Do you think of yourself as an investor or trader? If you are interested in the difference between scalping and day trading, you may be more of a trader than an investor. Investors often think long term – subscribing to the “buy and hold” idea – while traders tend to be more active, trading every day or almost every day.
So, speculation vs day trading. What is the difference? Ultimately, the main difference is the holding time, i.e. how long the positions are held before they are sold. The holding time for scalping is usually very short, sometimes it takes seconds. However, in day trading, time can vary widely.
To learn more about scalping and day trading, keep reading. We will cover scalping as a day trading strategy, as well as a variety of other day trading strategies. By the end of the article, you should have a better understanding of scalping and day trading, and a better understanding of which day trading strategy is best for you.
Scalping
First, let’s cover speculation. Scalp traders, also known as scalpers, want to make small profits from relatively small price changes. Instead of chasing after one big win, scalpers aim for lots of small wins each day.
A scalping strategy involves entering and exiting trades within a very limited time frame, often a few seconds or minutes. While scalpers may sometimes persist for a few hours, this is rare, and it is no longer really scalping if the position is held after that trading day.
In this way, speculation involves intraday trading. It is all about quickly executing on price movements in order to make quick profits. Due to the nature of this trading strategy, scalpers must be meticulous in the way they time their trades.
Here are three key components to scalping success:
- Decision making speed Decisions must be made quickly when scalping. And when making decisions as a scalper, long-term schemes don’t really apply. Instead, speculators use minute-by-minute charts.
- Technical Analysis – Understanding technical indicators of momentum, support and resistance (S&R) is essential for speculators. This enables them to find speculative opportunities with the best chance of positive price movement.
- Not being greedy Since speculation is about accumulating many small wins, speculators must exercise restraint and not be greedy in any one trade. While there may be a strong temptation to let a trade run, speculators choose instead to take a quick profit and move on to the next trade.
Ultimately, scalping is all about speed and accuracy in decision-making and execution. Speculation is not for the faint of heart, nor for people who cannot get their 100% attention on their business. However, this need for attention can be reduced through certain order patterns, such as take profit or trailing stop loss.
daily trade
At this point, you may not really see how speculative trading varies throughout the day. This is a valid point. After all, scalping is in many ways just a day trading strategy. However, what one usually means by “day trading” is very different from scalping.
While both scalpers and day traders trade intraday, i.e. they enter and exit positions within a day, day traders do not usually plan to hold them for seconds as scalpers do. Instead, day traders hope to ride the expected daily price movement of a trade and capture the majority of that movement, whether it happens in minutes or hours.
Here are three key ingredients to successful day trading:
- patience Unlike scalpers who need to avoid the temptation of greed and hold on for more than a few seconds or minutes, day traders need to be patient.
- Stick to the plan Part of being patient involves sticking to a (trading) plan. If day traders do not stick to their original plan, they may get out of their trades too soon, which basically amounts to speculation.
- decision points The day trader’s trading strategy should include important decision points on the chart. When the price of the trade reaches these points, the exit will provide some benefit in terms of profit potential.
Ultimately, day trading is about making the most profit from a particular security or financial instrument within a single trading day. Day traders typically rely on a variety of technical indicators to determine momentum as well as support and resistance.
day trading vs. Scalping | Which is right for you?
Day Trading vs Scalping, Which One is Right for You? Ultimately, it depends on your trading strategy and goals. Some people do not have the energy or interest required to scalp, while others may prefer reduced scalping risk compared to regular day trading.
While scalping is technically a day trading strategy, it tends to be very different from what people mean when they say “day trading”.
Asking yourself the following questions may help you choose the right one for you.
- What style is best for you in terms of comfort?
- How much time can you devote to managing your positions? Speculation requires a lot of time and attention, although so does day trading (to a lesser extent).
- What are your goals? Are you seeking side income or do you want to be a full time trader?
- What is your tolerance? Speculators try to reduce the risk by spreading their profits on lots of small winnings.
Either way, if you want to continue day trading, checking out the following day trading resources can help you achieve maximum success:
