Trading has always been considered to be a lucrative space for traders who have a strong understanding of the stock market. However, everybody starts from the basics. There are several trading strategies that have been recommended by many. But, it all comes down to using a trading strategy that fits you best. There is no single strategy that would fit all. Every individual has a different trading style and has to choose their own strategy. However, the scalping strategy has been a very popular one and has been widely used by several traders to make massive profits. Let’s have a look at what this strategy entails.
What is scalping?
As the name suggests, scalping is when you stay in the market for a very short period of time for the trade. You can make profits in the stock market from very small price movements. However, to make a large profit over a very small change in the price of a stock, the number of shares to be purchased increases drastically. So, in order to scalp and make large profits, you would have to purchase a larger number of shares.
Benefits of scalping
- Scalpingcan be supremely profitable if you learn to execute your trade precisely. It is also important to have a clear exit strategy. Else, your trade could cash out for a tremendous loss.
- Even if the market is not very active, leaving the price change of stocks to be very minimal, scalpingcan help you make profits. Even a small change in the stock price can help you draw profits if you use scalping as your trading strategy
- You may not have to follow price action to the extreme precision of it. You only need to understand the basic trend of the overall index, the index in which the stock is present, and the stock in itself.
- You will be exposed to only a very minimal amount of market risk.
- Scalpingwould not be affected based on the market trend. The market going upwards or downwards is not a matter of concern when you use scalping as your trading strategy.
- Within the trading system that you currently use, the scalpingstrategy can be automated easily.
How to plan your scalp?
While scalping may seem exciting to make large profits, it is essential to keep a few things in mind to perfect your scaling strategy and minimize losses. There are certain decision factors that are considered when it comes to scalping.
Research indices and news
To keep a hotlist of stock that you can trade on the next day, you will need to research the indices thoroughly. It is also important to understand the sectoral index as it doesn’t necessarily have to overlap with the overall index. Besides, ensure to follow the news and delve deeper into the market trends.
Keep an eye on your capital
One key factor that every trader who plans to use a scalping strategy should have is adequate capital. As the price movement of the stock is going to be very minimal, the capital to be used for the trade should be more in order to make profits.
The importance of performing a technical analysis before a scalp is paramount. Benign a scalper, you cannot entirely rely on real-time constraints. So, you will have to understand the market depth to make an entry at the right point. For short-term opportunities, the 3 commonly used indicators are multiple chart scalping, moving average, and relative strength/weakness strategy.
You can begin by creating a 15-minute chart with no indicators and plot the key levels of support and resistance. Now, move on to the 60-minute chart and do the same. Your scalps will gain the most profit at these levels of support and resistance in two ways. One is when the trend breaks out of the key level. The other is when the trend bounces back from the key level.
Finally, the most important part of your plan should be to follow a disciplined approach. Maintain an exit strategy and stick to it no matter the movement of the stock. It is very important to be disciplined, especially while scalping as it could lead to severe capital loss otherwise.
Scalping is one of the most popularly used trading strategies. If you want to scalp your trades, ensure that you have adequate capital and a trading plan beforehand. It is also important that you plan your exit strategy to minimize losses. But first, you will require a Demat account to begin your trading journey. You can open a Demat account with Angel One with a few simple steps.