The average scalp trade lasts about 10 or 15 minutes , at the most. Scalping-style day trading is exactly opposite to the buy and hold trading style where may drag on for months, sometimes more. . To some, this style of trading does not make sense . After all, doesn’t Warren Buffett recommend buying and holding stocks for the long haul ?
Scalping is a style of trading that carves out small point total throughout the day’s trading session . The average scalper generally executes from 5 to 8 trades during an average trading session . Scalpers use a variety of indicators , including the Commodity Channel Index, the Stochastic Index, price action, Simple Moving Averages and a host of other indicator variations. Whatever grouping of indicators a scalp trader employs , he or she is trying to determine the directional movement a small spurt of momentum might be heading .
There are some distinct advantages to scalping . We don’t hang on to positions overnight, all trades are executed during the normal trading session. Further, it is easier to determine short term momentum than longer-term trends. Why? There are an extraordinary number of factors that are discounted into the pricing of an equity , and a shortening in the holding period clarifies some of the variables out of the equation. For example, Regional conflicts ofttimes affect the pricing of an equity . With a short holding period the scalper can generally can i discount the global market thems because the traders risk exposure to these factors is greatly reduced .
For the record , there are still plenty of variables to consider when scalping and the marketplace is always unpredictable , some unexpected. Most scalpers pay close attention to the announcement of economic data by the government, as these announcements can often send market prices into gyrations . Extreme market volatility is of prime importance to the scalp trader because the scalping style generally entails using very thin stop losses and increased volatility can cause the equity price to unexpectedly hit the scalpers predetermined stops .
So the typical scalp trader is more concerned about short-term market volatility than intermediate or long term market movement , and there is no dearth of short-term market volatility, particularly during unsettled market movement . Generally speaking , scalpers perform best when markets that are trending either up or down . Unfortunately, studies have shown that the market trends about 30 to 40% of the time, which causes scalper to wait on the sidelines for the next trend to begin. . Scalpers often find themselves in trouble during these waiting period , as they attempt to trade non-trending markets. Without a clear trend , many of the indicators used by scalpers can be misread or even be misleading . It is not strange for two unlike indicators to indicate trades in opposite directions. To the experienced scalper this is a clear indication not to trade . However, less experienced are often tempted to trade in these situations and find themselves at the whim of the market.
It’s important for a scalper to trade the market, and not allow the market force when a trader to initiate a trade. This is to say that experienced scalpers only take high probability trades and leave the lower probability trades alone. For a scalper, the evaluation of trade probability is the essence of his or her trading style . For the most part, high probability trades occur when trading with the trend and not trading against the trend. Most scalpers use several time periods to determine both the short and intermediate trends. While some scalpers are interested in longer trends, it is uncommon for a scalper to worry excessively about longer-term trends as they may not come into play for the average scalp trade.
In summary, evaluating short-term trends to find high probability trades is what scalping is all about. We rest better than most traders because we keep all of our money in cash overnight, and avoid longer holding periods.