Scalping trading is a strategy employed to make small profits by buying and selling securities multiple times within a short time frame. It is considered to be an aggressive strategy as it involves quick decision-making.
The idea behind scalping is to benefit from the tiny price changes in the market throughout the day. These changes may seem insignificant to an investor. However, for a scalper, even a small change can result in a profitable trade. A scalper looks to exploit such tiny changes by buying and selling securities multiple times during the day.
The strategy requires the trader to have a deep understanding of the market as it involves making split-second decisions. Scalpers usually conduct technical analyses of securities to know the right points to enter or exit a trade. This helps reduce the risk of loss. Scalpers require a high level of concentration and discipline as even a small mistake can lead to losses.
Scalping trading is done by opening and closing multiple positions within a day. The trader looks to benefit from small changes in the security price.
Traders open their position by buying securities at a low price and selling them as soon as the price rises, even minimally. This is repeated multiple times during the day. But, the scalper closes all positions before the end of the day to avoid any overnight risk.
Here, the trader looks to make small profits from each trade which cumulatively add up to a significant amount at the end of the day. The main aim of scalping is to make such small profits regularly rather than waiting for a big opportunity that may or may not materialise.
Let us understand this with the help of an example. For instance, assume that the price of a stock is Rs.100 at the start of the day. The scalper buys 100 shares at Rs.100 each. He sees that the price has gone up to Rs.101 after a few minutes. Right then, the scalper sells the shares, making a profit of Rs.100 (1 rupee x 100 shares). Assume that the stock price then falls to Rs 99. The scalper again buys the stock at this lower price and sells it when it rises. This process is repeated multiple times during the day. At the end of the day, the scalper makes a good profit by scalping stocks even though the stock price does not move much.
Thus, we see that scalping is a strategy that can be employed even when the markets are not very volatile, and there are slight changes in the security price.
You can employ the scalping strategy by following the steps given below:
The key premises of scalping in the stock market are as follows:
The three key principles of the scalping strategy are:
Let us see how scalping in the stock market is different from intraday trading.
The difference between scalping and trading is as follows:
Thus, we can see that scalping and intraday trading are two different strategies that aim to make profits from the stock market. While scalpers look for small changes in the price of the security, intraday traders take advantage of the larger fluctuations.
The scalping trading strategy requires a high level of discipline, focus, and knowledge. Thus, it is not suitable for everyone. If you are patient and can sit in front of the screen for long hours, can make quick decisions, are comfortable with taking risks, and have a deep understanding of the market, scalping trading may be suitable for you.
Scalping trading is a strategy that requires the trader to take many trades during the day and hold each position for a very short time. Scalpers make profits by making quick buy and sell decisions every time there is a minor price fluctuation. This strategy is suitable for those comfortable with taking risks and have the time to sit in front of the screen for long hours. While scalping can be profitable, it is a risky strategy and not suitable for everyone.
Ans: Scalping trading is a strategy that involves taking many trades during the day and holding each position for a very short time. The aim is to make small profits from each trade, cumulatively adding up to a significant amount.
Ans: Scalpers make many trades during the day, while intraday traders make fewer trades. Scalpers hold each position for a very short time, while intraday traders hold their positions for several hours or even overnight. Scalping is a more risky strategy as compared to intraday.
Ans: Scalping requires a high level of discipline, focus, and knowledge. Thus, it is suitable for people who are comfortable taking risks and have the time to sit in front of the screen for long hours.
Ans: The main risk associated with scalping is that even a small mistake can result in substantial losses. Thus, it is important to deeply understand the market before attempting this strategy.
Ans: The main benefit of scalping is that it can be profitable even when there are small fluctuations in the market and works during bullish as well as bearish trends. Scalpers aim to make small profits from each trade that cumulatively add up to a significant amount.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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