Scalping Stocks - Trading in Brief Timeframes

Scalping stocks is a term used that represents a stock trading strategy that involves the potential of making profits, or having losses, very quickly, often within seconds or minutes.

This type of trading is geared towards the hardcore trader who has time to stare at a computer screen and watch every movement of a stock with total concentration.

I say hardcore, but actually if you have the right trading plan, this type of trading can be very profitable for the right type of person, hardcore or not.

The key phrase here is "the right type of person". In addition to this page, take a look my other page Scalping the Market Using BAC.

Being successful at this type of stock trading requires several key traits. Here are some of them, including what I mentioned above:

  • Being able to stare at a computer screen for long periods of time.
  • Able to work without being distracted.
  • Available to trade during mostly morning hours.
  • Ability to accept being wrong and getting out of a losing trade quickly.
  • Have access to an advanced trading program.
  • Own a current, fast processing computer.
  • Have a fast, reliable Internet connection with a backup connection.
  • Have a power backup for your trading computer.
  • Have the ability to make sound, quick decisions without being influenced easily.

Any of these sound like you? Maybe I was right above when I said "hardcore". You definitely have to be able to control your emotions and stick to your trading plan with scalping.

Your competitors in any type of trading include some professionals, but in scalping, a larger percentage of the competition are professionals.

The positive side of this type of trading is that you can make a good amount, even consistent profits, on a regular basis if you are successful.

You also don't have to wait days or weeks looking for the right set up on a chart before picking a stock. Most scalping is done based on news that comes out, which is every day for one stock or another.

Here are some examples of scalping opportunities shown using charts. Take a look at each one carefully and one at a time, before looking at the chart that follows it:

scalping 1 image

This partial chart shows a stock opening at a certain price and immediately starting to go up. In this example, there is a scalping opportunity (depending on your trading plan and rules) to get into a trade either buying, expecting the price to rise, or selling short if you think the price will go down.

Remember, scalping stocks involves trying to profit from moves in prices over very short periods of time. In the chart I am showing, making a small amount of say a .10% profit target would only require a .12 cent move in the price. A .25% profit target would be a .25 cent move.

Depending on the number of trades each day, a profit target of a few pennies per trade is very common.

Which way do you think the price will go next?

scalping 2 image

Click on the "Show Chart" button below to see if you were right.

If you would have bought the stock at the top of the previous chart when the price was rising, you can now see that the stock reversed and started going lower. Depending on your trading plan rules, you may have had to close the trade and taken a loss.

This is an example of why someone who does scalping has to watch very closely to notice these quick changes in prices. These charts are only showing 1 minute time frames, so in a matter of seconds you could have a substantial loss or profit, depending on what point you enter a trade to begin with.

Some people will look at these and say ".10% or .25% profit target?, that's too small and you can't make any money like that". But if you are scalping and you have a good trading plan, having small profit targets are part of the plan.

Think about it, if you can average .25% profit in a day, times 5 days/week, that is +1.25% per week. Still seem like a small amount? What about when you multiply this times about 40 weeks per year? Now we're at +50% for the year!

While this is not typical, if you work with the numbers and develop your plan right, you can see that scalping only requires these small profit targets for yourself. If you can average +50% in a year, you will have the opportunity to make a lot of money and people will want to pay for the trading plan that you use.

On the first chart above, traders were buying and the price started going higher, then in the second chart while more people started buying, the price started going down.

Why? Because as more people started to buy (these were the inexperienced traders following the price higher), the professional (experienced) traders started to sell.

After all, who were the inexperienced traders buying from? They had to buy for someone, right?

Are you with me so far? Keep following along and we'll see how the rest of the day turned out for this particular stock.

Take a look at the next two charts below and you will see that between about 9:40 and 9:48 the price did the same thing again, it went up for a few minutes (to about the same previous high price-this is an intraday resistance level), and then went right back down as the experienced scalpers took profits again.

scalping 3 image scalping 4 image

At this point, the inexperienced traders have given up after getting whiplash from the price action so far. Now the experienced traders are buying again as you can see in the chart below. Notice how we are right back up to the previous high of the day, or intraday resistance level:

scalping 5 image

Below you can see that once again, as the price went up to the previous resistance level, the experienced traders started selling to the inexperienced traders.

Also notice that the price around 10:00 did not go as low as the prior low for that morning, this was because the inexperienced traders were exhausted as I said above. They called it quits for the day and the selling pressure decreased because there was no one left to sell to.

This is the time when the successful traders step in and start buying, as you can see by the price rising again and this time going a bit above the previous high.

scalping 6 image

Now take a look below at how the rest of the morning played out. As you can see, the same pattern repeated one after another all the way until about 11:30 in this chart. If you were scalping, notice how many opportunities there were just from 9:30 until 11:30, a lot.

scalping 7 image

The rest of this particular day went sideways, down, up and then back down a little. The high point at 11:30 was the high for the day. At one point in the afternoon the price reached this level again, only to back off and start going down (new resistance level).

Basically, there are plenty of opportunities in the morning hours to look for scalping possibilities. News of some type or another comes out every day.

If you try and trade this way all through the day, you will wind up getting burnt out and start making mistakes from all the zig zagging price action. That's why it's best to try to limit your trading time, especially with this type of trading.

That's all for right now. I hope you enjoyed these examples and they helped you understand about scalping. Send me a message if you have any more questions on this topic, I will be glad to hear from you.

I also have added another page with some scalping examples here: Scalping the Market Using BAC.

For more examples and illustrations like this, sign up for my Free Market Trader Ezine/Newsletter.

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