How To Scalp Stocks

If you’re new to trading stocks, then the likelihood is that you’re looking for a method that is going to get you making profit as quickly as possible.

How To Scalp Stocks

So, whilst a lot of people will advise you to hold certain assets for the long term, it’s also important that you get that feeling of making profit early on into your journey into trading, as this will help to give you the confidence you need to keep trading!

This is where scalping comes in, it’s a useful technique for beginners, and helps newer traders to get used to successfully trading stocks with very little experience.

So, if you’re wondering what the best way to scalp stocks is, then read through this article and find out!

Overview

Scalping is a form of trading, and is a style that focuses heavily on making profit as a result of small changes in prices, and then reselling as soon as the price rises again.

If you want to try and use scalping as a method, then it’s extremely important to ensure that you have some form of exit strategy.

This is because just one particularly large loss would be more than enough to erase all of the small gains made from your previous trades. 

A trader that is going to scalp stocks also needs to make sure that they have the correct tools in order to be successful.

Some of these tools include: A live feed of stock prices, direct access to a stock broker, as well as the ability to place a lot of trades in a short period of time – which is arguably the most important thing in order to be successful with stock scalping. 

Typically, if you’re successful at stock scalping, you will likely have a higher chance of winning trades than you will at losing trades. Whilst your profits will be somewhat equal, or even slightly bigger than your losses will be. 

If scalping is going to be your main trading technique, then you could be making hundreds of trades a day!

Stock Scalping: Advantages And Disadvantages

Perhaps the biggest advantage of stock scalping is that when it’s done properly, it can be extremely profitable! This relies on a couple of different factors, with the main one being that you ensure that you have a strict exit strategy in place. 

Another advantage of scalping is that because scalpers have such a limited interaction with the stock.

That they have no need to follow any of the basic fundamentals that other traders have to, and they also don’t need to know a whole lot about the stock in order to make a profit either!

There’s also a decreased market risk, with the losses of one stock able to be limited thanks to the tight leverage, as well as the use of stop-loss points.

In addition to this, scalping is a non-directional technique, so the trader doesn’t need to be too concerned about the movements of different markets to be able to take advantage and make a profit.

Plus, scalping strategies can also be automated thanks to the ability to set the technical criteria required through the trading system. 

There are some issues with scalping. For example, the biggest one is the sheer amount of trades required to make a profit, especially when compared to some of the other strategies that exist.

As a result of this high number of trades, a trader who scalps will also have to endure a high amount of transaction costs, which can put a significant dent into the profits made. 

Since scalping requires such a large number of trades to be made, some traders see the risk of generating such small profits as unworthy of their time, as this technique is extremely time consuming and requires a strong mindset. 

New Scalpers Advice

As the barriers for trading have lowered considerably, then more and more people are beginning to try day trading (see also ‘Can $100K A Year Be Made Day Trading?‘), and scalping is often considered as a strategy for trying for a lot of these new traders. 

New traders should ensure that they have the right amount of discipline in order to scalp stocks, as well as the ability to make quick, snappy decisions, spot potential opportunities for profit, as well as be able to monitor the stocks constantly. 

In order to be successful, new scalpers should ensure that they can completely master efficient order execution. Be aware of the frequency of trades they need to make, as well as the potential transaction cost that will affect their profits.

Find the right broker to scalp with, as some brokers ban scalping, and the ideal broker will provide requisites, and direct market access. 

New scalpers should come to terms with how to trend trade, and how to make use of momentum, as this will help them to make more profitable trades.

Typically, new traders will find themselves much more comfortable with buy-side trading, and should stick with that before they attempt to begin short side trading.

In the end, scalpers will have to be able to balance both buy long and short side trading in order to make a decent amount of profit. 

Finally, scalpers should try to develop their technical analysis skills too, as this will help them to beat some competition and will allow them to compete well in a high frequency trading market. 

Summary

To summarize, scalping stocks is an extremely easy process that is accessible for a lot of novice traders.

However, it’s important to be aware of some of the disadvantages of stock scalping, which are often overlooked by new traders desperate to make a profit. But it can be worth your time! 

Luke Baldwin
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