Be A ‘Scalper,’ Go For Disciplined Trading To Make Most

Karan Bhojwani talks about scalp trading which is catching up fast.

The goal of stock trading is to generate income or capital appreciation. Some people trade almost everyday day and they are popularly called day-traders, while others look for holding their positions for couple of days or more and they are categorised as swing-traders and positional-traders. Trading in Indian stock markets got promoted in the year 2001 since the launch of derivative segment which comprises futures and options (F&O) contracts. Over the years, we have witnessed the trading community evolve as new technologies are introduced and new styles of trading emerges. 

Intraday-traders, swing-traders and positional-traders are some of the popular terms associated with the activity of trading; however, there is one style of trading which has been around for many years, but has lost some of its allure in recent times is known as ‘scalping.’ In this article, we’ll take a look at what scalp trading is, why is it tempting, the advantages of scalp trading and other important thoughts.
 
What is Scalping?
By and large investors make profit by purchasing securities and then selling it for a higher price at some point down the road. It’s rare for investors maintaining their positions anywhere from a couple of months to many years. On the other end of the rope there are traders. The typical trader holds a stock not more than a few days and often trades in and out of stocks several times per day. ‘Scalping’ is a type of trading that may dart in and out of a stock dozens or in some cases even hundreds, of times a day. The reason these traders are so active is that they would like to harvest a small profit on each trade and that these small profit will add up to big dough at the end of the day.
  
Scalping is Technical Analysis:
Typically, the scalpers always use technical analysis as an essential study to initiate a trade as opposed to fundamentals, but they can either be discretionary or system traders. 

Scalping Timeframes:
Scalping chart timeframes and the amount of time that each trade is active, are the shortest of all the trading styles. For example, an intraday trader might use a ten-minute chart and make three or four trades per trading session, with each trade being on the go for about 30 minutes. In distinction, a scalper might use tick chart or a one-minute chart and initiate dozens or even hundreds of trades per trading session, with each trade running on for around two-three minutes on average.
 
Why is scalping tempting?
Scalping is tempting to numerous traders because of its straightforward approach that applies in nearly any market environment. Since scalping opportunities may come about anytime, some traders also find these strategies valuable as a supplement to a different trading style that they use more regularly. For example, position traders may use scalping strategies during choppy sideways markets. 

Scalping Mind-set
Scalping is appropriate for a specific type of trading personality. Scalpers must be very disciplined, especially in the case of system scalpers, as they must be capable of following their trading system precisely no matter what. Scalpers must be able to make decisions without any hesitation and without questioning their decisions once they have been made. However, scalpers must also be flexible enough to recognise when a trade is not proceeding as expected (or hoped) and take action to rectify the situation (i.e. exit the trade).

Some key benefits to scalping include:
Market Neutral. Scalping doesn’t depend on strong patterns or directional movements, which implies that traders can profit in nearly any market situation and avoid waiting on the side-lines.
Constrained Risk. Scalping includes buying and selling during the same day – and often within seconds or minutes – which limit downside risk from catastrophic event that happen overnight.
Keep it simple. A positional or a swing trader has to do an in-depth analyse of the stock and has to come to conclusion. Whereas scalping strategies are generally very simple for an experienced and involve specific rules for entry and exit, which removes a lot of the subjective decision-making from the trading process.
Essential guidelines for Individuals who want to start scalp trading?

1. Analysis, forecast and money management are the keys: In order to have a positive outcome and to constantly maintain the incomes, scalpers use strategies and analyses that attract the probability on their side. For this purpose, technical analysis techniques are used along with proper money management techniques.
2. Know the rhythm of the instrument you are trading: It is mandatory for the scalper to be acquainted with the characteristics of the instrument that is traded. Knowing its volatility, its movement force, the conditions that facilitate the moves and the factors that contribute to the movements of the traded instrument are some basic notions that a good scalper must be aware of. 
3. Chase for quick price movement: Since, the scalp trading about is fast entries and exit. Hence, it is important to chase for quick price movement of security. If the security or the stock does not move in a short snap of the period that it would be a waste entry for a scalper as he needs to devote some time and off course have to pay off the brokerage for the trade as well. 
4. Winning consistently is key: Unlike a swing trading or positional trading strategies where you can have a win/loss ratio of 50 per cent and still make money, scalp trader must have a high win ratio. This is due to the fact that losing and winning trades are generally equal in quantum i.e. there is no defined risk reward in scalp trading. The necessity of being right is the key factor for scalp trading, hence, it’s a big challenging method of money making. 

5. High speed internet connection, online platform and low brokerage: Having a right set of infrastructure is important if you need to be successful and ahead of the rest crowd. Same applies for trading as well as and especially scalp trading requires a high speed internet connection this is due to the fast entry and exit we need to execute as a scalp trader. It also important to have an online platform for trading as you need to take decision based on a minute or a five-minute chart. As a trader you need to pay brokerage for every take you initiate, a scalper works with very thin margins, so it is essential to lower costs as much as possible, hence, it is important to have a minimum brokerage cost to improve profitability margin. 
6. Choose the right kind of strategy that suits you: scalp trading a quick and requires a quick decision making, so it is important to select a strategy which suits you. 

Conclusion: To Be or Not to Be a Scalper? 

Scalping is well-known and profitable for some traders, yet it is not without its dangers. Hence, a scalper needs to have a lot of trading experience because the need for understanding market sentiment is vital. A scalper can be compared to a marathon runner. They need to capitalise quickly on emerging opportunities. 

To get some experience, it is important to do scalp trading in a virtual platform first and once you have gained enough experience and find the right way to go about than you can jump into the pool of scalp trading.

Birendrakumar Singh, AVP – Technical Research at Systematix Shares & Stocks

A scalping strategy employs a very short holding period for positions.  The holding period for a scalper may be as little as a second, and is up to few minutes. Scalping could be for taking a profit spread for a few basis points. If the liquidity is strong scalping could be done for gaining couple of points, this usually happens in a secular bull market. This type of scalping opportunity arises during the first and last hour of the trading hours and specially during the last hour when the intraday traders generally tries to square off their trading positions.
 
For scalping to become successful, one should have a very high winning percentage trade, as a single loss would take away the profits of the 8 to 10 winning trades. Hence, two things require for scalping, one should take only those trades that would be a 100% winning trade. It requires lots of discipline to wait for a sure winning trade, as there is a tendency on the part of the scalper to get carried away after a couple of winning trades.
 
One of the methodologies for a hand trader is to prepare a list of stocks overnight. This list should include, say about 10 to 15 stocks having a positive bias and another set of 10 to 15 stocks having a negative bias. Once the list of buy and sell stocks is ready, then on next day of the trading session.