Scalping

Scalping the market usually involves high frequency trading.

The objective is to trade very actively to make small and very frequent profits.

Traders that use this trading style are looking to take advantage of the smallest price fluctuations in the market.  A trader or a trading robot could make hundreds of trades per day.

Scalpers and high frequency trading robots typically have tight stop losses and very small profit targets.

This is your rapid fire style of trading and the duration of trades can range from seconds to maybe up to an hour. It depends on the technology used and market conditions.

This type of trading is nearly all technical based and trading is usually done on sub 15 minute charts.

Latency and price slippage can critically affect this type of trading style. Any delays in execution can result in a significantly worse price. Which can mean the difference between a profit and a loss.

Scalping is also the most sensitive to changes in liquidity and widening spreads of all the trading styles mentioned here.

Pros

·        High number of trading signals and opportunities to trade

·        Low time in market can potentially reduce risk

·        Potential to make money very frequently

·        Higher probability of reaching profit targets because they are close by

Cons

·        High number of false trading signals

·        Price movements may seem more random

·        Higher probability of price reaching the stop loss if it is close by

·        Transaction costs are a higher percentage of profits and high in general

·        Sensitive to latency, slippage, widening spreads and platform instabilities

·        More screen time is required to trade and monitor and manage the trades