A Look at the Different Styles of Scalping

As a form of intraday trading, scalp trading requires daily set-ups. Scalp trading relies on trends that might only last for one minute of any particular trading day. The strategy calls for constant trading, with many trades occurring with every tick of movement. What is scalping? It’s a trading strategy designed to take profits on incremental price changes. New traders who implement this strategy are banking on the notion that locking in many small trades will ultimately be more profitable than larger position trades. Here are a few scalp trading strategies: 

Momentum Scalping

Recommended for, at most, 20% of your trades, momentum scalping looks to capitalize on existing movement. These are risk-less trades that go in the direction of the tape, these are trades that should be made after securing a small profit of no more than .05 cents. Traders can manage their risk by getting out flat (at no profit); worst case scenario it’s only the loss of a penny.

Straddling Tactic

This passive strategy is ideal for flat markets and narrow range stocks. The range is the high and low price of a stock over a specified time period, so a narrow range stock has limited volatility. Straddling spreads out a trader’s moves over a series of pre-determined sizes. By placing trades at each level and keeping your average position near the current market price, traders can manage risk effectively.

Carrying a Position While Scalping

This trading style combines both active and passive elements. Perfect for directional markets, traders make larger moves in the direction of a trend. Simultaneously, traders engage in scalp trading as the larger moves take shape. The key factors to consider are: the direction of the trend, the placement of orders, and the management of the average cost. It’s important to not overextend, and to identify a stop point when averaging in to position.

Scalping can be an effective way to add up smaller profits. It requires extreme attention to detail and a firm handle on solid trading strategy. For those still wondering, “what is scalping?” you can learn more by enrolling in one of ETFinance’s education or mentorship programs!