Scalping is a trading strategy used to take small profits on the way up and the way down. It involves taking small gains (less than 1%) from each buy or sell, usually within seconds or minutes of entering the trade. This accumulates into larger gains for the trader over time [note: this does not mean it’s like gambling].
Scalping is typically used by day traders, who only hold the asset for a single day. When shares are held too long they can experience what’s known as “gaps” or unrealistic price changes in either direction. It’s also common for stocks to increase in value over time without any drastic change in their price (e.g. if Apple releases a new phone). So by having your order set to close within minutes of placing it you’re cutting down on losses that will occur due to illogical jumps in share price and timing the market effectively.
A trader can use many different strategies while scalping- whether it be using technical analysis through chart patterns to make decisions on when to buy/sell, waiting for high volume market hours, or monitoring social media for news on the stock. Schaff [made up name] may buy at $100 and sell at $101, then may buy again at $99 and sell again at $98 (and repeat this process until he’s eventually in the red).
Scalping is a popular trading strategy because it offers large gains with relatively low risk- that is, you’re not risking much to make big profits . It can help traders manage their losses and maximize returns when done correctly.