Scalp trading involves the buying of stock with the goal to sell it on the same day to take. Traders using this technique are looking to take advantage of short term price differentials. Traders consult daily charts for information to use when selecting their securities positions. In scalp trading, the expected profits and losses per trade are not designed to be substantial, but the trader is searching for small gains per transaction over a large volume of daily transactions. The trick to scalp trading is to position one’s self to take advantage of bid-ask spreads among individual securities.

The following are the two key concerns for a trader engaged in scalp trading:

The first one would be to realize that the specialists are the ones that largely drive the price differentials for individual securities, as they trade in such high daily volumes for institutions, thereby assisting in forming the market for scalpers. Specialists are geared to assist in maintaining an orderly market for a particular stock. The specialists trade in a much higher volume than an average trader, but they are under strict exchange rules designed to maintain the market presence of an individual security.

The second concern relates to the increasing usage of decimalizations in market pricing which work against scalp traders. Before decimalizations became the standard, fractions were the standard and were more beneficial for traders leveraging scalping techniques. Traders used to aim for at least a sixteenth of a point in profit (known as a teenie), or otherwise equal to 6.25 cents per share; thus a purchase of 1000 shares bought at $10 and sold at $10 1/16 would make a scalp trader up to $62.50 before commissions. However, decimalizations have narrowed the difference between the bid and ask prices for scalp prices, thereby placing additional pressured on price differentials and generated profits; similarly, a 1000 share trade buying at $10 and selling at 10.01 would only generate a $10 profit using decimals.

The narrowing of profit margins shouldn’t discourage a prospective scalp trader from venturing into the trading market. There is money to be made from scalp trading; the key is trading in high daily volumes.

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