Professional traders will often implement a variety of techniques into their trading strategy. It is not a one size fits all method. If you find yourself trading across different asset classes, you might find that one method is better in one market than another. Both scalping and day trading isn’t generally suited to beginners, especially scalping, which usually involves high-level technical chart analysis. You can find out more information if you’d like to start day trading forex as a beginner. It would help if you learned how to trade the basics before risking your capital using specialist trading strategies.
Today we will decipher which one of these trading techniques is better suited to you. It will usually boil down to personal preference, as both techniques have allowed traders to profit. However, depending on what type of trader you are, there are some key differences. We will jump right into the specifics of each and see which one might be more up your street.
It is important to note that scalping is sometimes considered a subdivision of day trading. They are very similar strategies, so don’t be confused if you see them described interchangeably by analysts or professional traders.
Scalp trading vs day trading – what are the similarities?
When weighing up the pros and cons of these two trading methods, it is important to remember that they share some key similarities, and there’s not much difference between them. For example, they are both good illustrations of short-term approaches to trading.
An example of long-term trading is position trading. Position traders generally show little interest in short-term movements as they have identified long-term trends and strong fundamentals. They are confident in their analysis that the investment will pay off over several years, so they hold it for as long as they deem fit.
Whilst scalping and day traders will use serious amounts of chart analysis, their positions are executed and closed in a much smaller timeframe. This classifies them both as short-term strategies. They also benefit from traders who execute their positions quickly and don’t get attached to the asset. Having the ability to manage high-stress levels and remove emotion also helps immensely. Those traders who can afford to sit and look at chart analysis put themselves in a better position as it requires instant decisions.
Scalping vs day trading defined
Just so you have a clear picture of each strategy, scalping sounds like how it plays out in reality. Like picking seeds out of a watermelon or using a toothpick to brush up after a meal, scalping focuses on tight, incremental details to gain small improvements each time.
Day trading scalping hones in on a high number of trades within a short period. To take advantage of small movements in either direction. They then buy and sell quickly to reflect the price action and make small profits each time. Scalpers tend to use larger amounts of capital but manage their risk more effectively. They do so by setting up stop losses or automated buy orders for set prices. This is usually recommended for all traders.
This allows them to execute multiple trades, even if they are away from their desk. Usually, many scalps will be over a day. However, traders may intensify the number of scalps they perform during key market hours, such as the first hour of trading.
Scalping vs day trading forex, for instance, is often at its height when one market opens and begins to act with another market operating in a different time zone. Scalpers will pay heightened attention to shorter chart periods, whether one minute, five minutes or fifteen minutes. Below is an example of where a scalp trader would usually enter their trade. The chart below is a 30-minute chart for the cryptocurrency Ethereum.
Due to commissions in trading, scalpers will usually trade directly through a broker. This is so they can cut any costs, purely due to the number of individual trades they perform over the course of a day.
If we’re tackling day trading vs scalping as a standalone topic, there aren’t many differences between either strategy. As we touched on in the last section, day trading vs scalping forex tends to differ because scalpers will take advantage of times when the market is busier or more volatile.
Day traders operate in the same ilk and study the same charts over a longer period. They will usually trade less over 24 hours. For instance, day trading would differ from scalping, as scalpers often sell quickly when their position enters the green.
A day trader may wake up in the morning and see that an asset is down 7%. By studying the chart analysis, information in the media and market sentiment, they could predict that it will be in the green by the close of business.
They will then enter the trade and watch it throughout the day. It could hit the target within an hour or take seven hours. However, day traders will wait for this position to close their trade and will usually use far less capital than a scalper. However, they usually stand to make more profit as they will hold out for a more decent profit margin.
Scalping day trading will rely on smaller price swings, and traders will get out of their position much more quickly when in the green than a day trader will.
What Types Of Markets See Forex Scalping vs Day Trading Used Most Often?
It can depend on the nature of the market and what is going on at that time. Cryptocurrency, for example, is widely considered the most volatile market in trading. It is the newest type of asset class. For this reason, they are not as well regulated or understood as traditional markets. The swings and drops can be much more fierce. In addition, it doesn’t have an open and set close time like the US stock market. It is open 24/7 and can be influenced by factors from all over the world.
Digital assets tend to see wild swings daily, making it the ideal climate for short-term traders. The volatility is not for the faint-hearted and can be highly stressful. One wrong move in scalping or day trading can wipe out the handful of good trades that preceded it. Therefore, you must be very careful when trading.
Despite both methods providing decent returns for professional traders, even with the best information and chart analysis, you could still stand to lose money. This is because the market is unpredictable, and if you’re implementing any strategy, it could still take a serious turn for the worst.
Only invest money you can afford to lose and ensure that you set up appropriate risk management tools to mitigate any losses. This includes dollar cost averaging, learning not to trade on emotions and stop loss and take profit limits.
Other markets see scalping and day trading utilized effectively. The forex market is the best example of this due to the sheer volume of trades during 24 hours. Trillions of dollars worth of buying and selling orders executed on forex markets. Traders are drawn to this particular aspect of trading because of the deep liquidity within that type of investment.
Forex day trading vs scalping can be problematic over forex because the markets are open for so long during the day. For instance, if you are trading between the Australian Dollar, US Dollar and Euro, there could be anywhere between 12 and 15 hours of time difference between the markets.
This can be seriously problematic if you mistime your entry and other market conditions aren’t favourable. Your capital is always at risk, and you don’t want errors to cloud your judgement. In addition, market sentiment can be affected by global news. These are factors that are very difficult to weigh up.
If the market becomes volatile, you can’t allow emotions to dictate your strategy. However, the liquidity involved and the number of trades taking place on these markets mean that when it comes to day trading vs scalping forex, it is still the ideal choice for many traders.
Forex scalping vs day trading can be a very tricky market to navigate. You must ensure you have all the tools available to give you the best chance of making a profit. You could execute an effective day trade if you look for small windows in a market crossover. For example, when London begins to trade. This also includes any crossovers between Canada/America and Australia.
However, despite being a riskier strategy, scalpers will often take advantage of the small market changes in forex. Irrespective of the time of day, they will keep plugging away in the background. They do this so that they can profit from the nature of the global currency market.
There are other forex trading insights you can look to learn more about, including arbitrage trading and algorithmic trading.
Traditionally, stock exchanges have hosted trillions of dollars of both of these types of strategies. There are benefits to being a day trader who deals primarily in stock. You can operate within business hours. In addition, you don’t need to stay up checking markets, as some forex or cryptocurrency traders do.
The same applies to scalping, which can be a very mentally draining and physically exhausting way to trade. This is why many scalp traders prefer to operate between set times. It is so that they can make money and get out of the market as quickly as possible.
Scalping Trading vs Day Trading – Conclusion
When you’re able to devote time to the markets and act decisively, you have the main tools needed for scalping. The main takeaway from our piece today should be that:
Scalping is for those who can make quick decisions and act accordingly. Usually, scalpers will be in and out of their position within 1 to 15 minutes. Day traders will tend to weigh up their position for a longer period. They will then stay in their position for however long it takes to hit their target on that day. Both types of strategies are highly stressful. They require a firm grasp of the fundamentals of chart analysis and to take advantage of small pieces of price action. As well as the ability to understand the overall market sentiment in depth.