If anyone needs a plan for trading, scalp traders are at the top of the list. Scalping requires a great deal of nerves and a temper for losses. On the other side of the coin, scalp trading does offer the ability to churn huge percentage profits on a large or small account balance. Scalp trading is similar to day trading, but works on smaller price movements and shorter periods of time. While day traders hold positions intraday, scalping requires buying and selling by the minute.
The time differential
Scalping the markets means that you must have access to the markets all the time. When scalping, rarely would it be wise to leave your trading desk without closing orders. Though scalping works on small price movements, high leveraged accounts are often used up to 400:1 on forex accounts to generate profits that are unheard of anywhere else. The key to consistent profits in scalping is a solid trading plan and money management.
Risk and money management tips
If you use a highly leveraged account, it is critical that you pay deep attention to risk and money management. Though a 1% movement in price hardly affects a long term investing account, in the game of scalping, that same 1% movement could mean a gain of 400% on your stake, or a loss four times greater than your stake. There is much to lose when scalping the markets, but just as much to profit.
Scalp traders have one large disadvantage
The biggest disadvantage to scalping is the high commissions and spreads that traders rack up when making numerous trades per day and sometimes tens of trades per hour. In the stock market and in the forex markets, the amount of money that is taken out of a trading account by the spread and fees is often enough to turn a profitable trader to a big time loss. Considering that the purchase of 10 lots of a currency pair often costs as much as $400 with a four pip spread, scalping requires much of the profits to go only to trading fees. Investing rarely creates the same kind of expenses, nor any method that requires buying and selling infrequently.
There are many traders that scalp, and these professional traders have a knack for scalping the markets and generating huge results. But it doesn't require a professional to do well with scalping; many small investors are finding it as an extremely lucrative way to make large amounts of money with small amounts of capital and trade from the comfort of their own home. Scalping is a great method for anyone, that is, if your nerves can handle it.
Learn how to master day trading by downloading two of Trading EveryDay's FREE products: Tools of the Trade eBook and a Trading Plan Planner. Dedicated to helping people become profitable traders , Leroy Rushing, a professional day trader, trading coach, and author, is the CEO of Trading EveryDay, a distinguished provider of educational trading products and services.