Scalping is one of the fastest and most intense trading styles in the market. Scalpers aim to profit from tiny price movements by making dozens or even hundreds of trades per day. If you thrive on action and have quick reflexes, scalping might be the perfect strategy for you.
What is Scalping?
Scalping is a trading strategy where you hold positions for very short periods, typically seconds to minutes, aiming to capture small price movements. Unlike swing traders who hold for days or position traders who hold for weeks, scalpers are in and out of trades rapidly throughout the trading day.
Key principle: Scalpers make money by taking many small profits rather than waiting for big moves. A typical scalp trade aims for 5 to 20 cents per share profit, but those small gains add up when you make 50 or more trades per day.
Why Traders Choose Scalping
Scalping appeals to traders for several reasons:
- No overnight risk: You close all positions before the market closes, so news or gaps cannot hurt you
- Many opportunities: You can find setups throughout the entire trading day
- Quick feedback: You know if your trade worked within minutes
- Compounding effect: Small wins compound into significant daily profits
- Less exposure to big moves: Short holding times mean less risk from sudden reversals
Essential Requirements for Scalping
Before you start scalping, make sure you have these basics covered:
1. Fast and Reliable Technology
Scalping requires split-second execution. You need a fast computer, stable internet connection, and a broker with direct market access. Even a one-second delay can turn a winning trade into a loser.
2. Low Commission Broker
Since you will be making many trades, commissions add up quickly. Look for brokers that offer commission-free trading or very low per-share rates. A $5 commission on a $10 profit trade destroys your edge.
3. Level 2 Quotes and Time and Sales
Scalpers need to see the order book and real-time trade flow. Level 2 shows you pending buy and sell orders at different price levels. Time and sales shows you actual trades as they happen.
4. Sufficient Capital
Pattern day trader rules require $25,000 minimum for US stock traders making more than 3 day trades per week. Scalpers typically need this amount to trade freely without restrictions.
Popular Scalping Techniques
Bid-Ask Spread Scalping
This technique involves buying at the bid price and selling at the ask price, capturing the spread as profit. It works best in liquid stocks with tight spreads and requires fast execution.
Example
Stock XYZ has a bid of $50.00 and ask of $50.02
- You place a limit buy order at $50.00
- Your order fills when a seller hits the bid
- You immediately place a limit sell at $50.02
- When a buyer takes your offer, you profit $0.02 per share
- On 1,000 shares, that is $20 profit in seconds
Momentum Scalping
This approach involves jumping on stocks that are moving quickly in one direction. You ride the momentum for a quick profit and exit before it reverses. News events, earnings, and high volume often create these opportunities.
Support and Resistance Scalping
You identify key price levels where the stock tends to bounce or reject. Buy near support levels and sell near resistance levels, capturing the range between them.
Moving Average Scalping
Use short-term moving averages like the 9 EMA and 20 EMA on 1-minute charts. Buy when price bounces off the moving average in an uptrend. Sell when it touches the average in a downtrend.
Best Indicators for Scalping
- VWAP (Volume Weighted Average Price): Shows the average price weighted by volume. Stocks above VWAP are bullish, below are bearish
- 9 and 20 EMA: Fast moving averages that show short-term trend direction
- RSI (Relative Strength Index): Helps identify overbought and oversold conditions on short timeframes
- Bollinger Bands: Shows price extremes and potential reversal points
- Volume: High volume confirms moves and provides liquidity for quick entries and exits
Risk Management for Scalpers
Risk management is critical when you are making many trades per day:
Position Sizing
Never risk more than 1% of your account on any single scalp trade. With tight stops, this means you can take larger share sizes while keeping dollar risk low.
Stop Losses
Set hard stop losses on every trade. Scalpers typically use very tight stops, often just a few cents per share. If the trade does not work immediately, get out.
Risk Calculation Example
Account size: $30,000
- Maximum risk per trade: $300 (1% of account)
- Stop loss: $0.10 per share
- Maximum position size: 3,000 shares ($300 / $0.10)
Daily Loss Limits
Set a maximum daily loss and stop trading when you hit it. Many scalpers use 2-3% of their account as a daily loss limit. This prevents one bad day from destroying your week or month.
Common Scalping Mistakes to Avoid
- Overtrading: Taking trades just to be active rather than waiting for quality setups
- Ignoring fees: Not accounting for commissions and fees in your profit calculations
- Trading illiquid stocks: Wide spreads and poor fills destroy scalping profits
- Holding losers too long: Hoping a bad trade will come back instead of cutting losses quickly
- Trading during slow hours: Lunch time and end of day often have less movement and wider spreads
- No preparation: Starting the day without a watchlist and game plan
Best Times to Scalp
Scalping works best during high-volume, high-volatility periods:
- Market open (9:30-10:30 AM ET): Highest volume and volatility of the day
- Final hour (3:00-4:00 PM ET): Volume picks up as traders close positions
- Around news events: Economic reports, earnings, and Fed announcements create movement
Track Your Scalping Performance
Pro Trader Dashboard automatically calculates your win rate, average profit per trade, and which setups work best for you. Essential for improving your scalping results.
Building a Scalping Routine
Successful scalpers follow a consistent daily routine:
- Pre-market: Review overnight news, create watchlist of gapping stocks
- Market open: Focus on highest volume stocks with clear direction
- Mid-day: Reduce activity, only take A-plus setups
- Final hour: Look for closing range plays and late day momentum
- After close: Review all trades, log results, prepare for tomorrow
Summary
Scalping is a demanding but potentially rewarding trading style. It requires fast execution, strict discipline, and proper risk management. Start by paper trading to develop your skills, then transition to small real money positions. Track every trade to identify what works and what does not. With practice and patience, scalping can become a consistent profit strategy.
Ready to learn more trading strategies? Check out our guide on momentum day trading or learn about VWAP trading strategies.