What Do Scalpers Do?
• Scalpers look to enter and exit trades in minutes.
• The time that scalpers stay in a trade can range from seconds to minutes.
• This type of trader is looking for a quick opportunity to grab 10 cents out of the market using tight stops. He sometimes gets lucky with a fast 25 to 50 cents when the markets are volatile.
Requirements for Scalpers
• Stamina. The constant focus drains mental energy as scalpers make dozens of trades every day. They must constantly focus their energy throughout the entire trading day and only take a brief lunch break.
• Good eyes. Tired eyes will negatively affect profits. In this game, the fastest person to pull the trigger wins.
• Discipline to take small stop-losses. Scalpers must use 2 to 4-cent stop-losses and never, ever more than 10 cents.
• Ability to act quickly, make good judgements using advanced level 2 tactics, and use advanced Japanese candlestick patterns. Good technical skills are critical.
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Scalping is a style of trading when the trader tries to pull 5, 10, or 20 cents out of the market. Scalpers look for very fast moves that range from seconds to minutes. They do not like to ride through many small wiggles; they hop on the boat and get off at the first sign of danger. The scalper always uses a very tight stop-loss and normally uses 1,000-share lots. If he is looking for a 10-cent ride, his stop-loss would be about 2 cents. If he is looking for a larger ride in a higher-priced stock, he might have a stop-loss of 4 cents with a target of about 20 cents. If 4 cents on 1,000 shares does not appeal to the scalper, he might lower his share size to 500. The scalper normally makes twenty to sixty trades a day and with an average of $80 gains after commissions, the profits add up.
Scalpers normally use two or three-minute charts and a one-minute stochastic study for entry and exit points. They must also be very fast with the hotkeys for this type of trading. Charts with stochastic studies are closely watched and when entry time is near, scalpers focus on the level 2 screen.
The scalper normally works from home or trades in an office with other traders. Because she is a very active trader, her commissions will usually be less than $10 per trade, or less than $20 per round trip, due to the discounts brokerage firms give to high-volume traders.
This style of trading is for the advanced, disciplined trader. He must always use small tight stop-losses. The advantage of this type of trading is that the scalper does not have to feel the pain of the wiggles when the stock fluctuates in price. Most scalping trades occur in quick moves when the stock's price moves in the desired direction. Scalpers must then get out in a very short period of time.
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