Scalping

Scalping is the fastest paced trading style in the chapter. Instead of holding for minutes or hours, scalpers often hold for seconds. Their goal is to capture very small price movements, sometimes just one to five cents per trade, and repeat this process many times throughout a session.

Scalpers work only in highly liquid stocks with tight bid-ask spreads. They do not care about the long-term trend, they care about the micro behavior of the order book: how many shares are stacked on the bid, how quickly the ask is being hit, and whether large orders are appearing or disappearing. Because each win is small, discipline is critical. A single large loss can erase dozens of successful scalps.

Scenario: MicroChip Co. in a Tight Range

MicroChip Co. is trading in a tight band between twenty dollars and twenty dollars and five cents. The bid is stacked with large buy orders at twenty dollars, while the ask shows smaller sell sizes. This tells the scalper that short-term demand is slightly stronger than supply.

• A tight, active spread with real size stacked on the bid.
• Buy orders that keep absorbing supply as price prints higher.
• Sell size that thins out as new orders appear at the next level.

The scalper places a buy near the stacked bid. As buyers hit the ask, price quickly prints through the range. When the visible buy size thins out and new sell orders appear, the scalper exits. The profit is only a few cents per share, but repeated forty or fifty times, that edge can add up.