Stock scalping is a trading strategy that involves buying and selling stocks quickly, often within seconds or minutes, in an attempt to profit from small price fluctuations. Scalpers take advantage of short-term market patterns by making many trades throughout the day, sometimes dozens or hundreds.
Because it's so fast-paced, scalping trading requires a speedy and reliable trading system, including a powerful computer and reliable internet connection to minimize any lag between trades.
This article will explain all things scalping: meaning, strategies, pros, cons, and risks.
Scalp trading's defining feature is its small-win focus. Rather than searching for a few large movements throughout the day, scalp traders exploit the frequent, inevitable small movements for a given stock. These small movements are more frequent, less risky, and easier to capture.
Scalping is ideal for traders with a low-risk tolerance and high endurance; many risk-averse traders perk up when learning the scalping vs day trading comparison.
Scalping takes advantage of the day's numerous small price fluctuations. Rather than waiting for a few large movements, this method works little by little, profiting with each low-risk low-reward trade.
Day traders make a few trades per day compared to the hundreds that scalp traders may perform. They also use different analytical tools to set up trades. Learning day trading for beginners displays how one trade can span a few hours rather than a few seconds.
In other words, both scalping and day trading typically occur within the same day, but day traders execute a lower number of trades per day compared to scalpers.
The following characteristics make for suitable scalping stocks:
You've probably seen claims that someone found the best scalping strategy that trumps all others. In reality, different strategies have different results for different types of traders. The only way to find your best method is by testing them out live. For example, pro-risk traders might prefer futures and options scalping whereas others enjoy trading regular stocks at the 1:1 risk-reward ratio.
Here are some of the best scalping strategies to try out:
This scalping trading strategy involves using short-term and long-term moving averages to determine buy and sell signals. When the short-term moving average crosses above the long-term moving average, it's a potential buy signal, and when the short-term moving average crosses below the long-term moving average, it's a potential sell signal.
Scalpers using this scalp trading strategy buy near support levels and sell near resistance levels to mitigate losses when capturing short-term price movements.
This scalping trading strategy involves identifying stocks that are trading within a narrow range, and waiting for a breakout to occur. Once the stock price breaks out of the range, the scalper will enter a trade with a stop-loss order to limit potential losses and a profit target based on the size of the breakout.
Momentum scalping is exactly what it sounds like: capitalizing on strong, rapid price movements and taking advantage of existing momentum. Using indicators like the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), scalpers will look for stocks exhibiting high trading volumes and significant price movements and enter trades in the same direction as the trend.
Tick scalping, a perfect representation of stock scalping, involves quickly entering and exiting trades based on small price movements known as ticks. Also known as tick chart scalping, this strategy uses hourly and second charts to get the closest possible look at each tick.
This strategy requires a strong ability to interpret charts and access to fast and reliable trading technology.
It's easy to overgeneralize scalping as a low-risk, monotonous strategy, but don't be so quick to judge:
Now that you understand what scalping is, here are a few pros and cons to better decide if scalping is for you and what the best scalping strategy might be for your personality.
Scalping can be incredibly profitable and enjoyable for the right people:
1. - Scalpers can profit from price movements that don't have to reflect daily averages.
2. - Scalping is non-directional. You can take advantage of the ups and downs.
3. - Many scalping strategies can be automated based on strict technical criteria.
4. - Scalper traders don't need to wait around for big movements.
You can see that scalpers aren't restricted by factors that may affect other trading strategies.
Scalp trading isn't all profits and click-through automation, though.
1. - Some traders don't have the patience to make hundreds of small trades every day.
2. - One loss can counteract dozens of wins.
3. - Slippage can quickly foil a good trade.
4. - The transaction costs on so many trades can cut into profits.
Every trader is different, and some traders may be able to minimize these disadvantages to make scalping more engaging.
Beginner scalper traders should familiarize themselves with chart-reading and analysis skills, becoming experts in spotting buy and sell signals. Whether scalping, trading options, or swing trading, every trader should know how to use the basic indicators like:
MACD - indicates bullish or bearish momentum and confirms the strength of price trends
RSI - indicates oversold or undersold conditions to suggest how quickly an asset will move
Moving averages - display levels of support and resistance to predict directional changes
Stochastic oscillator - compares a security's closing price to its price range over a specific period. It helps identify overbought and oversold levels and potential trend reversals
eToro - Popular for Forex and scalp trading, eToro has a wide range of capabilities. The platform offers commission-free stock and ETF scalping, allows leverage, and supports cryptocurrencies and commodities
CenterPoint Securities - Known for speedy and efficient transactions, CenterPoint provides direct access to markets and a small commission of $0.003 per share traded
Moving averages - display levels of support and resistance to predict directional changes
Tradestation - Tradestation provides direct access to markets and numerous advanced trading tools.
You'll likely learn how to scalp trade and pinpoint the best scalping strategy for you on a broker's platform, so choosing one with low costs and various capabilities is important.
Your scalp trading setup should enhance your knowledge and capabilities, not hold you back. Having a setup with high processing power and multiple monitors allows traders to monitor multiple stocks and indicators at once, boosting efficiency and analytical faculty.
Trading laptops offer portability and speed, ideal for those who travel frequently and need to trade in multiple locations. On the contrary, desktops allow for multi-screen setups and customization, providing more options to a scalper trader. Check out our Falcon Trading Computer reviews to see what real traders think of our computers.
The P-32 Desktop is the perfect balance between cost and high-speed performance. Its high-speed processor facilitates the simultaneous use of multiple charts, indicators, and trading software, among other things. Built by traders and engineers with traders in mind, this computer stays cool and maintains speed after days of straight use. It strengthens scalp trading strategies by ensuring top-speed and multi-tasking abilities.
You'll struggle to find a trading computer with higher performance and more capabilities than the F-37GT Desktop. Used by renowned traders like Daniel J. Zanger, this desktop contains cutting-edge cooling systems, motherboards, and capacitors. The RAM on this starts at 16GB DDR4, and its CPU speeds reach 5.3GHz. Don't sabotage your scalp trades by using anything else!
With a 15.6-inch monitor and an Intel Core-i9 13900H, the Falcon F-10 trading laptop is unmatched in terms of portability and capabilities. Upgrade your setup with external screens to get the benefit of a multi-screen setup at home and a high-speed processor on the go. This trading laptop will prove beneficial to any scalping strategy, especially for traders not bound to an office.
Up your visibility with the 17-inch screened FALCON F-15. This beast of a laptop has an HDMI, Ethernet, Thunderbolt 4, USB-C, headset, and a mic jack, among other ports. Whether you trade Forex, options, or stick to scalp trading, this machine will up your trading game to the next level.
Finally, the Falcon F-30 trading laptop has a whopping 17.3-inch screen size for traders who can't sacrifice size or portability. With a dazzling metal shell, numerous connectivity options, and a desktop-Class performance Intel Core i9 HX processor, there's not much left to ask for. Upgrade your scalp trading powers and trade with the best equipment on the market.
To recap on the scalping meaning: scalping is a trading strategy that involves capitalizing on small price fluctuations by making quick trades repeatedly throughout the day. Scalpers can implement popular trading strategies like Bollinger Bands or MACD indicators. They can also implement similar tactics to scalp crypto or Forex.
In the fast-paced world of scalping, having the right tools is crucial. Falcon Trading Computers provide the best bang for buck, allowing traders to unleash their full potential with powerful computers. Don't settle for subpar. Invest in a Falcon computer today and navigate the fast-paced trading world with confidence and top-tier equipment.