Short Term Trading - Choosing Between Day Trading and Scalping

Short term trading is generally defined as either day trading or scalp trading although it could be argued that swing trading can also be considered short term trading. However, swing traders and true short term traders operate in two differing worlds. Swing traders usually have other careers and don’t actively trade everyday, monitoring the market each evening or on their lunch hour, while short term traders participate in the financial markets on a daily basis.

Day trading is universally accepted as a method of trading where one or more positions are opened and closed before the market session ends the same day. A day trade may last all day depending on market conditions or could last for only a half hour. Scalp trading is a method of trading where the goal of the trader is to only open a position for a few seconds up to a few minutes to "scalp" a set number of points before rapidly exiting the trade.

Day traders are usually looking for larger gains per trade than the scalp trader. However, at the end of the day, both the day trader and scalper could be even with each other in terms of potential gains. In order for the scalper to bank the amount of profit a day trader could potentially bank during the day, he must execute far more trades than his counterpart. Increased slippage or brokerage fees are the downside to scalping but exposure time is greatly reduce since trades last for minutes rather than hours.

When choosing what method to use, the trader must first take a self inventory of his personality characteristics. Scalp trading requires a great deal of concentration since the nature of this type of trading demands constant attention. With a goal of only 2 or 3 points per trade, once a position is closed, the hunt is immediately on for the next trade set up. The day trader may enter a position at the market open and hold the position all day. As long as his position is favorable, intensity and concentration levels are greatly reduced as compared to the scalp trader.

Both methods have their pros and cons and it is up to the trader to determine which methodology best fits his personality and goals. Day trading requires more exposure time in the market, while it is greatly reduced with scalp trading. The scalp trader knows he will be in and out of the market quickly whether he wins or loses on the trade. He also is aware that he will not take large hits on his brokerage account since his stop loss will be hit quickly should the trade go south.

Scalp traders also need to consider the importance of a reliable broker. Lighting quick scalp traders need a broker whom offers a platform which executes trades swiftly since entry and exit are sometimes immediate. Careful research should be done before settling on a broker.

Learn more about short term trading in the financial markets.