Day Trading Scalping: Key Takeaways
- Scalp trading is a fast-paced trading style built on small gains…
- There’s little room for error — but it can be effective if you’re disciplined…
- It doesn’t rely on market conditions for profits, which means it holds up in changing markets…
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Day trading has an even quicker-paced cousin — scalping.
Do you like to be in and out of a stock as quickly as possible? Do you like your trading to move like a fast-paced video game?
If you answer yes to either of those questions, scalp trading might be worth checking out. But before you dive in, learn everything you can. This trading strategy is far from easy.
It’s a heavily technical strategy with more than its share of detractors.
Should you try this approach? That depends. Read on to learn about this frenzied, exciting, and stress-inducing trading style!
Table of Contents
- 1 Day Trading Scalping: What Is Scalp Trading?
- 2 How Does Day Trading Scalping Work?
- 3 Day Trading Scalping vs. Other Day Trading Strategies
- 4 How to Start Scalping
- 5 The Pros and Cons of Scalping
- 6 Take Advantage of StocksToTrade Features When Scalping
- 7 Conclusion
- 8 One Platform. One System. Every Tool
Day Trading Scalping: What Is Scalp Trading?
Scalp trading (or scalping) is a style of rapid day trading. The goal is to profit off of a stock’s small movements.
Trades often last from seconds to minutes. Profits and losses usually range from 5–20 cents per share.
With scalping, you’re not trying to catch trend moves. Instead, you’re looking to profit off of price ebb and flow throughout the day…
Orders from large traders and institutions push stock prices up and down. If you’re quick on the trigger, you can profit off these mini-moves.
Scalping as a trading strategy is polarizing. Some traders seem to be born to scalp. Others would go to an early grave if they had to scalp every day.
You don’t have to figure out which kind of trader you are right now. Read on to learn more about this niche trading style…
It could become a tool in your arsenal. At the very least, learning about scalping will help you understand the traders you’re up against. That’s how you get to understand the market.
What Is the Little Win Objective?
Greed is one of the big enemies of traders. It’s the feeling that tells you that stocks can only go up. It makes you feel like you’d be a fool to sell with small gains.
The antidote to that is a realistic goal for your trades. But ‘realistic’ changes with the time frame.
Let’s look at scalping vs. swing trading.
A 1-minute scalping strategy might have a goal of a 1% increase. A 1-month swing trade might be looking at a 10% increase or more.
Both could be realistic, depending on market conditions. But it’s important to stick to your goal. The success of either strategy depends on how much you commit to it.
How Does Day Trading Scalping Work?
You know how I warn against charts when they get too choppy? Scalpers actually like that!
A popular day trading scalping strategy is to identify a narrow range and trade within it.
Normally, traders look for evidence of a trend. They can combine this chart-based technical analysis with other factors. These factors include news, earnings reports, and hot sectors…
What if you’re a true degenerate trader and you don’t want to wait for these signals?
Scalping might be for you. Some traders use day trading scalping techniques to supposedly good effect…
It’s not a strategy I’d advise. It breaks one of the cardinal rules of the trading plans we build on the SteadyTrade Team…
The risk/reward for scalping is often 1:1. In our trading plans, we look for a risk/reward that’s more like 3:1. So there’s almost no margin for error.
That’s why scalpers have to be highly disciplined. Even if you have a high win percentage on 1% trades, a loss of 10% can wipe out your profits!
This isn’t an ideal strategy for beginners because of that. All the same, it can be useful. Here’s how scalping works with other day trading examples.
Day Trading Scalping vs. Other Day Trading Strategies
Day trading vs. scalping strategies: same-same but different?
That’s it in a nutshell. Scalping strategies are different in terms of risk, planning, and trade signals…
But they still have these elements in some form. Every good trade should.
What’s an acceptable scalping risk? It may be smaller than a day trading risk. The ratio might look different too…
It still has to add up to less than your trading goals. That’s the way to identify a successful strategy.
Your trading plan might look different as well.
SteadyTrade Team members get worksheets that help them identify good trades. These worksheets help traders identify key signals like:
- Price action
- And more
Traders rate the quality of the catalyst, the float, and support. Longer-term traders judge a potential trade by these criteria.
Scalpers don’t need to see all of these signals to build a good trading plan…
A day trading scalping strategy with high leverage needs good liquidity. That makes it so traders can enter and exit trades quickly…
This strategy doesn’t even need much volatility. A few cents of movement can add up when you’re trading thousands of shares.
Another scalping strategy looks for range-bound stocks. Scalpers try to identify clear support and resistance…
They can ride these micro-trends to profits.
What all of these strategies require is exceptional discipline. If you can make 20 successful trades for a $30 average each, that’s a decent trading day.
But if you stay in positions when they go against you, it can wipe out all your hard-earned profits.
How to Start Scalping
There’s no substitute for experience — unless you’ve been listening to my disclaimers. I won’t stand in the way if you’re set on scalping.
What I will do is give you a clear picture of what you need to succeed.
You might be able to identify quick price moves. But can you trade them when there are thousands of dollars on the line? Can you do it over and over again, every day?
How about cutting your losses with impeccable discipline? When you’re talking about a few pennies, it’s easy to talk yourself into breaking your trading plan…
But that’s no good if you’re building an effective scalping strategy.
Here’s your day trading scalping crash course. To get started, make sure you have the following…
Direct Market Access
I don’t imagine many traders still call brokers and wait for them to make their trades. If they are, scalping is DEFINITELY not for them.
Scalping requires quick executions. If you wait too long on a small price move that doesn’t fit into a trend, you can miss out.
This is why scalp traders need direct market access. With a capable trading platform like StocksToTrade, scalpers can see second-to-second price movements…
Then pull the trigger when their trading goals are met.
No Commissions or Heavy Volume Discounts
Fees always matter. They matter a lot more if your trading goals are small.
A $6.95 fee on an OTC trade is easier to swallow when you’re in a position for hours or days. When that $6.95 gets multiplied, it can add up quickly.
Advanced Charting Tools
Snipers use telescopic scopes to identify their targets.
Traders need to use precise charting tools. Scalpers look for tiny price fluctuations. A good charting tool is their eyes.
Advanced scalp traders also look at Level 2 quotes. These are the orders that are waiting for fills…
A good Level 2 reader shows these quotes clearly. This helps traders stay ahead of price movements. They can also see the supply and demand that makes them happen.
The Level 2 order book is a ranked list of the best bid and ask prices from each market maker. It also shows the number of shares. This is a key to seeing price pressure, as well as price points with many standing orders…
These ‘walls’ of buyers and sellers often stop price movement in its tracks.
Endurance and Quick-Thinking
We’ve covered the technical side. But those are the easy considerations.
The mental side of scalping is the hard part. Everyone likes to think they qualify…
You haven’t really tested your scalping stamina until you’re 20 trades into the day. Maybe that’s the point you get greedy and break with your trading plan…
Or maybe you get bored and distracted. That’s fine, but scalping won’t work for you.
It demands laser focus on every one of your trades and a razor-thin margin for error.
Not everyone can keep this up day in and out. The sooner you figure this out, the better you’ll be for it.
The Pros and Cons of Scalping
Scalping isn’t for everyone.
Yes, there can be benefits to this strategy. But it’s better suited to someone comfortable in a high-paced, intense environment for hours on end.
Not so much your speed? That’s OK. Check out swing trading or position trading…
Your reflexes are the first thing to consider. Read on for the rest.
Pros for Scalping
If you read enough day trading scalping Reddit threads, you might think that scalping is a slam dunk.
It isn’t. But it does have certain advantages…
With scalping, you’re only in the market for seconds to minutes on each trade. So you may be less likely to take a hit from big downward moves over the course of the day. And you don’t have any overnight-holding risk.
If you want to be successful at scalping, this lessened risk has to become a way of life
When a trade hits the small gain written into your trading plan, you have to eject. If the trade goes against you? You need to be out just as fast.
Normal trading strategies are directional.
When a stock you’re long in goes up, you profit — when it goes down, you lose.
Your success depends on reading the market correctly. You don’t need to be a fortune teller. But you have to be right more often than you’re wrong.
Scalpers can find trading opportunities in any market conditions. They’re not relying on big price moves.
They’re relying on a certain amount of volatility. All they need is a decent order flow.
Easy to Automate
Are you a tech geek? Scalping’s automation possibilities are a bonus for some traders…
Scalp trading doesn’t require knowledge of the market. A successful scalp won’t depend on how solid a catalyst is … or how traders react to it.
Successful scalps rely on expert charting. And computers are as good at charting as you tell them to be!
Creating a successful algo isn’t easy. If it were, we’d all be trading from our private islands by now. But for the right kind of trader, it can work.
Just make sure you backtest your algorithms thoroughly. You’ll need to keep backtesting for as long as you use this strategy. Market conditions can change in an instant.
Cons for Scalping
No illusions here — scalping is a tough way to make a buck.
Scalping trading plans usually have a 1:1 risk/reward…
So you have to be pretty close to perfect to come out on top. If you’re using high leverage, this tightrope gets harder to walk…
These are some of the problems that can wreck your account.
It Can Be Tedious
There are few better feelings than nailing a trade…
But what if your trade has no idea behind it? Scalping isn’t you versus traders or your own greed and fear…
It’s you against the chart. Better not yawn — you’ll miss your exit.
It May Be Stressful
How can something be boring AND stressful? I don’t know, but scalping manages it.
Scalping is probably the most stressful trading style out there. Stocks tick up and down constantly…
Scalpers have to make rapid-fire decisions over and over throughout the day. If you have high blood pressure, scalping probably isn’t what you’re looking for.
It May Require a Higher Transaction Cost
If you’re gonna scalp, you want to keep an eye on commissions and fees.
Most brokers have radically scaled back commissions. The drawback is that this has made traders sloppy.
If you don’t factor commissions into your scalping trading plans, you’re sunk.
What if you like to short? Due to borrow fees, scalping is probably off limits.
Making several trades per day can mean more commissions, more fees, and more costs. And that can ultimately eat into your bottom line.
That doesn’t even include the higher startup cost. To effectively scalp, you’ll need a margin account over the PDT. That means $25,000 just to get started.
Take Advantage of StocksToTrade Features When Scalping
If you’re going to scalp, you need a trading platform that’s lightning fast. Your charts have to be accurate to the second. Your orders need to execute in as few mouse clicks as possible.
You’ll need software that’s designed and battle-tested by traders, not just marketers and software geeks. StocksToTrade fits the bill.
The StocksToTrade team developed the platform to be the exact toolset we always wanted. It helps make analyzing and trading stocks easier.
That’s exactly what you need if you plan to scalp in and out of trades all day!
StocksToTrade isn’t just for scalpers. It works for all kinds of traders. It has tons of features, including:
- Detailed, accurate charts
- Tailored alert add-ons
- Trader-designed stock screeners
- Wide-ranging news scanner
It’s too much to write about in this post … so check it out for yourself! Grab your 14-day trial for just $7 today!
I hope this post helps you better understand scalping…
This isn’t a bad strategy. It’s not the greatest one either.
It’s another tool in your toolkit. You can even combine it with other day trading strategies. Some traders find it a useful change of pace to adapt to new market conditions…
As for scalping as a primary strategy, it all depends on YOU.
Some traders love scalping. They start feeling anxious when they’re in a trade for longer than an hour.
Other traders just don’t want the stress that can come with the ultra-fast pace of scalping.
You have to find what works for you. You’ll be a better trader for it.
What’s your experience with day trading scalping? We get better when we work together — leave a comment below!
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