Short term trading is completely different than investing with both coming from totally different schools of thought. Short term trading relies entirely on technical analysis while investing places more emphasis on fundamentals. Generally speaking, short term trading includes three types of trading methods: swing trading, day trading and scalp trading. For the purpose of this hub page, swing trading will be omitted since positions are held overnight and usually more than a few days to a few weeks.

Scalp Trading Versus Day Trading

Day trading in the traditional description means buying and selling financial instruments such as stocks, futures, commodities and even stock options all within the time period of open and close of one daily market session. This does not mean however, that only one trade can be executed during the session since day traders may enter and exit the market several times daily. In comparison, a scalp trader will generally execute for more trades in one session than a day trader since both approach the market from a different point of view.

Day traders seek to capture maximum gains or as much as the trade will allow. In contrast, the scalp trader is only looking to “scalp” a few points and quietly exit, banking minimal profits. This does not imply however, that day traders are recklessly swinging for the fences on every trade. Successful day traders have market systems in place which are designed specifically for their method of approaching the market, in this day trading. As mentioned above, the day trading method can be used to execute several positions throughout the day and the day trader closes these positions before the bell and goes home “flat” each afternoon, holding no overnight positions.

Some market players using the day trading method, may choose to only open one position daily, determining market direction early and riding the trade the whole session and exiting only at the closing bell. Scalp traders on the other hand, may have already executed numerous trades within the first hours of the market opening. Scalp trading seeks to reduce exposure in the market. If a trades goes against the scalp trader he exits quickly, always obeying his stop knowing full well the loss will be minimal and he has plenty of other chances to execute more trades during the session.

Scalp traders risks are minimal and are an effective use of trading capital since this method of trading usually generates more winning trades than traditional day trading. Scalp trading is usually considered the realm of the veteran trader, which is true, since many experienced traders utilize scalp trading methodologies. However, the inexperienced can benefit from this style as well, since losses are mostly minimal if the rookie sticks to the plan and exit’s the position at his stop loss should the trade go south.

Remember, scalp trading is about banking small profits many times throughout the daily session, not hitting a home run.

Scalp trading does require discipline and confidence. It also requires total concentration, a desire to win and a dedication to watching the market closely. The financial markets are no place for someone that cannot tolerate losses. Losses are going to happen, it’s inevitable as veterans will confirm. It is also very important to employ the services of a broker that offers lighting fast trade executions and minimal commissions. Because the volume of trades executed, commissions can quickly mount and can turn what seemed to be a profitable day into a breakeven or losing day. Locating the proper online broker is imperative if scalp trading is your chosen method.

Whether scalping stocks or emini scalping the index futures, both of which are excellent instruments for exploiting the market, using this method with discipline and focus should yield positive results if the participant has what it takes to be successful at scalp trading.