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Day Trading vs. Scalping

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Written By
Dan Buckley
Contributor Image
Written By
Dan Buckley
Dan Buckley is an US-based trader, consultant, and part-time writer with a background in macroeconomics and mathematical finance. He trades and writes about a variety of asset classes, including equities, fixed income, commodities, currencies, and interest rates. As a writer, his goal is to explain trading and finance concepts in levels of detail that could appeal to a range of audiences, from novice traders to those with more experienced backgrounds.
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Updated
Mar 9, 2024

Day trading and scalping are popular trading philosophies/approaches but may differ in their execution, risk levels, and potential rewards.

Scalping is generally thought of as a subcategory of day trading – scalpers are generally considered day traders, but not all day traders are scalpers.

Let’s look to understand these differences better.

 

Key Takeaways – Day Trading vs. Scalping

  • Scalping is a subset of day trading.
  • Day trading generally involves technical analysis, news events, and data releases to make trades while scalpers typically focus purely on price action.
  • Scalpers have a high trading frequency, while many other day traders will make one to a few trades per day.
  • Scalpers hold trades for seconds to minutes, while other day traders may hold positions for hours (and sometimes even overnight).

 

What is Day Trading?

Day trading involves buying and selling securities within the same trading day.

Traders capitalize on short-term price movements in stocks, currencies, futures, among others, entering and exiting positions to achieve gains by the market’s close.

It requires the ability to analyze charts and indicators quickly, and a strict risk management strategy.

Key characteristics include:

  • Timeframe – Positions are held for up to several hours but typically not overnight.
  • Frequency of Trades – Typically, several trades are executed in a day.
  • Profit Goals – Aim for higher profit margins per trade compared to scalping.

 

What is Scalping?

Scalping is a trading strategy characterized by an extremely short holding time for positions.

Scalpers aim to profit from small price changes, often buying and selling within minutes or even seconds.

This method demands high concentration, fast decision-making, and the ability to react to market movements almost instantaneously.

Key characteristics include:

  • Timeframe – Positions are held for a few seconds to minutes.
  • Frequency of Trades – Many trades are made over the course of a trading day.
  • Profit Goals – Profits are smaller per trade, but numerous trades aim to accumulate significant gains.

 

Key Differences

Strategy Focus

  • Day Trading – Focuses on taking advantage of significant market movements within the day. It may rely on a bit more analysis and often uses news events or technical patterns to make trading decisions.
  • Scalping – Targets tiny fluctuations in price. Scalpers typically don’t concern themselves with the broader market trends or news. They generally focus instead almost exclusively on real-time price action.

Risk Management

  • Day Trading – Employs stop-loss orders and profit targets to manage risks. Since positions are held longer, traders have a bit more leeway to adjust their strategies based on market changes.
  • Scalping – Requires quick reactions to market movements to limit losses. The risk on each trade is lower, but the rapid pace and high volume of trades mean that risk management must be executed swiftly and efficiently. Transaction costs also matter a lot.

Tools and Techniques

Psychological Aspect

  • Day Trading – Requires patience and discipline to wait for the right trading opportunities and the resilience to handle significant intraday price swings.
  • Scalping – Demands high focus and quick decision-making. Scalpers need to maintain high levels of concentration throughout the trading session to manage the rapid-fire nature of their trades.

 

Is HFT Scalping?

High-frequency trading (HFT) can involve scalping, but they’re not synonymous.

HFT refers to using sophisticated algorithms and high-speed data networks to execute trades at extremely fast speeds, often in milliseconds or microseconds.

HFT strategies can include scalping by taking advantage of very small price differences in very short times, but HFT refers to a broader range of strategies beyond just scalping.

Scalping, as a strategy, focuses on making small profits over very short periods.

While scalping can be part of HFT, not all HFT is considered scalping.

 

How Many Trades Do Day Traders Make Per Day?

Day traders typically execute 1 to ~20 trades per day, depending on market conditions and individual strategies.

 

How Many Trades Do Scalpers Make Per Day?

Scalpers can make 20-100+ trades per day by capitalizing on very small price movements.

 

Conclusion

Choosing between day trading and scalping boils down to individual preference, trading style, and risk tolerance.

Day traders may prefer to leverage larger market movements, while scalpers thrive on rapid trades.

Both strategies demand dedication, a solid understanding of the markets, and a disciplined approach to risk management.

Success in either method requires practice, continuous learning, and a commitment to refining your trading skills.

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