The financial market includes different styles of trading, such as Intraday, Swing trading, Positional trading, Scalping. The traders who are engaged in Scalping trading, known as Scalper. The prominent trading strategy is applied by both institutional and retail traders. Basically, scalping indicates quick small returnable trades. In this article, we will go through scalping trading strategies in details.
What is Scalping Trading
This strategic trading mainly focuses on intraday trading and also on the quick short-term profit. The objective of this trading is to limit the risk factor by taking a small profit repeatedly. It has gained lots of popularity among profession short-term traders. The Scalping strategies make an easier way to catch the small price moves in the stock market. As it deals with the small price change, traders need to be very strict and concentrate on the exit strategy. A large gap in price may cause a big loss because in this type of trading traders basically invest a huge amount of money.
Scalping in the equity market is trading with a fast movement with a very fast technical analysis. The aim of scalping is to make a quick profit by buying or selling stocks or commodity or indices and keeping the trading time of very quick and fast. Scalping traders can trade many trades in a day with quick succession. They close one trade and wait for the entry of another trade. Sometimes even there are a mere 5 minutes time gap between two trades. Scalping trader actually trades quickly for a small profit from the particular trade.
Understanding Scalping Trades
So we have understood that scalping trader has to be very fast and quick. That means they have to learn the technique of scalping. If you are a new trader, do not try scalping on the first day of your trade. Else you will burn your hand and end in losses. If you are a new trader, start with positional trading first. Once you are conversant with positional trading you can slowly start intraday trading. Once you can take 2 to 4 trades a day successfully, then you can try scalping slowly.
Scalping trader can execute even 40 to 50 trades a day. There are traders who take 40 trades per day and they take the profit of rupees 250, totaling rupees 10000 per day as a profit. So you could easily understand how fast a scalping trader needs to be.
More on the subject
The aim of scalping trading is actually to make a small profit by taking a small stop loss and a small target and to take the profit home very quickly. Show the scalping trader needs to open the trade and close the trade very fast. For scalping trader, they need to have very low brokerage plan with them. Because if the scalping trader does not have a low brokerage, and if he takes N number of trade a day, he will ultimately face loss from the high brokerage plan. So I do suggest those scalping traders go for a discount broker, like Zerodha orUpstox where they can get a low brokerage plan of as low as rupees 20 per executed order.
Features of Scalping Trading
- As traders have to concentrate on minutes details of price action, it is most important to have proper tools such as a live data feed, a direct access broker.
- The scalping trading theory is totally different from “let your profit run” mindset. Scalpers tend to take as many small profits as possible.
- In order to sustain in this trading, traders have to have high focus and quick decision-making ability. A fraction of time can take you to a higher profit or a huge loss.
- Application of Scalping is more valid when there is high volatility in the market.
Types of Scalping Trading
Scalping trading can be divided into three categories:
Traders check the bid and offer price continuously to compete with the market makers on both bids and offers. Stocks with volume (without any real price change) are suitable for scalping.
Small Price Move
The category belongs to traditional price change movement. Scalper always prefers the small price movements even cents.
Under this method, traders work on the 1:1 risk/reward ratio. Scalpers prefer the ratio while trading.
Scalping Trading FAQ
Scalping is absolutely a technical trading strategy. The only difference of it with normal trading is that scalpers make a quick entry and exit. Some traders may even trade 30-50 times a day booking quick and small profits in each trade. So this is a good strategy for the traders who can manage fast entry and exit.
Scalping is purely an intraday trading strategy. Scalpers mainly use the 1-minute chart for their trading. However few traders may even trade on 2-minute, 3-minute or 5-minute time frame charts.
Scalpers make multiple entry and exit on the same day. Suppose, you are a scalper and trade 10 times a day for 1 point profit per trade. So your total profit is 10 x 1 = 10 points a day. In 5 trading days, you make 10 x 5 = 50 points profit. On the other hand, if you do swing trading and hold 5 trading days for 50 points gain your outcome is the same. But scalping needs more attention, continuous monitoring of the market. As scalpers trade multiple times there is also a chance of loss in some trades or human error. Hence, I personally prefer swing trading over scalping.
7 Simple Scalping Trading Strategies
- Scalpers should find out high volume stocks for this trading,
- Here, proper entry and exit time are so important, most of the trades depend on this strategy.
- Investors have to be very attentive and concentrate during scalping because a fraction of second is important here.
- The probability of loss is higher here. Therefore, traders prepare themselves about these types of trades.
- Using oscillators in this trading is of the best strategies. Stochastics, Bollinger bands are the most widely used technical tools to trade scalping.
- Support and resistance is another significant factor in scalping.
- Try to do one trade at one time. Most of the successful Scalpers follow scalping trading strategies.
How to make scalping work in Nifty future trading?
Nifty is a very popular instrument for Indian scalping traders. Suppose, a trader opens a trading order for 10 contracts of Nifty future at the market value of 5000. With a discount broker, he can even Book Profit at 4 to 5 points. So for every trade, he is earning 5 points multiplied by 75 that is Nifty lot size. From every trade, he is earning rupees 375 per lot. If the brokerage and the taxes are deducted ultimately he is making rupees say 350 profit per lot, per trade.
So per trade, a trader is making rupees 3500 profit for 10 contracts. That means if he takes 10 trades a day, ultimately he is earning rupees 35000 profit on that day. There are many scalping strategies that a trader can employ. In this post, we are sharing a nice EMA Scalper indicator for AmiBroker that you can we use for Nifty future trading.
This indicator works in AmiBroker and it works in the rule that the exponential moving average and RSI combination can help in trading. You can see the image below for understanding the scalping indicator in more details.
You can click on the image for a bigger view. So now here is your download link of the Ema scalper indicator. You can download the EMA Scalper indicator by clicking the download link above. But, if you need a more advanced Nifty future trading system for AmiBroker, I suggest you check our paid product Trend Blaster.
However, this is a brief overview of various scalping trading strategies. Though the probability of loss is higher, traders with experience and knowledge of this can earn huge profit.
Indrajit is a professional blogger and trading system developer. Amibroker expert, WordPress expert, SEO expert and stock market analyst.Trading since 2002, he has started the journey of StockManiacs.net on 2008. He follows Indian and world stock markets closely.