Hi there! welcome to Gift-Nifty, where you can explore what is Scalp trading. Scalp trading is a type of intraday trading in which you buy and sell a financial object very quickly, in seconds or minutes.
Scalping traders will make a lot of trades with the same goal in mind: to make small gains.
A normal scalp trader will enter and exit dozens or even hundreds of trades every day. Each trade lasts for a few seconds to a few minutes.
Scalping is a type of trading that needs focus no matter what.
Scalper traders know not to try to make huge gains, but to stick to a well-thought-out, risk-averse trading plan that has been tried and tested in the real world.
Instead of investing in stocks or currency pairs that aren’t very liquid, scalpers choose very liquid financial instruments that are easy to join and exit and give them a good chance to make money.
Beyond the profits, what draws traders to scalping is the low risk that comes with the trading style. In just a few minutes, how much can a stock or coin drop?
Not a lot of the time, that’s the answer. Look at the picture below to see how stocks and currency futures change every minute.
This rule limits the amount of loss a scalper can have in a single trade. But one bad scalp trade could wipe out all of your wins.
Many people think that scalp trading is a low-risk way to trade because of this, but it does require a more complex way of controlling risk.
How Does Scalp Trading Work?
You should have a pretty good idea of what scalping is by now. So, since buying is very real, it would be better to give an example of how scalping works.
This is an example. Get to know Mr. Kho P.D. He trades and loves to scalp.
Mr. Kho P.D. is a scalper, and every day he makes between 10 and 100 deals to make ₹20 per trade.
Mr. Kho P.D can make ₹2020 per day or ₹40,400 over 20 trade days. He also knows how much he can lose in a trade—no more than ₹10.
In theory, this may seem easy, but scalp trading takes time and work. To make scalp deals, you’ll have to keep an eye on how prices change every few seconds or minutes.
That’s why Mr. Kho P.D. trades all the time and has a good trading system in place.
For scalping, Dhan is his tool, which gives him access to a huge number of free technical indicators.
Don’t forget that the upside and downside are possible because they are well-defined and based on a modest estimate.
He starts by picking Dhan + TradingView and then mixes his clear goals with technical indicators for scalping and action. One or more of these things Mr. Kho P.D. can do:
- Wait for a breakthrough.
- Quickly enter and leave
- Trade with him until he meets his earning goals.
Using the Bollinger Bands Indicator, Mr. Kho P.D. traded a rise in the picture above. A breakout is a sign to buy or sell when a candle goes above or below a certain level.
In the picture above, you can see four squares. A normal buy-low-sell-high plan is shown by the smaller yellow circles. A shorting approach is shown by the bigger orange circles.
When the bars move below the lower Bollinger Band, as shown by the first yellow circle, it means that the price is about to go up.
Mr. Kho P.D. gets out of his trade as soon as the price breaks above the upper Bollinger Band again, which means that the price is about to go down.
As soon as he gets out of his place, he sees another breakout above the upper band. The stock will now be “shorted” by Mr. Kho P.D. If you sell high and buy low, you are shorting.
What you want to know is that shorting is correct. The only catch is that you need to make a trade that goes against the situation. That’s what the orange rings mean.
This brings up another point about what scalping is. Based on their trading plan, scalpers may choose to trade the same asset more than once during the day.
Scalp Trading Strategies
In the last part, we talked about one way that scalping can work. Mr. Kho P.D. could have used some different plans. The short points below will talk about some of them.
- Scalping strategy for one minute: Use the one-minute candle to find entry and exit places.
- To join and exit trades, use the five-minute candle. This is the five-minute scalping strategy.
- Multiple Minute Charts: Use 5, 15, and 60-minute charts to find support and obstacles.
- Use MACD, Moving Averages, and RSI on charts to find good times to enter and leave a trade.
Good scalpers always make sure they’re trying to win, don’t get greedy, and keep their risk under control, no matter what method they use. A tail-stop loss is one way to do this.
For scalpers who are still learning different tactics, there’s a chance they will lose some trades. You won’t lose more money than you have to if you set a tail-stop loss.
Also Read: Mutual Fund Calculator: Optimize Investments with Ease
Scalp Trading Pros & Cons
| Pros of Scalp Trading | Cons of Scalp Trading |
|---|---|
| No overnight risk | More time-consuming |
| Purely based on technical | High effort |
| High overall profit potential | High brokerage |
Is Scalp Trading Illegal in India?
In India, it is allowed to scalp. By making a lot of trades, it’s a good way to get small returns over time. But this question has a historical background.
A very large number of deals that happened during the day could have messed up trading systems.
Additionally, scalping needs a strong trading method and setup, which might not have been simple to find back then. There is a chance of losing money if deals can’t be done quickly.
That’s why scalping might not have been the best approach in the past. Exchanges and brokers, on the other hand, have strong dealing systems that let you scalp like a pro.
Steps to Begin Scalp Trading
You can start scalp trading in 5 simple steps.
Select a Trading Platform
Most scalp traders who have been doing it for a while stick to a site that helps them use their trading strategy.
This is why picking the right tool for trading stocks is so important. People usually read reviews from other traders and look at the features the site has to offer.
Complete Your KYC
Before you can start scalp trading on any regulated trading platform, you will need to finish your Know Your Customer (KYC) steps. They only need to see proof of your home, identity, income, signature, and photo.
Wait for Approval
After the platform checks your Know Your Customer (KYC), it sends it to the depository partners and exchanges to be approved. This should happen in 24 hours or less, but it might take longer if you applied on the weekend.
Fund Your Trading Account
Your trading account will be live as soon as your KYC is accepted. You’re almost ready to start trading, which is good news.
You will need to put money into your trading account before you can start selling. One way to add money to your Dhan trade account is through Gpay. Another way is through net banking.
Start Scalp Trading
Trading account with money in it Active accountNow you’re ready to put your scalp trade plans into action. Be smart about your trades and always make sure you have a way to handle danger.
Conclusion
To sum up, scalp trading is a quick way for traders to make small gains by buying and selling financial assets quickly. It requires you to keep your mind on the task at hand and stick to a clear, risk-controlled trade plan. Scalpers like assets that are easy to buy and sell because they are highly flexible. Even though scalp trading has the potential for low risk and quick gains, it needs disciplined performance and close attention to how the market changes. You can use different tactics, like using technical indicators and more than one timeframe.
Scalping has some benefits, like low overnight risk and high reward potential, but it takes a lot of work and may cost more in brokerage fees. Advanced trading systems make scalp trading possible in India, where it is allowed to do so. To start scalp trading, you need to find a good trading platform, meet the Know Your Customer (KYC) standards, fund your trading account, and be careful when making trades.
FAQs
What is scalp trading?
Scalp trading is a type of intraday trading where traders quickly buy and sell financial assets, aiming to make small profits in seconds or minutes.
How many trades do scalp traders typically make in a day?
Scalp traders may enter and exit dozens or even hundreds of trades daily, with each trade lasting for a brief period, ranging from seconds to minutes.
What skills are necessary for scalp trading?
Scalp trading requires intense focus and adherence to a well-thought-out, risk-averse trading plan. Traders must monitor price changes closely and act swiftly.
What financial instruments do scalp traders prefer?
Scalp traders prefer highly liquid financial instruments that are easy to enter and exit, providing them with ample opportunities to make profits.
What draws traders to scalp trading?
Traders are drawn to scalp trading because of its low-risk nature and potential for quick profits, as assets typically do not experience significant price movements within a short timeframe.