Show pageOld revisionsBacklinksBack to top This page is read only. You can view the source, but not change it. Ask your administrator if you think this is wrong. ======Scalping====== Scalping is an ultra-fast trading style that attempts to profit from tiny price changes in a security. Think of it as the sprinting of the investment world, where the race is over in seconds or minutes. A scalper doesn't care about a company's long-term prospects, its management team, or its [[Fundamental Value]]. Instead, their entire focus is on capturing the small gap between the buy and sell price, known as the [[Bid-Ask Spread]], or profiting from a minuscule uptick in price. To make this worthwhile, scalpers execute a massive number of trades throughout the day, hoping that the sum of many tiny wins will add up to a significant profit. They rely heavily on [[Technical Analysis]], real-time [[Charts]], and lightning-fast execution platforms. This high-octane strategy is a universe away from patient, long-term investing and is often considered a form of intense speculation rather than a true investment approach. ===== How Does Scalping Work? ===== Scalping is a game of speed, volume, and precision. It requires an almost obsessive focus on short-term market movements and the tools to exploit them. ==== The Scalper's Toolkit and Mindset ==== A scalper lives in the world of one-minute and five-minute charts, looking for predictable, short-term patterns. Their success hinges on a few key factors: * **High [[Liquidity]]:** They only trade assets that can be bought and sold instantly without affecting the price, like major currency pairs or very popular large-cap stocks. * **Low Transaction Costs:** Since profits per trade are razor-thin, low [[Commissions]] and a tight bid-ask spread are absolutely essential. Even a small fee can turn a winning trade into a loser. * **A High Win Rate:** A scalper must win far more often than they lose. One significant loss can easily wipe out the profits from dozens of successful trades. * **Discipline:** There is no room for emotion. Scalpers must stick rigidly to their entry and exit points, cutting losses immediately. ==== A Typical Scalp ==== Imagine a stock, XYZ Corp, is trading very actively. The price a buyer is willing to pay (the bid) is $20.50, and the price a seller is asking (the ask) is $20.52. The spread is just two cents. A scalper, believing the price will tick up, might place a large order to buy 2,000 shares at $20.52, costing them $41,040. A few moments later, the price moves, and the bid price becomes $20.54. The scalper immediately sells all 2,000 shares at this price, receiving $41,080. The gross profit is just $40, or two cents per share. After subtracting commissions, the net profit is even smaller. To make a living, the scalper must repeat this process hundreds of times a day, successfully. ===== The Dangers of Scalping ===== While it sounds exciting, scalping is one of the most difficult ways to make money in the market and is fraught with risk. It's a professional's game where amateurs are often the first to lose. ==== The Odds are Stacked Against You ==== The modern market is dominated by institutional [[High-Frequency Trading (HFT)]] firms that use supercomputers and complex algorithms to execute trades in microseconds—a speed no human can match. They are, in essence, the "house" in this game. For a retail trader, trying to scalp against these giants is like challenging a Formula 1 car to a race while riding a bicycle. Furthermore, the constant stress and intense concentration required lead to quick burnout and costly mistakes. ==== Scalping vs. Investing ==== Scalping is the polar opposite of [[Value Investing]]. It is pure speculation on price noise, not an investment in a business. * **Time Horizon:** A scalper holds a stock for minutes. A value investor holds a business for years, or even decades. * **Focus:** A scalper focuses on the ticker symbol on the screen. A value investor focuses on the quality and [[Intrinsic Value]] of the underlying company. * **Source of Returns:** A scalper profits from market volatility. A value investor profits from the company's growth in earnings and dividends over time. Legendary investors like [[Warren Buffett]] and [[Benjamin Graham]] built their fortunes by patiently buying wonderful companies at a fair price, creating a [[Margin of Safety]] to protect their capital. They would view scalping not as investing, but as a form of high-stakes gambling. For the ordinary investor, building long-term wealth comes from owning a piece of a great business, not from renting a stock for a few fleeting moments.