Day Trading Vs Scalping: You’ve researched as much as possible about trading, and now you’re finally ready to jump into it – great! However, knowing the basic trading strategy/style that suits you in the trading market is crucial.
Knowing your best trading style can be difficult, but your decision is not perpetual. In fact, many novice traders will test some or all the available types before settling for the technique and strategy they believe suits their trading lifestyle and the capital they have to risk.
This article explains the two basic trading styles, identifies their significant differences, compares them, and gives an overall conclusion, ultimately helping you decide on the best suitable trading style. So, without further ado, Let’s dive into it in detail.
What Is Scalping?
Scalping is a trading style where traders (Scalpers) use relatively small price changes by opening and closing large amounts of trades in a single trading day to catch numerous “small” wins. Scalpers enter and leave the trading markets within a short period, usually a few seconds or minutes (but the highest is a few hours), and are known to use higher leverage levels.
Scalpers’ primary goal is to profit from small price fluctuations within the shortest timeframe possible, often augmented by larger position sizes.
This is an intra-day kind of trading, meaning that positions are closed before the end of the trading session or day.
Scalping is known for its pace and quick performances. In most instances, trades are opened and closed within a few seconds if an adequate price movement has been made. However, due to its high-speed nature, traders must be precise with timing and performance.
Pros Of Scalping
- Scaling traders don’t have to spend hours planning and examining every new trade.
- Scalping strategies require little capital due to small trade sizes (often just 0.01 Lots).
- Due to smaller position sizes, Scalpers have little market exposure, thus limiting risk.
- Target is easier to reach because smaller price movements in the range of a few pips are likely to occur often.
Cons of Scalping
- Compared to other trading styles, Scalpers give in to many more orders, resulting in more trading costs.
- The stress of placing many orders daily usually takes a toll on traders and drains emotion over time.
- Scalpers require more time to actively manage trades since the profits obtained from each transaction are minimal; hence the higher the trades placed, the more the chance of making mistakes.
What Is Day Trading?
Day Trading is buying and selling within a single day. Unlike Scalpers, who place tons of trades daily, a Day Trader doesn’t enter and exit their positions in a flash. Instead, a Day Trader sits on the sidelines, waiting for the best trade setups to occur.
Day Traders usually wouldn’t place more than a few trades daily, and sometimes, if there are no suitable opportunities, there are none.
Although it depends on how fast the market gets to its target price, Day Traders don’t open their positions for longer hours and constantly level their accounts before the close of the day to avoid rollover fees and wild risk.
Pros Of Day Trading
- Day Trading involves minimal trade monitoring and management responsibilities.
- There is more flexibility when selecting a trading account or a broker due to minor sensitivity to spreads and commission fees.
- Day Trading helps keep confidence because there is enough time to think and plan before entering any new trade.
Cons of Day Trading
- Day Trading is highly risky because its strategies target distant prices.
- Day Trading requires more significant capital to keep positions because higher drawdown levels are expected.
Day Trading Vs Scalping: Their Differences
1. Same Goal, Different Styles
The universally accepted trading goal is to make a profit. So you may ask why it matters if you day trade or scalp since you earn something on both. But the thing is, it matters because not all people have the same preference for risks and rewards.
Scalping entails more frequent trades, lesser wins, and fewer risks. While Day Trading, on the other hand, requires less frequent trades, more wins, and higher risks.
Both trading strategies allow you to earn if you play your cards well, but it all depends on how big or small you want to go, how often you want to be observing the market, and your level of risk tolerance.
The timeframe used by Scalpers and Day Traders in the trading market is another major difference between these two forms of trading. Scalping involves trading within short timeframes, like 1-minute charts, 3-minute charts, or operation-based ticks.
On the other hand, Day Trading entails trading the market within an extended time frame, usually 1 to 2 hours. Day traders hold their trades for many hours but not more than an entire day. This timeframes difference is why traders overlap these two types of trades.
3. Account Sizes
Scalping involves a big account size with high market risks. On the other hand, Day Trading has a moderate account size. Most Scalping professionals perform high lot size trade in their online trading account and earn a decent profit quickly. Though they trade the market a lot, they also follow proper risk management factors in all the trades.
Trading is all about odds, and as a professional trader, there is no certainty that you will always win 100 percent in the forex market. This is why financial market experts always use relevant risk management factors in their trading.
A Scalper is like a rocket traveling in space when entering and exiting trades; the trades have ended before you can see the opening trades market price. In contrast, Day Trading entails trading for a whole day in the market.
Although day traders are also fast traders as they don’t keep the same trades for the other days, they are regular traders. Hence, Scalpers get their outcome instantly and day traders in a day.
Overall, a Day Trader is said to be someone who closes their position within a day and doesn’t perform their trades overnight. On the other hand, a scalp trader enters and leaves the market quickly, meaning they hold their position just for a few seconds up to some minutes.
Day Trading Vs Scalping: Their Similarities
1. No Overnight
Both Scalping and Day Trading don’t leave trades open overnight. Both believe the overnight session offers considerable risks that can result in significant losses. Hence, Scalping and Day Trading do not hold their position for more than one day; they trade intraday.
2. Money And Risk Management Strategies
Secondly, Scalping and Day Trading require considerable money and risk management strategies. Top risk management strategies include position sizing, stop-loss, and leverage.
3. Suitable For All Assets Types
The third on this list of similarities is that the two approaches can be used in all asset types, such as currencies, forex, and exchange-traded funds.
Conclusion on Day Trading Vs Scalping
Since there is no strict and fast rule on why you should execute one or the other trading system, it pays first to practice both strategies to see what works for you; after all, an experience they say “experience is the best teacher.” Always remember that trading involves high risks.
Meanwhile, I believe you now know the significant distinctions between the two trading systems in the market. To make money in online trading, ensure you trade with proper risk management factors and execute trades logically.