There are competing definitions of scalping, but the most common understanding of it is the practice of fast trading, and making profits from very small movements in price. Unlike buy and hold or even swing trading, the scalper is content to take small certain profits and many of them. The risk/return ratio on each trade may even be as low as one to one.

Scalping depends on catching a price movement quickly and then selling within a few seconds or a few minutes before the volatility of the price makes it swing back. It demands a responsive trading system which should include Level II pricing and a direct access broker in order to make the trading possible.

When the price starts to move, the scalper will quickly buy or sell a large amount of shares, and take profits as soon as they appear. Because the profits are only small each time, scalping demands that there is a strict exit strategy that will terminate the trade quickly for minimal loss, so that a loss will not wipe out several gains.

Scalping can be a very intense form of trading, as any slip may be costly. Some people regard it as a more consistent method of making profits than conventional short-term trading, but it does require constant attention to avoid mistakes, and the fast pace is unsuitable for many traders who prefer to take time and study the charts and analyse the prices.

When scalping it is essential to have the correct set up, as any delay in taking or executing the orders can have a significant effect. The scalper must also work without distraction as concentration is needed to keep up with the second by second movements of the markets. When learning to scalp you should stick at first with one particular stock or Forex pair and learn how it moves. Often certain times of the day are better than others for predicting the prices, particularly when trading the Forex.

To see if this form of trading is one that you want to take up, you can practice with a demonstration account. This allows you not only to test your trading strategy but also to learn how to enter and exit positions quickly. As scalping typically involves small movements on large accounts, it is wise to limit the amounts that you trade when starting off until you establish a rhythm and develop confidence.

Scalping is a high-risk strategy that demands alertness and a particular mindset. If at any time you’re not feeling up to par, then that is not a good day to practice scalping. To make a decent profit you need to scalp large numbers of shares, so if your account is limited, no matter how good you may be at scalping, you may find this method not sufficiently profitable. Having said that, for those who crave excitement and love the fast pace, scalping is a way of life like no other.