How Can You Profit From Scalping?
Scalping can be a profitable venture for investors and traders alike. Scalping is the practice of making many trades in a short period, mainly to take advantage of small price fluctuations. By doing this, you make small profits on each trade, but it adds up to considerable earnings over time.
To implement scalping successfully, you need to have a deep understanding of the trading business. Because of this, very few traders, let alone investors manage to implement it successfully and reap its benefits. If you’re not confidently implementing it yourself, having a broker like Saxo Belgium in your corner is worthwhile.
Read on if you would like to learn more about how scalping is reshaping forex.
If you want to succeed at scalping, you must use real-time data feeds and place trades in under a second with no hesitation whatsoever. For example, you decide to buy at the current price, but by the time you place an order for your trade, it has risen by 5 cents. You then sell at that exact moment or risk losing more money out of frustration.
Another technique used is buying into stock, making quick gains, and selling it off right away. It is a form of scalping because the trader makes fast money and then exits right away.
Know your way around
If you decide to implement scalping, it is best to focus on US stocks with high liquidity and low spreads. Liquidity means plenty of buyers and sellers in the stock, and quiet spaces mean little difference between what the seller receives and what the buyer pays for each trade.
Typically, these are blue-chip stocks that are also well established. Big companies like Apple Inc., Microsoft Corp., Boeing Co., etc., are generally good practices for this strategy because they have less volatility than upstart or niche companies.
In contrast, smaller companies with less stable share prices can yield better gains for scalping traders because they offer larger spreads between the bid and ask price.
However, since there is little liquidity in this market compared to more prominent names, it may take longer for someone to sell Intel at that price when you want to exit. You will not be able to make immediate gains from buying low and selling high in this case.
Be wise and be patient
You can implement many strategies to succeed at scalping, but it takes coordination and preparation to execute them successfully. Your knowledge about the stock market will also play a critical role in your success rate, so be sure to read up on various resources daily.
If you’re starting, use small amounts of money, preferably $500 or less. It would allow you to practice without losing much money should your predictions go wrong for that particular day/week/month etc.
Above all, be patient. Just because you are making a sale/purchase within seconds does not mean you will make the gains immediately. Scalping is more of a long-term strategy that can take months or even years to yield results for most traders, so do not get discouraged if your first few trades were unsuccessful.
Always be on alert
While scalping can be incredibly advantageous for investors and traders alike, it is essential to remember that it can expose you to significant risks, mainly when misused. For example, it took just 4 hours for Twitter’s stock price to increase by $10 – $15 per share; after Twitter released their Q4 2014 financial statement in January 2015. Because of this, they raised their quarterly revenue from $243 million to $250 million. They also increased their earnings per share from a loss of -$0.25 to a profit of $0.02 per share.
The point is, if you did not have enough time to purchase the stock at its lowest before it went up, you could severely lose out on potential profits because of this. While scalping is excellent for significant movements such as the one Twitter experienced, it can also hurt you if you do not have access to or time to purchase stocks at their current prices.