Scalp trading is a fast-paced trading strategy that relies on buying and selling the same asset a number of times throughout a single trading day. The idea is to time the purchases and sales so that a small gain is made with each transaction in the series. In order to accomplish this goal, there are a few basic tips that can increase the chances of posting a profit at the end of the trading day, if the investor is willing to invest the time necessary for using this type of quick trading strategy.
One of the essentials of scalp trading is properly analyzing the marketplace. Unlike stock trading in which the goal is to secure a given asset and hold it for at least several days to realize a return, scalp traders must identify the right options to use for a simple bid-ask spread. This type of spread essentially calls for buying the option on a bid then selling at the ask within a matter of minutes of completing the purchase. Understanding what is happening in the market makes it easier to set an asking price that is likely to attract attention and earn a small amount of profit, while still generating enough return to go back and purchase more shares of the same option at a slightly lower price. Repeating this process throughout the day with several different stock options can generate cumulative returns that are quite impressive.
Another tip for scalp trading is to pay very close attention to the general condition of the marketplace and what is influencing the movement of not only the purchased shares but similar options as well. This can be especially important when unforeseen events begin to exert some impact on the market that is likely to depress the value of the acquired shares. For example, an unexpected natural disaster may seriously impact production in a given industry, which in turn causes a downturn in the value of stock options issued by companies involved in that industry. The scalp trader must be prepared to stop the process when and as needed and direct attention in another direction until the influence of the event has passed and the market stabilizes.
Scalp trading also requires a great deal of concentration and the ability to make decisions quickly. For this reason, anyone who wants to simply buy an asset and sit back while it earns a return is not likely to be successful with scalp trading. Investors who thrive on the thrill of making small gains throughout the day with somewhat labor-intensive investment strategies are much more likely to find this stock trading approach fun as well as profitable as they monitor short-term price movements and implement their next round of transactions accordingly.
