Scalp
19 hours agoIn trading, a scalp refers to the quick opening and closing of a position, with the intention of profiting from minor price fluctuations. Traders who engage in this strategy are known as scalpers and typically execute numerous scalps each day.
The rationale behind scalping is that small price movements are generally easier to predict than larger ones. While profits from scalps are usually modest, losses can be minimized by adhering to strict guidelines.
Scalping entails making multiple trades throughout the trading day. A scalper will purchase (or short sell) a security and then sell (or buy to cover) once the price shifts slightly in the anticipated direction.
Profits from individual trades are generally quite small. However, the goal is for these small gains to accumulate through a high volume of trades.
A forex scalper begins their trading day by analyzing major currency pairs, such as the EUR/USD, specifically seeking pairs with tight spreads, as these present the best chances for quick, small profits.
For instance, if the EUR/USD pair is trading at 1.1200/1.1201 (bid/ask) and the scalper predicts a price increase, they might buy a substantial amount, say $100,000, at the asking price of 1.1201.
The scalper targets a minor price movement. If the price rises to 1.1202/1.1203, the scalper could then sell at the new bid price of 1.1202. The difference, known as the pip, is minimal—in this case, 0.0001. However, when trading large volumes, even this small amount can result in a significant profit. In this example, the profit would be $10 ($100,000 * 0.0001), excluding any trading fees.
This entire process can occur within a very short time frame, sometimes just a few minutes or even less. The scalper would then repeat this process, potentially hundreds of times throughout the trading day, with the aim of accumulating numerous small profits.
A scalper trading stocks might purchase 1,000 shares of a stock after it experiences a notable upward movement, anticipating that the initial few ticks downward, once the upward momentum slows, will be followed by a smaller upward movement.
The scalper would sell those 1,000 shares at the first indication of the smaller upward movement, seeking to earn a small profit from the difference between the buying and selling prices.
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