Scalping or day trading?

Octa Analyst

Among the many popular trading styles with both beginners and experienced traders are scalping, which allows you to extract small portions of profit from each price movement, and day trading, which aims to trade over a single day. In this article, you will learn what scalping and day trading are and their differences and peculiarities. Ultimately, you will learn what to look for to understand which trading style is right for you.

Most likely, you have already encountered such concepts as scalping and day trading. Today, we will look at these trading styles in more detail.

A trader’s earnings depend not on time but volatility (market price movements). Depending on the amount of volatility a trader uses, there are two trading styles:

 

  • Day trading—positions are opened intraday, and the trader does not leave the market without closing trades.
  • Scalping—multiple trades within a short period. A scalper can make up to 100 trades per hour.

The main scalping and day trading criteria that determine the effectiveness of a trading approach:

  • Temperament. The riskiest traders make a lot of trading decisions within one minute. Others may spend several hours on just one trade.
  • Volatility timing. The prominent swings occur at a predetermined time, either at the junction of trading sessions of different time zones or at the moment of economic news release. In addition, each trading session has its unique style of price changes.
  • Liquidity. The more often a transaction is made on the currency market, the more commissions a trader pays. The commissions are minimal precisely because of excessive liquidity on super liquid instruments such as EURUSD, USDJPY, GOLD, and BTC.

Let’s look closer at these two trading styles and try to understand the differences between scalping and day trading and the profit and risk levels.

What is scalping?

Scalping is a modern style of trading which involves extracting profit from small price movements within numerous transactions. A distinctive feature is the high intensity of transactions. An aggressive scalper can open dozens and even hundreds of positions per day. Targets are small, from a few pips to several points. Almost all positions are closed during the day. Timeframes up to M15 are used; most often, M1–M5.

This trading style is most widespread among players in the Forex market, which is the most liquid round-the-clock marketplace. Here, the rules of classic scalping were invented, which involve trading on all micro-movements that exceed double spread and commission costs, exiting a position at the slightest trend reversal, and the habit of closing all positions overnight to lock in profits at the end of the day. Closing positions overnight ensures protection from the morning gap and allows sleeping well at night without considering the results of night trading.

Speed is another essential factor for scalpers, no less critical than liquidity, so the choice of broker is crucial. A scalper constantly analyses price charts and makes decisions based on this data, so the broker must provide quick access to the information necessary for analysis: prices, news, charts of foreign indices, signals, statistics, etc. As a consequence, fast scalping trades require an intermediary with an unloaded server so that, at the right moment, your request does not wait for a few crucial seconds for its turn.

What is Day Trading?

Day trading is speculative trading on the stock exchange during the trading day without carrying over open positions to the next day. Traders use only intraday operations, where the trade duration usually ranges from a couple of minutes to several hours. Trades are also rarely carried over to the next day. 

Most often, a combination of different timeframes is used. It can be, for example, M1 and M15, M5 and M30. Trade entries become more accurate in Day trading, and the Risk Reward Ratio improves. The intensity of trading is much lower compared to scalping. A day trader usually opens trades at the beginning of the trading day and closes them when the trading session ends. He in no way carries open positions through the night.

Some day traders trade only on the trend (this style is best suited for inexperienced traders). In contrast, others trade in a range in both directions, using price fluctuations in the channel between support and resistance levels for profit. Highly skilled and completely inexperienced traders also play against the market (counter-trend trading). While experienced market participants can profit from such high-risk trading, novice traders can lose their entire deposit.

How to choose?

Two key parameters to consider when choosing—your temperament and the availability of free time—affect the ability to follow the market.

Choleric/sanguine people make excellent scalpers, as scalping methods imply a good reaction to the appearance of a signal and quick fixation of profits. People with this temperament are not characterised by patience and diligence, so an abundance of quick trades is needed.

More calm people scalping will seem too aggressive. The need to react quickly to changing market conditions will cause discomfort. Intraday trading is more suitable for phlegmatic/melancholic people. There are far fewer deals; there is time to decide, and positions are kept open longer. From a trading psychology perspective, it is also important that the profit in each trade is more significant. A trader working in intraday style does not wake up at 5 a.m. thinking he has missed all the entry points. On the contrary, the schedule is built so that they have time to sleep, not to be in a hurry, and to balance trading and their personal lives.

[Conclusion]

Scalping and day trading is a question that concerns most novice traders. These are some of the most popular trading styles, which, on the one hand, have their advantages and disadvantages, and on the other hand, when honed in practice, can bring significant gains in both the short and long term. Every trader is an individual in his interests in the market, and in pursuit of his goals, he can try different trading styles and strategies and decide which one suits him best.

About Octa

Octa is an international broker that has been providing online trading services worldwide since 2011. It offers commission-free access to financial markets and various services already utilised by clients from 180 countries with more than 42 million trading accounts. Free educational webinars, articles, and analytical tools they provide help clients reach their investment goals.

The company is involved in a comprehensive network of charitable and humanitarian initiatives, including the improvement of educational infrastructure and short-notice relief projects supporting local communities.

Octa has also won more than 60 awards since its foundation, including the ‘Best Educational Broker 2023’ award from Global Forex Awards and the ‘Best Global Broker Asia 2022’ award from International Business Magazine. 

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