Scalping
Scalping is designed to profit from small price changes in a stock's price. Traders who apply this strategy place anywhere from 10 to a few hundred trades in a single day with the notion that small moves in stock price are easier to catch than large ones. Many small profits with this trading strategy can multiply provided the trader consistently uses an exit strategy, so as to mitigate losses and reap gains.
CHARACTERISTICS
Scalping
- Performed intraday.
Fast-paced activity for nimble traders.
- Main goal is to buy or sell a number of shares at the bid price and then quickly sell them a few cents higher or lower for a profit.
- Holding times can vary from seconds to minutes, and in some cases up to several hours.
- Position is closed before the end of the total market trading session, which can extend to 8 p.m. EST.
- Requires account equity to be greater than the minimum $25,000 to avoid the pattern day trader rule violation.
- Considered a high-risk style of trading due to the extensive use of leverage.
- Margin is required to execute short-sale trades.
- Relies on technical analysis, such as candlestick charts and MACD, for execution.
- Momentum indicators such as stochastic, moving average convergence divergence, and the relative strength index are commonly used.
- Price chart indicators such as moving averages, Bollinger bands, and pivot points are used as reference points for Price support and resistance levels.
Scalpers
- Use day trading buying power of 4 to 1 margin to maximize profits with the most shares in the shortest amount of holding time.
- Buy low and sell high, buy high and sell higher, or short high and cover low, or short low and cover lower.