How do I Scalp Stocks?

Stock scalpers want to make a small profit off multiple daily trades. Scalpers open and close trades sometimes in less than one minute before returning to their charts to look for the next scalping opportunity. Although the idea of jumping in and out of the market making quick money is appealing, it is also very risky. If you think scalping stocks is for you, be sure to practice with a demo account before putting your real money on the line.

Step 1

Determine if you are cut out to scalp stocks before risking any real money. Most stock scalpers trade during the stock market’s morning session, so if you have a day job, this trading strategy probably will not work for you. Successful stock scalping requires that you sit staring at your computer screen for hours, be able to read charts and make instant trading decisions, and close out a losing trade when you are wrong. You must be able to control your emotions and stick to your trading plan when trading volume is heaviest.

Step 2

Make sure your brokerage firm allows stock scalping. Some firms require that you hold a trade open for a certain amount of time before you close it out. You must be able to close a trade the moment you reach your target profit even if it only takes ten seconds. It's best if your broker has a Level II quote system that automatically updates with the highest bid and lowest ask stock prices so you can get the best fill. Check that you have a reliable and fast internet connection along with a backup power supply.

Step 3

Decide on a method to scalp trade. One method is to set a target for the amount of profit you want per trade. A second method involves using the Level II quote system to profit from new intraday highs and lows of a stock. To be successful with this method you need meticulous attention to detail and a brokerage that can supply the highest level of order execution. The last method involves spotting trends, events or news that will cause a stock to be volatile.

Step 4

Use your brokerage account’s stock scanner to select a stock suitable for scalping. Depending on the method you are using, some characteristics that make a stock a good scalping candidate include volatility, close spreads, daily trade volume of at least 500,000 shares, and uptrends or downtrends. If the stock is in an uptrend, wait until the price falls to a support level before entering a trade. If the stock in trending down, wait until the price hits a resistance level before opening a trade.

Step 5

Purchase enough shares so that a small 5 or 10 cent upward move will give you enough profit to close the trade. Looking at an example, it would cost you $5,000 to buy 500 shares at $10 a share. If the price increases 10 cents to $10.10, you would calculate your profit by taking the 500 shares multiplied by 10 cents for a $50 profit before commissions. When that trade is closed, return to your stock chart and wait for another scalping opportunity.

Items you will need

  • Online advanced trading account

Tip

  • Keep careful accounting records of each trade so you can accurately file your income tax return.

Warning

  • The Securities and Exchange Commission considers stock scalping very risky. Only trade with money you can afford to lose.

Photo Credits

  • Stockbyte/Stockbyte/Getty Images

About the Author

Based in St. Petersburg, Fla., Karen Rogers covers the financial markets for several online publications. She received a bachelor's degree in business administration from the University of South Florida.

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