Scalpers seek to profit from small market movements, taking advantage of a ticker tape that never stands still during the market day. They would buy when demand set up on the bid side or sell when supply set up on the ask side, booking a profit or loss minutes later as soon as balanced conditions returned to the spread. That methodology works less reliably in our modern electronic markets for three reasons. First, the order book emptied out permanently after the flash crash because deep standing orders were targeted for destruction on that chaotic day, forcing fund managers to hold them off-market or execute them in secondary venues.
Scalpers can meet the challenge of this era with three technical indicators custom-tuned for short-term opportunities. They work best when strongly trending or strongly range-bound action controls the intraday tape; they don't work so well during periods of conflict or confusion. Read on for more about such signals. For related reading, see: Place a SMA combination on the two-minute chart to identify strong trends that can be bought or sold short on counterswings, as well as to get a warning of impending trend changes that are inevitable in a typical market day.
This scalp trading strategy is easy to master. The ribbon will align, pointing higher or lower, during strong trends that keep prices glued to the 5 or 8-bar SMA. Penetrations into the bar SMA signal waning momentum that favors a range or reversal. The ribbon flattens out during these range swings and price may crisscross the ribbon frequently.
The scalper then watches for realignment, with ribbons turning higher or lower and spreading out, showing more space between each line. This tiny pattern triggers the buy or sell short signal. Market Reversals and How to Spot Them. How does the scalper know when to take profits or cut losses? The best ribbon trades set up when Stochastics turn higher from the oversold level or lower from the overbought level.
Likewise, an immediate exit is required when the indicator crosses and rolls against your position after a profitable thrust. For more insights, see: Time that exit more precisely by watching band interaction with price. Also take a timely exit if a price thrust fails to reach the band but Stochastics rolls over, which tells you to get out. Better yet, superimpose the additional bands over your current chart so that you get a broader variety of signals.
To learn more about other band indicators that can guide your trades, see: Capture Profits Using Bands and Channels. Finally, pull up a minute chart with no indicators to keep track of background conditions that may impact your intraday performance. Add three lines, one for the opening print and two for the high and low of the trading range that set up in the first 45 to 90 minutes of the session.
Watch for price action at those levels because they will also set up larger-scale two-minute buy or sell signals. Trading With Support and Resistance. Scalpers can no longer trust real-time market depth analysis to get the buy and sell signals they need to book multiple small profits in a typical trading day. Fortunately, they can adapt to the modern electronic environment and use the technical indicators reviewed above that are custom-tuned to very small time frames.
Scalping as a Novice Trader. Dictionary Term Of The Day. Broker Reviews Find the best broker for your trading or investing needs See Reviews. Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. A celebration of the most influential advisors and their contributions to critical conversations on finance.
Become a day trader. Multiple Chart Scalping Finally, pull up a minute chart with no indicators to keep track of background conditions that may impact your intraday performance. The Bottom Line Scalpers can no longer trust real-time market depth analysis to get the buy and sell signals they need to book multiple small profits in a typical trading day.
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