A large number of individuals venture out seeking a scintillating trading career even with as little knowledge as there can be about the techniques of trading. And, it is common to have misconceptions and be not aware of all the methods of trading. So, here is a technique which might suit you and help you secure your profit prospects.
What is Scalping?
Scalping is a day trading technique targeting the minor changes in the stock price movements to stack the profits. The logic is simply that smaller price actions are easier to catch than to sit, wait, and predict the next big change.
Scalpers perform many trades in a day and the numbers can stretch even to 100 or more in no specific pattern. The trades can be extremely short - sometimes ends in seconds. It doesn’t necessarily mean that you have to exit a trade in a minute as there are situations where you might have to hold on to your position for more than an hour.
Since the price movements are small, the trades have to be in large volumes to reap the benefits. This is also the reason for performing a large number of trades as the return from one trade can be petite. With a number of small profits, the total returns can be substantial. You don’t have to stick to buy-sell; you can go all out with short selling too.
Scalping requires you to be nimble. To perform orders rapidly and to manage your entries and exits continuously, you need a deft, fastidious, and analytic mind. Getting too emotional and holding onto a trade increases the risk, as scalping works in an assumption that the prices follow the trend up to a certain point after which it becomes unpredictable. And accumulating such risks can be fatal as a considerable loss can swallow the profits of many trades.
Now, let's not jump to the conclusion that you can never lose in scalping. Scalpers work to make more profitable trades or at least equal to the number of losing trades. The timing is extremely crucial as the price action won’t pause to rekindle your contemplation. Exiting the profitable trade at the right time, and getting off a losing trade without incurring hefty is the only way to collect the profits at the end of the day.
Highlights of Scalping
1. Low Risk - Since you play with the stocks only for a brief time, drastic and adverse tolls are eliminated.
2. Easy & Frequent - Small movements are easy-to-the-eye, and so you have innumerable opportunities with every stock. Even if you miss a trade, another one comes to you right off the bat.
Seeing through the charts for ups and downs of the market can be hard for a novice trader, but every industry has those welcoming hiccups. Scalping requires at least a few hours of a day spent scrutinizing the live chart updates, but a beginner has to spend more than that to steepen his/her learning curve and to become successful.