The Basics

What is Scalping?

If you spend much time in trading circles you will almost certainly come across the term scalping. So what exactly is that? According to the Trade2Win Traderpedia, scalping is:

The term used for a day trade method where trades are opened and close within a very short time scale, perhaps anything from a second or two to a few minutes.

Basically, scalping means dipping in and out of the market quickly, going after very small gains, but very frequently. This type of trading methodology requires a very intense focus on the price action in order to identify the little price patterns which indicate scalping opportunities. This is an entirely technical approach where the trader focuses 100% on price (and possibly volume).

Scalpers have the advantage of high win rates, though obviously each win is for only a small amount. Because they are in and out so rapidly, their exposure and risk is generally very limited. A scalper is unlikely to ever take a large loss (though they can take many small ones). Also, scalpers generally have very rapid learning curves because of the amount of time they spend watching the markets intently. One scalping trader can make as many trades in a day as other traders make in weeks or months.

If all this sounds intriguing to you, hang on before you jump in with two feet. First, as noted, scalping requires very intense and direct focus. Because of the speed of entry and exit, it also requires very high end technology and data. That makes it more costly in terms of resources and infrastructure than longer-term timeframes.

By John

Author of The Essentials of Trading