What is Scalping?
Scalping refers to buying and selling an underlying instrument multiple times in the same day for a small profit each time, which could add up to be a large sum. It is a trading style specializing in taking profits on small price changes, generally soon after a trade has been entered and has become profitable, for a predetermined profit target.
Though not explicitly stated, Scalping is always an intraday play.
I am sure, you must be thinking, as to why should I use scalping as an approach to trading. What’s the edge I see and why it’s worth the time that I spend? I see three primary reasons, there could be others though.
As an Engagement Tool – As a full-time trader you may be using positional/swing trading strategies, this would mean you take trades for longer time horizons, while you are in those trades, instead of just gazing at the charts for hours, being active with scalping helps you be engaged in the market and be agile to execute a trade when needed. It builds your awareness around small movements in the markets while keeping you alert and sharp.
Being engaged has some more advantages. Say if you observe charts on a 1 minute time frame, you may be able to spot scalping opportunities in price patterns which a longer time frame chart or EOD Open/High/Low/Close data may not reveal.
To Reduce Cost Basis of existing positions – Scalping can help to reduce the overall cost of the positions, irrespective of the Option Strategies you may use. Option strategies being strangles, straddles, diagonals and anything that walks on two legs or more.
As The Trading strategy – There is also a category of traders whose sole idea of trading is Scalping. They do so for their incomes. I belong to this category. While at the face of it, it may seem that it has no better chance than a coin toss, but if we delve deeper, which we would through the content of this blog, you would see that there is a method in this madness, in other words, scalping in a “particular way” has a probabilistic edge.
How do I learn?
Scalping is a performance sport, and all the aspects that apply to learning any performance sport apply to scalping. Apart from the mechanics, which may include aspects like understanding the products, markets etc. At the end it boils down to, two key aspects - practice, more specifically deliberate practice and self awareness. Most people tend to focus on extrinsic factors like indicators, set-ups etc. But there is no edge in any indicator, the edge lies in a mix of firstly Market awareness, which means having a probabilistic sense of what could happen, and secondly self awareness - which means managing ones emotions and trusting probabilities, and lastly a holistic understanding of risk.
While there are a lot of generic aspects to scalping, which have been talked about by the likes of TastyTrade and Futures 71, however there are no such curated resources with an Indian context. In my experience I see two India specific factors at play, one - the tools, technology and instruments available and two - the nuances of the broad market indices.
NiftyScalper is an endeavor to bridge this gap. The goal is to contextualize the available information and to create India specific content. By following the resources on the site and by being a part of the NiftyScalper community I hope you would be able to develop and hone your skills for scalping success.