What is scalping? (For South African Traders)

Scalping is a day trading strategy where a trader buys and sells an individual stock multiple times throughout the same trading day. This has been quite popular since a long time where traders earn profits by holding a position for short term. Scalpers place up to hundred plus trades with a goal to earn small profits with each individual trade. 

Scalping decision factors 

Scalpers should set goals of trading every day. They should also closely monitor the index trends to develop their own reasoning for why they will execute their trades. This helps them in making decisions about when top enter or exit the market. 

The “little win” objective 

Scalping day traders don’t make huge profits with each trade they make instead they make small profits on multiple small trades. Sometimes they don't even hold a stock for very long and buy and sell it within minutes. 

Scalping day traders are on the hunt for a trending, or highly volatile markets influenced by market sentiment, news or price swings. Scalpers buy and sell the upswing of the stock to avoid the risk of timing the peak improperly.    

Executing an effective scalping strategy 

An effective scalp-trading strategy requires a deep understating of major trends and psychology. Expert scalpers are able to interpret short-term charts. Scalpers monitor the moving averages and pivot points to determine an appropriate trade execution.  

Of course, scalpers may face losing trades. However, a disciplined trading strategy together can support a better ratio for winning trades. Scalpers should also acquire adequate capital, subscribe to level II platforms that show real-time bids and charts, and have a strong wired internet connection to avoid latency.  

Your acceptable profit or loss will depend on the timeframe you are using. 

1-Minute or 5-Minute Timeframes. Scalpers typically aim for a profit or loss of around 5 pips, as these shorter timeframes allow them to benefit from quick market movements and minimal exposure.  

15-Minute Timeframes: Longer timeframes like 15 minutes may require wider targets, usually 10 pips for increased volatility and slower price shifts. 

It is crucial for scalpers to select liquid volatile stocks or currency pair types to avoid being stuck in the trade for longer while waiting for their targets.  

Going against traditional trading instincts 

Traditional traders usually hold the stock for short/medium term, but scalping doesn’t follow traditional stocks trading. Scalpers usually jump in and off the stock even if that stock is in an uptrend. Traditional traders will often hold the stock thinking it will continue to climb.  

Scalping strategies for beginners 

Here’s are a few tips and strategies for beginners looking to scalp:  

Set daily trade goal up to 3-5 trades per day. 

Trade the hot stocks each day based on your selective watch list.  

Buy/sell at breakouts or at a support break.  

One of the easiest and most common forms of scalping is buying many shares, waiting for a minor tick upwards, and offloading the position as soon as you hit the target profit goal.  

Beginners who are keen to follow a scalp-trading strategy should trade in the most liquid securities. 

Scalping is counterintuitive to most traders because winners are sold quickly, often just as quickly as the losers. Day traders are used to switching positions in short time frames, but scalping takes it to another level. Moreover, while day traders are advised to avoid overtrading, scalpers undergo featured trading volume to make outsized profits.  

It’s better to practice scalping on demo accounts before live trading accounts to avoid putting capital at risk. Scalping has some drawbacks it requires a specific mindset. If the broker changes high commission or spreads, then transaction costs can eat up the scalper’s profits. 

Scalping vs. swing trading 

Swing trading is the opposite of scalping, swing trading is preferred by investors who don’t prefer or get time to monitor the market daily. Swing trading requires the patience of holding positions for several days, if not weeks.  

However, if you are an investor, you should dedicate some time every day to do quick market analysis and follow up on economic events.  Swing trading takes place when prices form a higher low or lower high. Swing traders who usually trade on medium time frames and larger stop losses should have an appropriate money management plan. They should keep calm during short-term noise. Unlike scalping, pairs with lower volatility and high spreads have less effect on the trades since traders assign higher “take profit” targets at longer timeframes. 

Financial assets for scalpers in South Africa 

For South African traders, scalping can be a good strategy way to navigate financial markets. Generally, forex and cryptocurrencies are scalpers “favourite” assets to trade, however there are other options like metals, stocks, metals and indices that offer great profit opportunities. 

Whether you prefer the price volatility of oil, the stability of stocks, or the broad exposure of indices, it should suit your investment objectives and trading style. The goal is to choose the right assets and tailor your strategy regularly if you want to benefit from the evolving market trends.