There are many different trading styles, but what exactly is scaling? If you thought day trading was the fastest type of trading? Girl, you’ve never met scalping!
Scalping is a trendy trading style among those who trade for a living. It consists of profiting over numerous small trades throughout the open market period in a day.
Scalpers need to be aware of the fluctuations in the market. Different from day and swing traders’, scalpers’ profits come from the small moves in the stock prices rather than from more significant moves.
If you’re interested in entering the world of scalping, you need to make it your only job. Dedicate as much time as you would dedicate to any other full-time job.
Some jobs require a college degree and experience, right? This one is almost the same! Make sure to study and train first.
Technical Analysis as a Scalper
Scalpers base their trades in technical analysis. This means that, for you to become a scalper, you usually need to learn about the charts and use them and other data analysis tools to find security’s past price movements.
The opposite of technical analysis is fundamental analysis. The fundamental analysis isn’t that relevant for the scalper. It involves studying the financial statements of the chosen company, the discounted cash flow, and more information about the company’s intrinsic value. This type of analysis is more relevant if you are investing in the long-term.
Traders only use the historical price information to predict some variations in the stock price, and they do it with the help of the charts.
Imagine the fundamental analysis as the research to know if a person is right for you to marry. Usually, we spend months and even years to make sure the guy is the one: we meet their family, live with them for a while, discuss future plans… This is a long-term investment.
The technical analysis for scalpers in trading is like looking for a guy in a party to hook up for just one night. You don’t check their background. This is just a short-term transaction.
System Trader X Discretionary Trader
As I said before, scalpers tend to use technical analysis, but within it, they can choose to be system traders or discretionary traders.
If you choose to have a system for your scalping and follow it regardless of the market fluctuations, you are a system trader who does rule-based trading. If you see the chart and get to the conclusion that the trading system requirements for a short trade are met, this trade will happen.
The discretionary traders make decision-making trading, which means their trades are decided accordingly to the information available at the time. To be a discretionary trader is not that easy, though, as it’s still recommended to have a trading plan. The main difference from system trading is that the decisions also have a massive role in choosing the trades.
Scalpers use first the market’s prices to make decisions, but some also prefer to rely on technical indicators – chart patterns, moving averages, channel bands, etc.
Scalping trade timeframe
The shortest of all trades, scalping usually uses 5-second charts, making from 20 to 100 or more trades per day, unlike day traders, who tend to use 5-minute charts and make 4-5 trades per day.
Scalping trades are generally active for a few seconds or for a few minutes maximum. This is why scalping is the perfect type of trading for those who are not working or who don’t have big things happening in their lives – it takes up a lot of time.
Popular Scalping Method for traders
Using the market’s time and sales or, as it was known, “tape reading” is the most well-known scalping method. However, some traders rely on similar techniques used in day trading, such as the reading of candlestick and bar charts, price patterns, technical indicator signals, and support and resistance.
Do you already know the type of trader you are? As I’ve discussed before in other articles, the trader’s personality is like those teenager personalities we see in movies (and often in the real world) – there is the nerd, the innocent one, the party girl, etc.
Psychology is also vital in all trading styles. Make sure you’re in the right headspace with these trading psychology guides:
- 4 Common Mindset Mistakes Beginner Traders Make
- Why most Traders can Make £1k, But Not Make £100k
- Dieting Like Trading – Why Many Traders Fail!
If you’re willing to enter the scalping world, you can choose to be a system scalper if you know you can be very disciplined. In this type of trading, you must follow your system no matter what.
However, if you know that your gut feeling is accurate and that you can make decisions fast, you can try the discretionary scalping. Even though scalpers need to make decisions without hesitation, they need to be flexible enough to realise when a trade is not working as expected.
Make profit as a scalper
If you can’t wait days to trade and know the results of your trading, maybe scalping is suitable for you – give it a try.
Study technical analysis, plan your system and use a trading simulator before you’re scalping. When you see a consistent profit, and when you don’t make any more mistakes, try the real deal!