We have discussed numerous trading strategies on the Tradingsim blog. From the very basic, to the ultra-complicated. Today we are going to cover one of the most widely known, but misunderstood strategies — scalp trading, a.

If you like entering and closing trades in a short period of time, then this article will definitely suite you best. Scalp trading is one of the most challenging styles of trading to master. It requires unbelievable discipline and trading focus. Scalp trading has been around for many years, but has lost some of its allure in recent times. Traders are attracted to scalp trading for the following reasons:.

This spread allowed scalp traders to buy a stock at the bid and immediately sell at the ask. Hence the teenie presented clear entry and exit levels for scalp traders. The scalp trading game took a turn for the worst when the market converted to the decimal system.

The decimal system closed the "teenie" often times to within 1 penny for high volume stocks. This overnight shifted the strategy for scalp traders. A scalp trader now had to rely more on their instincts, level II , and the time and sales window.

A scalp trader can look to make money in a variety of ways. One method is to have a set profit target amount per trade. This profit target should be relative to the price of the security and can range between.

This method requires an enormous amount of concentration and flawless order execution. Lastly, some scalp traders will follow the news , and trade upcoming or current events that can cause increase volatility in a stock. This is due to the fact that losing and winning trades are generally equal in size. The necessity of being right, is the primary factor scalp trading is such a challenging method of making money in the market. One of the most attractive ways to scalp the market is by using an oscillator as the indicator leads the price action.

Yes, it sounds pretty simple; however, it is probably one of the hardest trading methodologies to nail down. Since oscillators are leading indicators , they provide many false signals. The slow stochastic consists of a lower and an upper level. The lower level is the oversold area and the upper level is the overbought area. When the two lines of the indicator cross upwards from the lower area, a long signal is triggered.

When the two lines of the indicator cross downwards from the upper area, a short signal is generated. This is the 5-minute chart of Netflix from Nov 23, At the bottom of the chart, we see the stochastic oscillator.

Scalping: A Trader's Guide

The circles on the indicator represent the trade signals. In this case, we have 4 profitable signals and 6 false signals. The bottom line is the stochastic oscillator is not meant to be a standalone indicator. You need some other form of validation to strengthen the signal before taking a trading opportunity.

In the next trading example, we will combine the stochastic oscillator with bollinger bands. We will enter the market only when the stochastic generates a proper overbought or oversold signal that is confirmed by the bollinger bands. In order to receive a confirmation from the bollinger band indicator, we need the price to cross the red moving average in the middle of the indicator. We will stay with each trade until the price touches the opposite bollinger band level.

Above is the same 5-minute chart of Netflix. This time, we have included the bollinger bands on the chart. We start with the first signal which is a long trade. Notice that the stochastic generates a bullish signal. However, the price does not break the moving average on the bollinger band. Therefore, the signal is false. The second signal is also bullish on the stochastic and we stay long until the price touches the upper bollinger band.

At the end of this bullish move, we receive a short signal from the stochastics after the price meets the upper level of the bollinger bands for our third signal. A price decrease occurs and the moving average of the bollinger bands is broken to the downside.

We have a short signal confirmation and we open a trade. The stochastic generates a bullish signal and the moving is broken to the upside, therefore we enter a long trade.

We hold the trade until the price touches the upper bollinger band level.

BlueChipPennyStocks - The number one trusted financial newsletter site

As you can see on the chart, after this winning trade, there are 5 false signals in a row. Talk about a money pit! The good thing for us is that the price never breaks the middle moving average of the bollinger band, so we ignore all of the false signals from the stochastic oscillator.

After the 5 false signals, the stochastic provides another sell sign, but this time the price of Netflix breaks the middle moving average of the bolligner band. If we compare the two trading methodologies, we realize that with the bollinger bands we totally neutralized all the false signals. Each of these trades took between 20 and 25 minutes. While these trades had larger percentage gains due to the increased volatility in Netflix, the average scalp trade on a 5-minute chart will likely generate a profit between 0.

As you can see, the stochastic oscillator and bollinger bands complement each other nicely. Now we need to explore the management of risk on each trade to your trading portfolio. Therefore, your risk per trade should be small, hence your stop loss order should be close to your entry.

This is the 2-minute chart of Oracle Corporation from Nov 24, There were three trades: For the first trade, the stochastic crossed below the overbought area, while at the same time the price crossed below the middle moving average of the bollinger band. The price began decreasing and 14 minutes later, ORCL hit the lower bollinger band. We exited the trade at After hitting the lower bollinger band, the price started increasing.

The stochastic lines crossed upwards out of the oversold area and the price crossed above the middle moving average of the bollinger band. This trade proved to be a false signal and our stop loss of. After the price crossed above the oversold territory and the price closed above the middle moving average, we opened a long position.

This time Oracle increased and we closed a profitable trade 2 minutes after entering the market when the price hit the upper bollinger band, representing a 0. The total time spent in each trade was 18 minutes. Usually, when you scalp trade you will be involved in many trades during a trading session. Sometimes, scalp traders will trade more than trades per session.

I would be remised if I did not touch on the topic of commissions when scalp trading. If you look at our above trading results, what is the one thing that could completely expose our theory? If you have a flat rate of even 5 dollars per trade, this would make the exercise of scalp trading pretty much worthless in our previous examples. This is why when scalp trading, you need to have a considerable bankroll to account for the cost of doing business.

You are going to find it extremely difficult to grow a small account scalp trading after factoring in commissions and the tax man at the end of the year.

Learn to Day Trade 7x Faster Than Everyone Else Learn How.

Scalping (trading) - Wikipedia

Free Trial Log In. Learn How to Scalp Trade with this Simple Strategy. Stochastic Scalp Trade Strategy. Stochastic and Bollinger Band Scalp Strategy. Stop Loss Orders - Scalp Trading. How to Maintain Day Trading Liquidity. How to Best Use Trade Alerts. Predicting Uncle Sam — Day Trading and Taxes.

How to Day Trade — Guide for Successful Trading. Categories Candlesticks Chart Patterns Day Trading Basics Day Trading Indicators Day Trading Psychology Day Trading Software Day Trading Strategies Day Trading Videos Futures Glossary Infographics Investment Articles Swing Trading Trading Strategies. Customer Login Sign Up Contact Us. Login Sign Up Contact Us.