Do you think of yourself as an investor or a trader? If you are interested in the difference between scalping and day trading, well, you may be more of a trader than an investor. Investors often think longer term—subscribing to the idea of “buy and hold”—whereas traders tend to be more active, trading every day or almost every day.
So, scalping versus day trading. What’s the difference? Ultimately, the main difference comes down to holding time, that is, how long positions are held before being sold. The holding time when scalping is usually quite brief, sometimes a matter of seconds. In day trading, however, the time can vary more widely.
To learn more about scalping and day trading, keep reading. We’ll cover scalping as a day-trading strategy, plus 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 sense of which day-trading strategy is best for you.
Scalping
First, let’s cover scalping. Traders who scalp, also known as scalpers, want to earn small profits on relatively minor price changes. Rather than seek one big win, scalpers aim to get a lot of small wins each day.
The scalping strategy involves entering and exiting trades within a super limited time frame, often only a few seconds or minutes. While scalpers may sometimes hold for a few hours, this is rare, and it is no longer really scalping if the position is held beyond that trading day.
In this way, scalping involves intra-day trading. It’s all about executing quickly on movements in price in order to take quick profits. Given the nature of this trading strategy, scalpers have to be precise with the way they time their trades.
Here are three key components of successful scalping:
- Rapid decision-making – Decisions must be made quickly when scalping. And when making decisions as a scalper, longer-term charts don’t really apply. Instead, scalpers use minute-based charts.
- Technical analysis – Understanding technical indicators for momentum and support and resistance (S&R) is key for scalpers. This enables them to find scalping opportunities with the best chance of positive price movement.
- Not getting greedy – Since scalping is all about accumulating many small wins, scalpers have to show restraint and not get greedy on any one trade. While there may be a strong temptation to let a trade run, scalpers instead choose to take quick profits and move on to the next trade.
Ultimately, scalping is all about speed and precise decision-making and execution. Scalping is not for the faint of heart, nor for people who can’t have their attention 100% on their trading activity. That said, this need for attention can be brought down by certain order styles, like take profits or trailing stop losses.
Day Trading
At this point, you may not really see how scalping and day trading are different. That’s a valid point. After all, scalping is in many ways just a day-trading strategy. What one means by “day trading” typically, however, is far different from scalping.
While both scalpers and day traders trade intraday, that is, they enter and exit positions within the span of one day, day traders do not typically plan to hold for mere seconds like scalpers do. Instead, day traders hope to ride the expected daily price movement for a position and capture the majority of that movement, whether that occurs in minutes or hours.
Here are three key components to successful day trading:
- Patience – Unlike scalpers, who need to avoid the temptation to be greedy and hold for longer than a few seconds or minutes, day traders need to exercise patience.
- Stick to the plan – Part of being patient involves sticking to the (trading) plan. If day traders don’t stick with their original plan, they may exit their trades too soon, which essentially amounts to scalping.
- Decision spots – A day trader’s trading strategy should involve important decision spots on the chart. When the trading price reaches these points, an exit will provide some benefit in terms of profit potential.
Ultimately, day trading is about taking the most profit from a given security or financial instrument within the span of one 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 is right for you? Ultimately, it depends on your trading strategy and goals. Some people don’t have the energy or attention required to scalp, while others may prefer the risk mitigation of scalping compared to typical day trading.
While scalping is technically a day-trading strategy, it tends to be quite different from what people mean when they say “day trading.”
Asking yourself the following questions may help you pick which is right for you.
- Which style feels best to you on a comfort level?
- How much time can you devote to managing your positions? Scalping requires a lot of time and attention, though day trading does as well (to a lesser extent).
- What are your goals? Are you after some side income or do you want to be a full-time trader?
- What is your risk tolerance? Scalpers try to minimize risk by spreading out their profits over a lot of small wins.
In either case, if you want to pursue day trading, checking out the following day-trading resources can help you maximize your success: