Short Term Trading Unleashing the Power of Scalping Strategies (2024)

Part 1 – The Shortlisting process

1. I survey the graph of all the stocks in my opportunity universe.

2. While looking at the chart, my attention is only on the recent 3 or maximum of 4 candles

3. While looking at the recent 3 candles, I check if any recognisable candlestick pattern is developed.

4. If I detect an attractive pattern, then I include it in my shortlist for further analysis, and I keep searching through the other 50 charts.

Part 2 – The Evaluation process

I am typically left with 4-5 stocks out of the 50 in my opportunity universe which show a recognizable candlestick pattern. Then I take a closer look at these four to five charts, spending each chart around 15 to 20 minutes. My procedure for assessing the shortlisted charts includes:

1. I typically assess the strength of the pattern, investigating if any flexibility is necessary.

1. I evaluate the length of any shadow on a Bullish Marubuzo in relation to the overall range.

2. Once I have done this, I pay special attention to the ‘prior trend’. To determine a bullish pattern, the preceding trend should be a downtrend, while for a bearish pattern it has to be an uptrend. I make sure not to overlook this part of analysis.

3. At this juncture, if I see a distinct pattern with a pre-existing trend, I will continue to examine the chart in more detail.

4. Subsequently, I inspect the trading volume. This needs to be equivalent to or exceed 10-day average trading activity.

5. Once I have examined both the candlestick pattern and volumes and they are in agreement, I assess both the support level, if entering a long trade, or resistance level, should it be a short trade.

1. The S&R level and the stop loss of the trade, as indicated by the candlestick pattern, should be in alignment.

2. If the S&R level exceeds the stoploss by 4% or more, I discontinue analyzing the chart, and move on to assessing the subsequent one.

6. I then examine Dow chart formations, including double and triple tops & bottoms, flags, and any potential for range breakout.

1. I also analyse primary and secondary market trends.

7. Once I am satisfied with steps 1 to 5, I move onto figuring out the risk to reward ratio (RRR).

1. To calculate RRR, I first pinpoint the target by plotting either support or resistance.

2. The minimum RRR must be a minimum of 1.5

8. Finally, I analyse the MACD and RSI indicators to get an understanding of whether they are aligned; if so, I use any available funds to increase my trade size.

Normally out of the 4-5 stocks shortlisted, at the most one or two may be suitable for a trade. Days when there are no trading chances do occur. The choice to refrain from trading is an important decision in itself. Keep in mind that this is an exacting set of criteria; if a stock fulfills all the conditions, my belief to trade is quite strong.

This module has consistently emphasised the same point; once you place a trade, let it run its course. Unless trail stoplosses are applicable, stay put and wait for either your target to be achieved or your stoploss to be triggered. Keep in mind that trades are highly vetted, so the probability of succeeding is high. It’s, therefore, sensible to stay confident and follow through with conviction.

The Scalper

Skilled swing traders may consider scalping as an additional trading option. This system involves opening a position for a brief period, usually a couple of minutes. Typical scalping trades involve…

The total profit is Rs.2644, after taking into account any applicable charges.

A scalper is a highly-skilled trader with a keen eye for price movement. They use charts with short time frames like one and five minutes, to make their decisions. This type of trader is focused on executing many trades within their day, aiming to take advantage of the smaller changes in stock prices for a short space of time. Their aim is simple – complete numerous trades and profit from relatively minor price fluctuations.

If you aspire to be a scalper, here are few guidelines –

1. Remember the checklist we have discussed, but bear in mind that due to the short trade period, not all items may be fulfilled.

2. Candlestick patterns and volume would be my top picks if I had to choose only one or two items from the scalping checklist.

3, A risk-reward ratio as low as 0.5 to 0.75 is sufficient for scalping.

4. Scalping should be restricted to stocks that have high levels of liquidity.

5. Be prepared to act swiftly and book a loss when necessary as part of an effective risk management system.

6. Track the bid-ask spread to monitor the development of trading volumes.

7. Be mindful of what is happening in global markets; for instance, a decrease in the Hang Seng (Hong Kong stock exchange) often translates to a decline in domestic markets.

8. Pick an economical broker to keep your expenses in check.

9. Take advantage of margins, but do not exceed the limits.

10. It’s essential to obtain a dependable intraday charting program. This will help to ensure consistent transactions throughout the day.

11. If you feel the day’s not going well, it’s best to take a break and step away from your trading station.

Scalping is a technique for day trading that necessitates alertness and robotic-like methodology. One who profits from scalping must be able to accept market volatility, no matter how it may move.