Scalping in Trading

Key takeaways
* Scalping is an intraday trading strategy that seeks small, frequent profits from tiny price movements.
* It relies on technical analysis, fast execution, and often leverage; risk management and strict exits are essential.
* Scalpers make many trades per day—ranging from a few dozen to several hundred—and close positions before market close.

What is scalping?
* Scalping aims to capture small gains—often a few cents or a fraction of a percent—by buying and selling large position sizes quickly.
* Trades are held for very short periods: seconds, minutes, or occasionally a few hours, but always within the trading day.
* Scalpers rely on high trade frequency and position sizing so small moves compound into meaningful returns, provided losses are tightly managed.

How scalping works
* Execution: Scalpers buy at the bid or ask and exit as soon as a small profit is available. Speed of execution is critical.
* Timeframes: Focus is typically on very short charts, such as 1‑minute and 5‑minute candlestick charts.
* Tools and indicators: Momentum and price indicators commonly used include stochastic, MACD, RSI, moving averages, Bollinger Bands, and pivot points.
* Order routing: Scalpers use Level II quote displays, time & sales, hotkeys, or algorithmic order routing to reach the most liquid venues and achieve fast fills.
* Leverage and margin: Many scalpers use leverage to increase position size; margin is required for short selling. Be aware of day‑trader rules in your jurisdiction (for example, minimum equity thresholds may apply).

Common strategies and execution details
* Basic approaches: buy low/sell high, buy high/sell higher, short high/cover low—executed rapidly and repeatedly.
* Trade management: Predefined entry and exit rules, and strict stop-loss discipline, are critical to prevent a single loss from wiping out many small gains.
* Costs and commissions: High trade volume generates significant commission and fee costs; a per-share pricing model can be more economical for scalpers who take many small positions.
* Typical mistakes: poor execution, inadequate stop-losses, over‑leveraging, late entries/exits, and overtrading.

Example
* A trader scalps ABC stock trading at $10 by buying and selling 50,000 shares in increments of $0.05. Each round-trip yields a small profit, and repeated trades aim to accumulate substantial gains by day’s end.

Legality and risks
* Legality: Scalping itself is legal. It is a legitimate trading style when conducted within market rules and regulations.
* Risks: Scalping is high-risk due to heavy use of leverage, large position sizes, and rapid execution needs. It demands constant attention, discipline, and fast decision-making. Transaction costs and slippage can erode profits if not managed.

Why some brokers resist scalping
* Scalping places heavy demands on broker systems (frequent order processing) and can complicate risk management for brokers handling many large, rapid trades.
* Some brokers limit or restrict scalping practices or impose specific account/timing rules—check broker policies before adopting the strategy.

Bottom line
Scalping can be profitable for experienced traders who excel at fast execution, strict risk control, and managing transaction costs. It is not suitable for beginners or those unable to monitor markets closely. Practice, clear rules, and robust technology are prerequisites before trading scalps with real capital.