Definition
Scalping is a strategy that specifically focuses on short time frames for closing and opening positions in order to make small profits. Scalpers often make a lot of trades on a daily basis and expect a very high win rate.
Forms of Scalping Strategy
There are three popular forms of scalping strategy in the market:
-
Scalping as market makers. Investors order to buy and sell a security at the same time. This action is intended to profit from the difference between the buy and sell prices. This strategy has the best results for stable and high-volume stocks.
-
Scalping as investors. Scalpers buy in bulk stocks with a strong foundation and wait for the price to move. In Vietnam, with high fees and the T+1.5 rule, scalpers often take a profit when it reaches 2%.
-
Scalping following technical analysis patterns. In this approach, scalpers wait for a certain pattern to appear to open positions and expect quick profits. This approach often takes profit and stops loss at equal levels. Investors only focus on the /loss ratio.
What Investors Need for a Scalping Strategy
In addition to the strategy, investors need a stable platform to place thousands of orders daily. In addition, good data sources are essential to make accurate decisions.
In Vietnam, a stable application programming interface (API) gives investors direct access to a stock brokerage company. It’s required for investors who want to execute scalping strategies in the derivatives market.
This strategy brings quick profits so it will attract a large number of investors. However, this strategy is not an easy way to make profits. Investors should note the following important factors:
-
Without proper risk management, a large loss may wipe out the profits from hundreds of successful trades.
-
Transaction costs are key. With scalping, the profit per trade is usually very thin. It may not be enough to compensate for fees and taxes. Minimizing transaction costs should be taken into account to increase the likelihood of success.
-
Liquidity and volatility will greatly affect investment performance. This strategy has high-profit potential when the market sharply fluctuates.
-
This strategy takes a lot of time and effort in the case of manual trading.