Scalp Traders look to take advantage of very short term trading opportunities. By entering and exiting a trade within a minute or two, develops confidence for the beginner trader, trading consistently without fear and without big drawdowns.
Trade Frequency
Scalpers tend to make several trades a day, accruing a number of small profits into a respectable daily total. Losses per trade tend to be minimal, from scratch ( breakeven) to a few ticks at most. A scalp trade would certainly never be held overnight. A small profitable scalp is the easiest trade to make. The whole secret is to get in and get out of the market as quickly as possible.
Requirements
Price spreads and commissions must be as low as possible in order to reduce the cost of doing business to a realistic proportion of turnover.
Data Provision and execution must be fast
A sufficiently large capital base in order to make the small targets and time spent monetarily worthwhile.
Scalping takes a lot of mental discipline, intense focus and quick reactions to be able to scalp successfully.
Scalping Strategies
Some scalpers work around the bid/offer, buying on the bid and selling on the offer to pocket the spread, or perhaps a tick or two more. Slightly longer term scalp trades are generally taken from three different trading patterns:
- Breakouts from consolidation
- Bounces off support and resistance
- Retracements in a trend. Retracement scalps may be taken with the trend following a pullback (certainly the lower risk of strategies) or, if the trader is sharp and brave, countertrend during the pullback.
What sets a scalper apart from other traders is that the profit target is likely to be small. While a longer term breakout trader might wait for the breakout to turn into a trend, the scalper will generally be happy to pocket a few points during the frenetic trading activity as the breakout occurs.
Some traders will scale out most of their position for a scalp but leave some on, in order to capitalise on further price movement, should it appear. Different market conditions often require different approaches so scalping can be a tool in the trader\'s box as opposed to the method always used.
Advantages
- Very effective use of capital with minimal risk per trade.
- High percentage win rate.
- Suitable for the impatient trader who is prepared to devote a lot of time and continuous focus to the market.
- Event risk is small as the scalper will usually be almost certain of a fill at the chosen exit point even if conditions suddenly change.
Disadvantages
- Intense, draining and demands a lot of screen time. Accurate timing is vital.
- Higher cost per unit of profit than longer term strategies.
- Can be stressful
------------------------------------------------------------------------------------------------
About The Author:
Linda Wainman is author of the \"Keeping It Simple Day Trading System\"
Get the exciting details from http://day-online-trading.com
------------------------------------------------------------------------------------------------
NOTE: You have full permission to reprint this article within your website or newsletter as long as you leave the article fully intact and include the \"About The Author\" resource box. Thanks! :-)
******************************************************************************************************
