Who doesn’t like making profits in a very quick interval? Not to deny, Everyone likes to grow their money quickly and most easily. Moreover, this technique will help traders to stick on to strict rules and it’s tension free. Further, this can be used widely for Intraday or options trading. Let’s discuss Scalp Trading in this article.
Click here to learn more about option trading.
What is Scalp Trading?
Scalping means reselling a product/shares/tickets at a higher price than the actual price bought. Simply put, Scalper is a person who sells the movie ticket 2x/3x/5x,.. times the actual price of the movie ticket. Similarly, In trading, Scalping is the procedure in which the trades are executed for a very short duration aiming for chunks of profits. Further, these chunks of profits can be accumulated and reinvested to make further trades.
Normal Trader vs Scalper
Both Normal trader and Scalper aim to make a successful trade. However, Scalper has some differences from usual traders. The normal trader will wait for the long target to be achieved. On the contrary, Scalper will have an ultra-short target and executes very short trades.
The below picture depicts the difference between the trades done by the Normal trader and the scalper. Here, a Normal trader buys a stock/Index option at ₹100 and sells it at ₹120. Moreover, the target is 20 points. But, Scalper buys the stock option at ₹100 and sells it at ₹103. But, the target here is just 3 points which have more probability of winning.
Trade SetUp
Scalp trading needs a strict setup for doing trades. Because trades will be executed quickly as per the setup. Moreover, below are the setup that will be helpful to complete the trade successfully.
1. Setting the chart view to min
Since scalping trades can be done in a few minutes it’s better to set up the chart from 1 to 5 minutes.
2. Entry and Exit
Select the entry and exit points carefully before taking a trade. Moreover, this entry and exit can be selected based on the indicators plotted on the chart. Click here to know more about indicators.
3. Act Quickly
Faster hands are needed for scalp trading. Firstly, whenever the buy signal shows trader should quickly place the buy order. Secondly, the trader should immediately place the sell order along with the buy signal. Ultimately, both orders will be executed when it reaches the limited price.
4. Choosing the right platform
To make quicker trades, the trading platform should be fast enough to support these actions. Therefore, selecting the platform with quick chart loading and order execution is mandatory. Also, the cost of trades should be considered while selecting a brokerage. Many discount brokers provide fewer fees for trades compared to full-service brokers.
REFERAL LINKS FOR BROKERAGES:
Please use the below referral links for opening account with the brokerages:
- Zerodha: https://zerodha.com/open-account?c=JL3357
- PaytmMoney: https://paytmmoney.page.link/3L1iSDbjqQM3aVHRA
- IIFL Markets: https://cutt.ly/dK3gS0e
- Finvasia: https://prism.finvasia.com/register/?franchiseLead=NjM5MjI=
5. Liquidity/Volatility
We know that scalping involves quicker and short trades. Moreover, for the trades to happen quicker, the Volatility/Liquidity of stock should be good enough. Buying the stock option that has less liquidity and waiting for long hours is not a part of Scalping. Therefore, select the stocks which have good volatility/liquidity. Click here to read about the technical analysis of the stock market.
Advantages of Scalp Trading
The following are some of the advantages of scalp trading.
1. Spend less time in Trading
Scalp trading doesn’t need the traders to wait for long hours for the trades to be executed. For example, even an office goer can do trades before reaching office. Moreover, a scalper can allocate the time for trading whenever they are available during market hours.
2. High Winning Probability
The probability of winning in scalp trading is higher than the normal trading strategies. Because here trades are executed super short. During normal trades or intraday, the trader can wait for a long target and there are more of chances losing money. On the contrary, in scalp trading, the target is minimum. Therefore, the possibility of losing money is very less in scalp trading.
3. Power of Compounding
Since profits are being accumulated, the final profit will be higher. Moreover, if you haven’t read about the power of compounding click here.
4. There is always a next Bus
Unlike Normal Trading, Scalp Trading has a lot of opportunities in the market which will be created frequently. Therefore, Never rush for taking a trade. There is always a next bus waiting for you!
5. Suitable for all Market conditions
Normal trading requires a directional market (i.e., a Bullish or Bearish market). But, Scalp trading can be done in any type of market movement. Be a Bullish or Bearish or Sideways market, Scalp trading is possible. The only care is about taking trading at the right time.
Let’s Take an Example
Let’s consider an example for scalp trading for the stock option GLENMARK OCT 400 CE. The below picture depicts the Glenmark Call Option with a strike price of 400. Moreover, the buy and sell signals are represented as green and red respectively.
This is a 1 min chart and the trades indicated in this chart are ultra short. Ultimately, the Scalper can get massive accumulated profits at the end of the day. There may be loss in trades but the profit in trades will be comparatively higher than losses.
To Wrap Things Up
Scalp trading seems to be very alluring right? Yes, its fun. However, understand the market movement and wait for the right opportunity before taking any trades. Because, market is always uncertain.
As always, do your research before taking any trade. Click here to read about the basics of trading in the stock market. Which stock/Index you have selected to try out scalping? Let me know in comment section.
Nice one again!
Glad to know! Thank you Harish.