Intra-day scalp traders undertake one of the most challenging styles of trading to master. It requires unbelievable discipline and trading focus.
Intra-day scalp trading is a particularly short-term form of day trading as scalpers seek to lower risk exposure by lowering their time in the market. Scalping usually yields the smallest gains per successful trade. It is generally based on technical analysis of indicators such as moving averages, MACD (Moving Average Convergence Divergence), momentum oscillators, Fibonacci sequences, etc. Trades are often held only for minutes at a time, and sometimes even shorter than that.
Traders are attracted to scalp trading for the following reasons:
- Less exposure to risk
- They can place up to a hundred trades or more per day
- Ability to fight the greed, since their profit targets are very small
- Greater number of trading opportunities
Benefits of being an intra-day scalp trader
- Positions are typically only held for short periods of time, allowing less chance for reversals to knock out the scalper’s trading position. This also means less need for patience and having to wait for a trade to close.
- Scalpers typically take profits at 1:1 risk to reward or less, allowing their strategies to achieve a higher strike rate, rather than a high reward rate.
- Because the position is typically held for a short period of time, there is also less knowledge of the market, and trading strategies needed, as long-term analysis is not as useful. Trends, pivot point, Fibonacci, and the like are fairly irrelevant.
Problems encountered by intra-day scalp traders
- Not all brokers allow for scalping on their platforms.
- Since good trades typically yield only 1:1 risk to reward or less, one loss can deplete the gains of several successful trades.
- Since the pip (performance index paper) yields are often 5 pips or less, they may have to make many trades, even dozens in one day to accomplish their financial goals.
An example of an intra-day scalping trade - Pandora Media Inc. (NYSE: P)
Intra-day scalp traders must deal with two trends and this makes this type of trading a much more skillful endeavor. Scalpers must watch and know the daily chart trend plus the trend of the intra-day time frame they may be using to find support or resistance.
The day trader should know that a bounce is very likely at strong intra-day support levels despite the intra-day trend being down, as long as the daily chart trend is up. A scalp trader can buy the strong intra-day support level for the small bounce. Scalpers will only be looking to take a small profit on the trade. Once they are in the money on the trade, they move their stop loss to break even to protect against a loss. They need a great deal of discipline so that greed does not enter the equation when trading unless they are in the money and have already secured a gain.
Winning is critical
Unlike a number of other day trading strategies where they can have a win/loss ratio of less than 50% and still make money, intra-day scalp traders must have a high win/loss ratio. This is due to the fact that losing and winning trades are generally equal in size. The necessity of being right, is the primary reason scalp trading is such a challenging method of making money in the market.
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