The Hindu Business Line : Trader's Corner

Novice traders would have come across the term `scalping' when two seniors are discussing their trading strategies. Though the term scalping conjures up images of a barber's razor or to the more imaginative mind, traders tearing off their hair in frenzy, scalping happens to be a perfectly civilised trading style. It is quite common among the professional traders who move in and out of trades with surgical precision.

What sets scalping apart from rest of the trading styles like day trading, swing trading etc. is the deftness with which profits are booked, even if the move is very small. The reduction in trading range is usually compensated by increasing the quantity per trade. Traditional scalpers trade in large volumes. Traders who do not wish to increase the risk per trade, scalp in smaller quantities too.

Scalping is done with a view that booking profits quickly and consistently, though with smaller spreads eventually results in a sizeable profit in the end. Of course, money management is the corner stone of this style. Tight rein needs to be kept on losses. A profit when seen is booked instantly. This prevents profitable trades from turning in to losses. Since scalping trades are never carried forward to the next day, the risk is limited. It is suitable for traders who like to have a good night's sleep, unencumbered by worries regarding their carry forward positions.

Scalping trades can be initiated in the same way as swing trades are. They can be news based or they can be based on technical analysis. News based trades are initiated as soon as the news relevant to the company is announced in order to take advantage of the move that occurs in the minutes following the announcement.

Similarly, buy signals generated by technical analysis like breakouts from consolidation patterns, buy signal in oscillators, trend line break-out etc. in inter day charts can be good triggers for initiating scalping trades.

Since scalping needs split-second decision-making and execution, a minor hesitation can prove to be costly. It is generally believed that scalpers keep their eyes glued on the ticker all through the trading session. This is not true. One or two trades during the day should suffice for most traders. Scalping is also the apt style in markets that are trending sideways with no clear direction.

Lokeshwarri S. K.

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