Scalping is one of the popular trading styles among professional traders. It is a very short-term trading style. It even can be shorter than a day trading.
The reason behind the naming of this scalping trading style is because of its attempt to skim as many small profits as possible from a large number of trades in a day. Scalpers think that getting profit out of small moves in stock prices is easier than from the large moves.
Scalping as a Technical Analysis
Traders who use scalping are commonly technical analysis traders, Technical analysis itself focuses on the current price moves of certain securities. Technical analysis usually involves helps from charts and other data analysis tools.
With the historical price movement of a certain asset to predict the future moves and set up their trades. Contrarily, fundamental analysis usually focuses on the company’s financial statements and other tools to know the intrinsic value of a company.
Sometimes, scalpers also trade on events or news that significantly affect the price movements of the shares of stock. On the other times, they can also use short term changes in fundamental ratios to scalp trades, by focusing on technical charts.
Scalpers can be both system or discretionary traders. The discretionary scalpers make their trading decision real-time, meanwhile, the system scalpers follow the scalping system and not making their individual decision.
The Scalping Chart Timeframes
Scalping chart timeframes is the shortest among all of the trading style. For instance, a day trader can use a five-minute chart to make four to five trades in each trading day, with thirty minutes of active trades.
While a scalper can use a five-second chart. Each price bar on the chart represents only five-second trading. The scalper can take around 20 to 100 or more trades in a single day with few seconds or minutes of active charts.
The Styles and Techniques
Similar to other trading styles, scalping styles also have many methods. The most popular scalping method is by using market sales and time to determine the time and position size of the trade.
Traders usually call this method as tape reading. That is because the sales and time record used to be displayed on the old ticker tape. Other than this, the other scalping methods are similar to other trading styles that use bar or candlestick charts.
Besides, scalpers make trade based on support and resistance, price patterns, or technical indicators signal.
