Traders use various methods to trade the equity markets depending mostly on their personalities and risk tolerance. Although when most people think about trading stocks or futures, day trading is usually the method that comes to mind. However, this method requires longer holding periods leading to increased risk. Scalp trading is a technique utilized to reduce risk while profiting from the financial markets.
Anytime a position is opened in the market, the clock begins to tick and with each tick comes added risk since your position is subject to market forces. In order to reduce market exposure and better manage risk, we need to decrease the time frame of holding open positions. Scalp trading is custom made just for this purpose. Allow you to profit as a trader and cutting risk.
This form of trading can be used employing whatever type of system you are most comfortable with such as traditional candlestick charting formulas, crossovers, moving averages or pivot points to name just a few. Whichever tools you choose to employ when scalping the equity markets, the rules remain the same. Always obey your stop loss and exit quickly once your stop is reached – no exceptions. Most of all remember you are not swinging for the fences trying for a homerun on each trade. Scalping is all about small profits and managing risk.
Many experienced traders employ this type of trading using their home computers as well as professionals on the floor of the major changes. Some veterans forego complex market systems and only only on a time and sales screen executing orders when certain levels are reached within the market. Quickly entering and exiting, banking small profits under the radar. By reducing the amount of time your positions are exposed to the market using scalp trading methods, you can greatly reduce your losses keep risk levels in check.
By Doug Fisher
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