Complete Guide to Scalping Stocks

When looking at all those wiggly lines on stock charts, do you ever ask yourself—can I make money off of these wiggles?

In short, the answer is yes—it is indeed possible to make dozens of trades per day, making a tiny profit from each one. And the best part is that each of these trades can be executed in a matter of minutes or even seconds making each one very easy to complete. ⏲

This strategy is called scalping and it’s one of the most adaptable trading methods. When markets are extremely volatile, active trading strategies often show better results because they don’t depend on unpredictable long-term market trends. When markets are hectic with new FED policies hanging around the corner to make a mess of things, traders can always use scalping to make gains without losing their hair, worrying about the bigger picture.

However, if you think that making dozens of tiny trades per day is easy, it isn’t—scalping requires a very precise and systematic trading process, as well as a substantial trading balance and an ice-cold mentality. But overcoming these challenges gives scalpers the opportunities that other traders simply won’t even see—and a dozen tiny profits a day can add up.

In this article, we will discuss the advantages and risks of scalping and how to do it—and we will combine all that knowledge into an example of a real trade in the last chapter. Ready to take on the most focus-intensive trading strategy on the block?

Let’s get right to it. 👇

What is Stock Scalping? 📚

Scalping is a trading technique that involves making a bunch of very fast trades, with the intent of making tiny profits off of each one. Just as the name suggests, scalpers buy a stock, and as soon as it moves up even by a portion of one percent, they sell it – keeping the stock’s ‘scalp’ as a reward.

Think of scalping as a game of whack-a-mole—the reward for each mole is negligible, but if you are fast and whack a lot of them as soon as they pop their heads out, the rewards can add up. While scalping is much more common in forex, since currency trading doesn’t suffer the same rules and capital requirements as day trading, it  is still a popular strategy among investors nonetheless.

This strategy is more cut out for very active traders because it involves opening many positions throughout the day, all of which are held only for a few minutes or even seconds. But this focus-intensive strategy can have its benefits if done correctly, as we will discuss in a moment.

Understanding How Stock Scalping Works 👨‍🏫

The main idea of scalping is to make dozens of trades each day, making a small profit overall. Positions are usually held for a few minutes at most because scalpers use extremely short-term trends to predict price movements and make a profit.

Speed is crucial in scalping—holding a position for a minute too long in this game can be the difference between profit and loss. So, precise timing and masterful use of various automatic order types are key for a devoted scalper making dozens of trades per day. Otherwise, scalping would either utter chaos as results would be even more unpredictable and uncontrollable.

This is one of the risks of scalping—without speed and precision it is easy to suffer losses; and to make more money, you need to enter more trades throughout the day, which makes the entire process a marathon where each imprecise step can cost you. 

All in all, scalping is a straightforward approach that comes with psychological challenges: A lack of patience and an excess of greed can quickly turn a potentially good trade into a flop.

Stock Scalping as a Primary Trading Style 🥇

Before a trader decides on any trading strategy, they consider their financial situation and goals before anything else because some strategies are simply not viable without a certain amount of capital. According to U.S. trading regulations, anyone who wants to open and close more than 4 trades per day over a course of 5 trading days is considered a day trader.

All day traders are required to have at least $25,000 in their trading accounts at all times, and since scalping is essentially a sped-up form of day trading, this requirement applies to scalpers as well. Then, the trader can use all of their funds to trade, provided that their brokerage account balance doesn’t drop below $25,000.

So, if a trader is using scalping as their main strategy, they must meet these requirements, and then make enough profitable trades each month to meet their goals. Here is an example of these goals: 

Realistic Profit Expectations 💰

Expert day traders usually aim to increase their portfolios by around 1% per day—some days will be full of losses, but overall, a pro day trader can expect as much as 10% in average monthly returns if they are in the top 5% of traders who are actually profitable.

If we want to reach these returns using scalping and still keep it relatively safe, we need to use stocks with a huge trading volume—this means that shares are easy to buy and sell off quickly. Preferably something popular like AAPL or AMZN.

Then, depending on how volatile a stock is, we should determine our profit target—in the short time frames that scalpers work in, even volatile stocks can only move a little bit. For example, immediately after its Q1 earnings report in 2022, Google fell 3.5%, but a scalper making one-minute trades can only hope to squeeze about 0.05% to 0.1% per trade.

So, if we use that as a benchmark and decide to play it safe, we’re looking at an average profit of +0.05% for each winning trade. That’s not a lot, and we need at least 10 to 20 successful trades like these to get to 1% returns per day. Moreover, even expert scalpers don’t win all the time—their gains outweigh their losses overall, but they accept their losses with a stout heart and without reacting emotionally.

This means dozens of trades per day and losing many of them without getting stressed out and emotional, which is not exactly easy for a beginner. Moreover, stocks are expensive and often cost dozens or even hundreds of dollars, and each trade needs to be fueled by at least a few thousand dollars to make sense financially.

Naturally, a scalper must trade stocks that are within a reasonable price range and probably use margin or derivatives like stock options to make each move as cost-efficient as possible. All in all, as a trader’s main strategy, scalping is fairly straightforward and makes risk management easy but it requires a sizable trading balance as well as thorough knowledge about technical analysis and the ability to keep a cool head in all situations.

Stock Scalping as an Alternative Trading Style

Unlike most day trading strategies, scalping can be a hobby. But like collecting bottle caps, it probably won’t amount to much in terms of how profitable it can be.

If an average profitable trade makes a return of 0.05%, without dozens of trades per day, scalping returns are often negligible. Therefore, as an alternative, supplemental strategy to your main trading portfolio or as a side-job, scalping doesn’t work that great (unless you can put obscene amounts of cash into each trade).

People with full-time jobs and other obligations need a strategy that fits their lifestyle and can produce good profits without requiring too much time and attention. Swing trading is a suitable strategy for busy people, but scalping isn’t. All the benefits that scalping carries are gained by sacrificing a lot of time and attention, so it is only recommended to traders who will make this trading method their full-time job.

Scalping vs. Day Trading Stocks ⚔

What’s better, quality or quantity? Well, that depends on the context, but this is the essential difference between day trading and scalping. Day trading is about using technical analysis to find a good trading opportunity, buying in, and then monitoring the trade with the goal of exiting at the best possible time. It is like shopping for a new computer—you think it through and take your time because every component matters.

Because scalping requires traders to make dozens of trades per day extremely quickly, it is only possible to scalp extremely liquid stocks that can be sold off to somebody in a blink of an eye, or a tick of a stock ticker. But that is not the only limiting factor—even the process of physically entering and exiting trades is much more time-consuming and takes a lot more focus.

After all, scalpers make a dozen trades every few hours whereas day traders usually don’t make more than 7-8 moves daily. As such, day trading leaves more time for research and gives the trader the option to hold a position for long enough to make a substantial profit. For example, when Netflix crashed in April 2022, its price dropped by 26% over the course of a day—this event was immensely profitable for day traders who decided to hold their short positions for a few hours before cashing in.

All in all, day trading is already so time-consuming that it is practically a day job. Since scalping demands even more time and attention, it can hardly be said that it is easier or better than day trading—especially since approaching both strategies with due diligence can be equally profitable and dangerous.

Technical Indicators Used for Scalping 💻

Snowboarding doesn’t work without a snowboard and fast-paced trading doesn’t work without technical analysis. This form of analysis is all about finding patterns in the price chart by using indicators that measure the price’s momentum, trend strength, and volatility. Here is how basic trading indicators work in scalping.

Simple Moving Average (SMA) 📈

The simple moving average (SMA) is probably the most fundamental of indicators—it tells us what the average price of a security is for a past period. Usually, traders use the 50- and 200-day averages to see if the near-term momentum of a price is increasing or decreasing.

Here is how it works: If the average price of an asset for the past 50 days is increasing while the 200-day average is stagnating, this can be an indication that a new upward trend has started and that the 200-day average will start rising as well. However, if the 50-day average price slows its ascent or starts going down, this usually indicates that the price will go down.

Single scalping is a very short-term strategy, looking at the 200-day average isn’t very helpful—but comparing a 10-day, 50-day, and 100-day averages can tell us where prices are going to go in the next few minutes. When a short-term average breaks through a long-term average, this is called the golden cross and is considered a very bullish sign.

Similarly, when a long-term average goes above a short-term SMA, this is a bearish sign called the death cross. Just by looking at these crosses, scalpers can spot opportunities—and predicting price direction changes is much more effective when the moving averages are making significant movements rather than subtle twitches.

As we can see in the image above, Apple moved about 0.17% after its 10- and 50-day averages formed a golden cross. If a trader looked at the simple moving averages as this was happening, it is likely that they would have gotten a clue that the price was about to rise, and coming out with a 0.05% to 0.10% profit would have been very realistic.

Bollinger Bands 📊

As a more modern indicator, Bollinger bands are something like an upgraded version of the simple moving average. Namely, this indicator shows a single moving average as well as two bands, one above it and one below. The area between these two bands is the range within which the price of an asset is likely to stay considering its volatility.

Very often, if the price goes above the range determined by the Bollinger bands, it is considered unstable and will go back inside the range before long. The opposite is also true—when the price drops below the lower band, this probably means that the stock is oversold and that its price will tick back up soon.

However, like the Starks, not every price line wants to get back into the fold after breaking out and declaring independence. For example, if a stock is on a strong bull run, it is very likely for the price line to be above the Bollinger bands altogether throughout the duration of the upward trend.

In this case, shorting the stock at the first sight of it going above the bands could be a huge and costly mistake. As is the case with all indicators, Bollinger bands can be tricky like this, and traders who use them should exercise caution and restraint before making any big bets.

Relative Strength Index (RSI) 💹

The relative strength index (RSI) is a momentum indicator that can tell us if an asset is overbought or oversold. Like the Bollinger bands, the RSI has a range that goes between 30 and 70—as long as the RSI is within that range, the price of the stock is considered stable, which means it won’t necessarily make any drastic moves. The closer to the middle it is, the less volatile it is, essentially.

The RSI can be very powerful in certain cases—when the RSI goes outside its stable range significantly (by 10+ or so points), a strong trend reversal is very likely. The more the RSI steps outside its stable range, the stronger the price trend reversal.

However, this doesn’t mean that every move that the RSI makes is a potential trading opportunity. More often than not, slight excursions into the “unstable” zone are followed by very subtle price reversals if any, which means that hunting for more significant buy signals is much safer and more potentially profitable.

However, in scalping, even slight movements outside the stable range can be used to make a dime—but this requires extremely quick execution and very modest profit goals for each trade. All in all, the RSI is very handy for all day traders, but trying to make use of every slight change in momentum can be very tricky, especially for inexperienced traders.

Considerations Before Scalping Stocks 🤔

It is easy to get intrigued by something if you focus on the positives. Like looking for gold on a beach using a metal detector, scalping can be very alluring—if you don’t consider all the downsides and risks. Here are some problems that will inevitably pop up.

Research 🔍

Before one even considers scalping a stock, they have to make sure that the stock meets a few crucial requirements. First of all, the stock must be very liquid—this means it is easy to buy and sell quickly and at a good price.

Popular, stable stocks with high trading volumes are usually a good pick. Just imagine—the stock in question has to be in other traders’ crosshairs at all times. In scalping, you have to be able to sell and buy almost immediately at any time, otherwise, there is no way of efficiently making one-minute trades. 

Every scalper needs a watchlist with “scalpable” stocks that this strategy can be applied to. It also pays to have an eye out for stocks that are popular but also volatile because their price changes can be significant, even over extremely short periods.

Finding perfect stock to scalp might be tricky, but a scalper’s research pretty much ends there—as long as you have a list of stocks that you can trade at any time, the only thing left to do is technical analysis. It is prudent to make a list and then test it to make sure that each stock is actually viable for scalping.

Technical Analysis 📝

Conducting a thorough technical analysis gives us a deeper insight into the inner workings of the stock market’s natural processes. In scalping, technical analysis is the only tool traders have at their disposal to predict market outcomes because the time frame is simply far too short for any other form of analysis.

But even then, only certain aspects of technical analysis are useful for scalping—we are exclusively interested in techniques that can predict very near-term changes, regardless of how tiny they might be. Scalpers need to be able to identify day trading patterns as soon as they form on a minute chart, enter a trade, and exit as soon as a breakout occurs, even if it is relatively small.

Order Execution 👨‍💻

If you don’t want to turn each trading session into a game of top-level whack-a-mole, just waiting for things to happen and reacting in real-time by manually placing trades simply won’t cut it.

But luckily, all premium stock trading apps allow you to set up automatic buy and sell orders in advance so you don’t have to watch your stock chart like a gunslinger watches his opponent in a duel as a tumbleweed rolls between them.

The two main order types to be aware of here are the stop-loss order, and the limit order. The former is more important—stop-loss orders set a bottom limit at which an asset will be sold automatically. Essentially, it is used to prevent any unnecessary losses and should be set up for every trade to prevent any damage in case of a surprising price drop.

On the other hand, limit orders can be used to set the highest price at which you are willing to buy and the lowest point at which you are willing to sell. All in all, an easy way to look at orders when scalping is this: set a buy limit order for the highest price you think is fair, set a sell limit order for the lowest price you think is fair, and definitely set a stop-loss lower than your buy order to make sure that all potential losses are contained.

Risk Management ⚖

All trading is inherently risky, but in scalping, it pays to be especially paranoid. Essentially, scalpers sell as soon as they see a move up because every profit is a sufficient profit in this game—not being greedy and chopping off the green as soon as it sprouts is the safest way to scalp.

This can be done using orders but there is one more fundamental risk factor that every scalper needs to be aware of, and that is the stock itself. Sure, when we compare a nice, boring value stock with a dazzling new growth stock, we can see that both have sufficient trading volumes but that the latter is more volatile, and thus, far more potentially profitable.

However, more volatility also equals more risk, and this is one of the reasons why some studies show that only 3.5% of traders actually win. Sure, we would all like to make 0.5% per trade instead of 0.05%, but all trading methods require reliability to be successful, and high-risk, high-reward tactics are the exact opposite of that.

Cost of Trading 💵

Besides taxes, death, and internet blackouts, the only thing that scalpers fear is broker commissions. In the past, brokers made most of their money through commissions they would charge on every single trade you make, and many brokers still do.

For long- and medium-term trading strategies, this isn’t much of a problem, as these commissions are usually just a couple of cents per stock—but for scalping, these couple of cents can make the difference between making money and wasting time. Needless to say, every cent matters to a scalp trader.

Luckily, with the advent of zero-commission brokers, anyone can trade without worrying about their bottom line—as long as they don’t mind their broker selling their order flow to a gigantic hedge fund. Be that as it may, commissioned trades are crucial in scalping as paying a fee for every profit you make makes the strategy practically impossible to pull off.

Trading Goals 🏁

They say that one of the marks of a great painter is that they know when their painting is finished—adding to perfection makes the perfect imperfect. That’s the idea. Similarly, a day trader, and especially a scalper, needs to know when to call it a day, otherwise, they will trade until the market closes, get sleepy, and probably start making mistakes.

Before setting out on a stock scalping adventure, a trader must have clear daily goals in mind. The two questions we can use to determine these goals are: How much should I earn and how much can I afford to lose before finishing my session? Here is how this usually works:

A trader will set a goal of, say, increasing their portfolio by 0.5% per day. But, they will also set a bottom limit—if their portfolio goes down by 0.5% in a day, they will assume that it is a bad day—either for the markets or for the trader—and that they will try to meet their goal tomorrow. This is important because losses naturally drive us to want to make up for them—and as such, they lead us to take greater and greater risks.

All trading goals depend on the trader, so there is no one-size-fits-all solution here. A good way of determining what goals are realistic for you is to use a free demo account for a month, make 5-10 trades per day, track your progress, and see how you’ve done—this can be a good benchmark for setting up realistic future trading goals.

Example of Stock Scalping 📖

Everything up until now has been a lot of ideas and theorizing—but it is time to tie them all together and simulate a single scalp trade from start to finish. Let’s say that we have a $30,000 trading balance because we need to have at least $25,000 to be able to day trade and let’s say we want to use $5,000 on a single trade.

1. Picking a Stock ☑

The first thing we need to determine is where to put our $5,000—for the sake of simplicity, let’s take a stock that is very popular, liquid, and volatile enough to be interesting. Apple (AAPL) falls into this category. 

At the time of writing this article, Apple’s value was about $160. This means that with our budget, we can buy 31 shares, which is $4,960. There’s simply nothing to do with the remaining $40, so we’ll let it sit this one out—unless we use a broker that offers fractional stocks.

2. Setting a Goal ☑

To set a realistic goal we first have to determine how volatile AAPL is and see in which direction it is trending. By looking at the past few months, we can roughly determine the range within which AAPL is moving, and it even seems there is a slight downward trend, which is no surprise because tech stocks were doing poorly overall during the period when this article was written.

Looking at the past few days, we can see that AAPL was very lively—the stock moved from 1% to 3% on some days. If we apply Bollinger bands on our chart, we can see that the stock has had a lot of wiggle room in the past, and at the rightmost part of the chart, it looks like it is expanding, so today might be even more volatile than the past few days.

However, even though the stock has a lot of profit potential, let’s be modest here and aim for a 0.1% return for our scalp trade. The next step is looking at today’s chart and spotting a good opportunity.

3. Choosing When to Enter the Trade ☑

First of all, we need to turn on a few indicators. In this case, we will use Bollinger bands, the RSI, and two short-term moving averages (10-day and 20-day) to get a better idea of what’s going on.

By looking at the AAPL minute chart for the morning of the 25th of April 2022, we can see something interesting happening at 11:30. Namely, the price is dropping towards the lower Bollinger band, the 10-day moving average (red line) is distancing itself from the 20-day average (purple line), and the RSI is almost at its lower limit.

When we combine all of these indicators, it is reasonable to assume that the stock is becoming oversold and that it might see a pump soon. So, maybe we can make a buck using this knowledge, but we also need to be careful just in case the indicator gods decide to be deceitful today.

4. Set Buy and Sell Orders ☑

Next step, let’s assume that the way things are going, the RSI is going to break through its bottom limiter a little bit. That means we will set the buy order to activate at $158.70. Now, all that we need to do is figure out when to sell.

We can also use the RSI to find a selling opportunity—if the price breaks through the bottom limit of the RSI (30), it is likely to jump back up with some force. Looking back at similar past events, due to its volatility and the overall faith of the market in Apple, the stock has had a tendency of jumping back up to an RSI level of 40 at least after becoming oversold. 

So, we can sell our stocks when the RSI hits 40—at this moment the price of the stock would be roughly $158.85. If we set this target, our profit would be about 0.1%, which is our goal. The only thing left to do is to set a stop-loss order in case everything goes south.

Considering our analysis and trusting what indicators are saying, we can give our prediction a notable margin for error because Apple has shown that it isn’t trending downwards (not on a daily level anyways) and that it can pick back up quickly after falling. We can set the stop-loss order to contain our losses at -0.4%, which is when Apple hits $158.

5. Accept Destiny and Look for the Next Trade ☑

As we can see, our gambit paid off. Well, we kind of knew it would because we wrote this after the fact, but still… we walked away with 0.1% returns on a $4,960 investment, which is a profit of about $5. Needless to say, this profit is negligible and just goes to show how tiny the average scalping return is if you play it safe and don’t have a very large trading balance.

However, it only took us a few minutes to execute this trade from start to finish—and using our analysis of Apple’s past performance, we can already start planning a new move. If we look at the chart above we can see that a golden cross formed after we executed our trade—and events like this are usually much more lucrative.

6. Record Your Performance and Call it a Day ☑

After making a few (or a few dozen) trades like this, we can likely reach our daily goal. After this, the only thing left to do is record our performance—most pro traders have an MS Excel sheet or something similar where they write down all the trades they made.

This record includes the buying and selling price, date, the profit/loss, etc. but in general, the more relevant info it contains, the better. Using your personal performance sheet, you can analyze what works and what doesn’t. For example, if our average Apple trade nets us 0.1% and our average Walmart trade nets us an average of -0.05%, maybe that’s an indication that maybe we should stick to tech stocks.

Pros and Cons of Scalping ⚖️

First of all, scalping is by far one of the most time-consuming and attention-demanding forms of trading. After all, precise, quick execution is an absolute requirement and there’s only so much that a trader can analyze. 

Because of its fast-paced nature, scalping doesn’t benefit from fundamental analysis or any form of longer-term pattern analysis, making it a bit more unpredictable than most strategies. Scalping is one of the toughest and riskiest challenges a novice trader can take on.

However, every coin has two sides, and scalping has certain advantages over other strategies. For one, since scalpers always look for small profits, it is fairly easy to make a profit by just buying a stock whenever it goes below a stable level. Super precise analysis is impossible, but it is also unnecessary most of the time.

Moreover, like day traders, scalpers close all trades before the end of the trading day, so there is no need to worry about overnight fees and price changes. All in all, scalping is not for the faint of heart nor is it for those who don’t have at least a few tens of thousands of dollars to work with but can be immensely profitable and scalpers can seize opportunities that other traders simply won’t even see.

However, there is one more thing to note: Day trading as a whole is a very risky profession and only a few traders are actually successful. Nonetheless, online tutors often present day trading, scalping, and other strategies as more reliable then they are—as was the case with Warrior Trading that had to pay its customers $3 million in damages for what the regulators considered ‘misleading and unrealistic claims.’

Conclusion 💬

If scalping were a sport, it would be Olympic running with obstacles—the runner needs to very quickly jump over dozens of obstacles before reaching the finish line. Every mistake counts, and so, scalping requires a lot of attention compared to other trading strategies.

Traders who are willing to devote themselves to such a discipline and have enough trading capital to make the strategy viable are far in between—but they have a few advantages over other traders. 

Making a single good scalping trade is much less complicated than making a good swing trade, so the only challenge here—albeit a serious challenge—is repeating the process of scalings enough times with enough success to grow your trading portfolio.

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