Scalping

Scalping is an ultra-short-term trading strategy where traders make multiple trades within a single session, holding positions for seconds to minutes to capture tiny price movements. Scalpers aim to accumulate small profits repeatedly across dozens or hundreds of trades, making money from the sum of many small gains rather than a few large moves.

What Is Scalping?

Scalpers take advantage of bid-ask spreads, micro-price movements, and short-lived imbalances between buyers and sellers. They use significant leverage and high-speed execution to make profits of a few paisa to a few rupees per share, repeating this dozens to hundreds of times a day.

Scalping requires extremely fast order execution, low transaction costs (brokerage), and constant attention to the trading screen.

How Scalpers Operate

– **Level 2 data**: monitor the order book (bid/ask depth) to spot supply and demand imbalances
– **Time and sales**: track every executed trade for momentum signals
– **1-minute or tick charts**: watch price action at the most granular level
– **Tight entry and exit**: buy and sell within a very narrow price range

What Scalpers Look For

– Stocks with high liquidity and tight spreads (Nifty 50 stocks, indices)
– News catalysts that create short bursts of directional movement
– Breakouts from small price consolidations on 1-minute charts
– Order book imbalances showing more buyers or sellers

Risks of Scalping

– High transaction costs can eat into profits if brokerage per trade is not minimal
– Requires constant focus; even a brief distraction can result in significant loss
– Requires direct market access and low-latency execution platforms
– Psychologically taxing due to high frequency of decision-making
– SEBI’s STT (Securities Transaction Tax) and other charges can make scalping less viable for retail traders

Practical Example

Rohit trades Nifty Futures. He buys 1 lot (50 units) at 22,450 and sells at 22,455 within 2 minutes, making Rs 250 (50 units x Rs 5). He does this 25 times in a session, making approximately Rs 6,250 gross. After brokerage and STT (approximately Rs 3,000 total), he nets Rs 3,250. On days when trades go wrong and he is slow to cut losses, he can easily lose more than he made on winning trades.

Key Takeaways

– Scalping involves dozens to hundreds of trades per day, each capturing tiny price movements
– Requires extremely fast execution, low costs, and constant focus on price action
– High liquidity stocks and index futures are preferred for tight bid-ask spreads
– Transaction costs are a critical factor; high brokerage or STT can eliminate scalping profits
– Not recommended for beginners; requires deep market knowledge and psychological resilience