Scalping

DEFINITION of Scalping

Scalping in trading is the tactic of opening and then closing a position very quickly, in the hope of profiting from small price movements.

WHAT IT IS IN ESSENCE

Traders who practice this tactic are referred to as scalpers and will tend to make many scalps each day. The theory behind this tactic is that small price movement is easier to predict than large ones.

Scalping is the shortest time frame in trading and it exploits small changes in currency prices.

Scalping represents the shortest-term style of trading, even shorter than day trading, and got its name because it attempts to skim many small profits off of a large number of trades throughout the trading day. Also, scalpers believe that it’s easier to catch and profit from small moves in stock prices rather than from large moves.

They attempt to act like traditional market makers or specialists. To make the spread, in fact, to buy at the Bid price and sell at the Ask price. In order to gain the bid/ask difference. This procedure leads to profit even when the bid and ask don’t move at all. As long as there are traders who are willing to take market prices.

HOW TO USE

It involves establishing and liquidating a position quickly, usually within minutes or even seconds.

As with any other style of trading, many different methods of scalping exist. The most well-known scalping technique is using the market’s time and sales to determine when and where to make trades. Scalping using the time and sales is sometimes referred to as tape reading because the time and sales used to be displayed on the old-fashioned ticker tape, known as the tape.

Some of this techniques are similar to other trading styles in that they use bar or candlestick charts, and traders determine when and where to make trades using price patterns, support and resistance, and technical indicator signals.

Profits in scalping trades are small, but losses are minimal because scalpers respect strict rules.