How to Use the Day Trading Scalping System

The scalping system is made to order for day traders. Scalping involves buying and selling a stock within seconds or minutes. You can also use the scalping technique in the currency and futures market. Scalping is a way to control your risk when day trading stock or other commodities. Since scalpers hold a position for only a short time, there is less danger of losing a large amount of money.

Difficulty:

Moderately Challenging

Instructions

Things You'll Need

• T1 line
• Updated computer
• Level II quote system

1. Update any computer equipment that is obsolete. Scalping the stock market requires faster computer speed than other forms of trading, because you must get into and out of a position so quickly.

2. Splurge on a T1 line (a fiber-optic line that carries data at a rate of 1.544 megabits per second and plugs into the network router). Scalping requires ultrafast Internet speed. DSL service from your phone company and cable modem service are also acceptable, but they are not the best choices.

3. Subscribe to a Level II quote system. This updated system will list the highest bid and the lowest ask prices for a stock. It is an essential tool for day traders using the scalp system.

4. Make several trades a day. Scalping requires you to buy and sell as quickly as possible to maximize your profits.

5. Expect small profits. However, a small gain on each trade can add up to a decent return at the end of the market day.

6. Consider holding onto part of your position when you liquidate, even if you will turn a profit. Holding onto a small amount of the stock will allow you to capitalize on it if the price movement becomes even more favorable.

7. Keep price spreads and commission costs as low as possible. Remember that you are working with small profit margins when you scalp.

Tips & Warnings

• Stick to a strict exit strategy when you play the stock market using the scalping system. Although there are always risks involved in any kind of day trading, the short time you are exposed to the volatilities of the market and the frequency of small trades are the main reasons why scalping allows traders to turn small profits into respectable gains.

• Beware of any stock tips you hear about on chat rooms, find posted on Internet bulletin boards and online newsletters or receive via unsolicited email. Never buy a stock that you haven't thoroughly researched, no matter what kind of trading system you use.