Day Trading

All three styles have their proponents. All three have advantages and disadvantages. The important key is that the trader pursues the style of trading that BEST fits his or her personality, strategy, risk tolerance and intended discipline.

I personally feel that scalping type of trading best fits my psychological profile. I am comfortable taking moderate, measured risks in an attempt to capture what I consider to be significant profits in percentage terms of my account equity. I prefer to trade in and out quickly by “scalping” profits from the markets through the use of small, frequent trades. Discipline and adherence to a pre-planned strategy is critical in successful application of this type of trading.

Scalping is a trading style focusing on taking profits on small price changes, generally immediately after one enters a trade becomes profitable. It requires a strict and aggressive exit strategy because one large loss could wipe out the several small gains realized. Having the right tools such as a live feed, a direct-access broker and the propensity to execute many trades is required for this strategy to be successful.
A scalper’s main objective is to take as many small profits as possible.

Scalping day trading achieves results by increasing the number of winners and sacrificing the size of the wins. Scalping day trading is not of the mind set that allows a trade to run for a larger profit. A successful scalper will has a much higher winning ratio than losing ones with profits bigger than losses.

The main advantages of scalping are:

1) Limits risk: A short exposure to the market diminishes the probability of running into a bad trade that can result in huge losses.
2) Smaller moves are easier to obtain – A bigger imbalance of supply and demand is needed to cause a huge price movement. For example it is much easier for an index or stock to make a one point move than it is to make a 50 or more points move.
3) Smaller moves occur more often than larger ones – Even when there’s no news or event to move the market there are often small price movements that a scalper can exploit.

A true scalper will make several trades a day from five to hundreds! A scalper will mostly utilize one-minute or tick charts since the time frame is small. He also needs to be able to recognize the setups as they begin to appear as close to real time as possible. Also automatic instant execution of orders is absolutely essential to a scalper, so a direct-access broker is required.

Scalping day trading can be very profitable for traders who decide to use it as a primary strategy or even those who use it to supplement other types of trading. Adhering to a rigid exit strategy is the key to securing small profits that can add up to huge gains. The short exposure to the market and the high frequency of small moves are essential characteristics that make scalping popular among many day traders.

Author: George Kissi
Article Source: EzineArticles.com
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