Are you an action junkie? 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 any of those questions, scalp trading might just be a trading style worth checking out. But before you dive in, learn everything you can. This trading strategy is far from stress-free.
Read on to learn the ins and outs of this frenzied, exciting, and often stress-inducing trading style …
Scalp Trading: Defined
Scalp trading (or scalping) is where a trader aims to make a rapid trade with the goal of profiting off of a stock’s small movements.
These trades often last from seconds to minutes, with a profit or loss being in the range of 5-20 cents per share.
With scalping, you’re not trying to catch trend moves. Instead, you’re looking to profit off of the ebb and flow throughout the day as orders from large traders and institutions push stock prices up and down.
Scalping as a trading strategy is polarizing. Some traders seem to be born to scalp, while it would seemingly put others in an early grave if they had to scalp every day.
Read on to examine the pros and cons in sharper detail …
The Pros and Cons of Scalping
Let me start out by first saying this: Scalping definitely isn’t for everyone.
Yes, there can be some benefits to this strategy. But it’s definitely better suited to someone who’s at least somewhat comfortable in a high-paced, intense environment for hours on end.
Not so much your speed? That’s totally OK. Maybe check out swing trading or position trading.
But, if it’s fast-paced action you want, here’s your lowdown on scalping’s upsides and downsides:
Pros for Scalping
- Short time in the market. With scalping, you’re only in the market for seconds to minutes for each trade. This means you may be less likely to take a hit from a stock’s sudden major negative moves. And you don’t have any overnight-holding risk.
- Make lots of trades. If you have a solid strategy, you probably want to make as many trades that fit your criteria as possible. Scalpers can often make anywhere from 10 to hundreds of trades a day. If the trades have a positive edge, that can add up …
- Consistent opportunities. Scalpers can generally find trading opportunities in any market conditions. They don’t rely on big price moves. Instead, they need some order flow to knock prices up and down a little. No matter what’s happening with the stock market or economy, scalpers can usually find some buying and selling opportunities.
- No need for stock price direction. As I mentioned before, a scalper doesn’t need a stock to go from $15 to $20. They simply need a stock to go from $15 to $15.20, if that. After they exit the trade, the stock can even return to $15 — it just doesn’t matter to the scalper.
Cons for Scalping
- Intensive commissions and fees. If you’re gonna scalp, you definitely want to keep an eye on the rates you pay for commissions and fees. Making several trades per day can mean more commissions, more fees, and more costs. And that can ultimately eat into your bottom line.
- Stressful. Scalping is probably the most stressful trading style out there … with so many stocks ticking 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!
- Small risk/reward ratios. Scalpers often risk the same amount that they’re looking to make on a trade — for example, risking 5 cents to make 5 cents per share. That means scalpers need to win on a high percentage of their trades to cover commissions, let alone make an overall profit.
- Need for connection speed and best technology. With scalping, you need to get on board a trade as soon as the trade appears. You need to enter the right order type, at the right price, at the right time. That means you need super fast connection speeds and top-of-the-line equipment and software.
As you can see, scalping can come with some great upsides. But you really have to manage the downsides well.
As for that last point on software, you’re definitely on the right blog. Read on to find out how the StocksToTrade platform can help you streamline your scalping trades …
Take Advantage of StocksToTrade Features When Scalping
If you’re going to scalp, you need an order-entry platform that’s lightning fast. You need a platform that can minimize lag and allow you to quickly get your orders into the market with as few mouse clicks as possible.
You’ll need software that’s designed and battle-tested by real-world traders, not just marketers of software geeks. And StocksToTrade fits the bill.
The StocksToTrade team and I developed the platform to be the exact toolset we always wanted. We built it to help us streamline our trading day. StocksToTrade helps makes analyzing and trading stock easier. That’s exactly what you need if you plan to scalp in and out of 100 stocks per day.
StocksToTrade isn’t just for scalpers, though. We can assist you with your day trading, swing trading, position trading, and even investing needs.
We hope this post helps you better understand the scalping as a trading style.
Some traders absolutely love scalping and 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.
But exactly how do you find what works for you? One key way is through paper trading.
Paper trading is where you go through all the motions of a trade, without risking a dime. It’s a chance to test-drive your strategies and see how they work in the market.
You can absolutely paper trade with a pen and paper, but with the wonders of modern computing, why bother? Make technology your friend — get a trading platform that allows you to paper trade!
StocksToTrade offers top-of-the-line paper trading features that allow you to learn right from the platform. Ao that when you start trading with real capital, you’ll feel right at home. Check it out with a 14-day trial for just $7!
What’s your experience with scalp trading? Share your crazy scalp trading stories with us! Leave a comment below …