Scalping Versus Momentum Trading

There are a number of trading strategies. Here we look at scalping versus momentum trading. In each case the trader needs to think about how many trades to make a day or week and what his or her profit targets are.

This article has to do with not missing the forest for the trees. One can get so caught up in the intricacies of trading, be it scalping or momentum trading, that the big picture goes missing. You are in day trading to make money. So what is your profit target? And how do you get there?

Scalping has to do with jumping in and out as the market moves. Your target is profitability. The fact of the matter is that each trade costs a commission and not all trades are successful.

This is a paper and pencil problem. Write down the amount of money you will put into each trade scalping and figure out how much profit you need to make scalping per trade to pay for the commission. Then how much is left for you. Then look at what your scalping losses will cost you. What percentage of scalping trades need to be successful and for how much to meet our daily profit target?

Momentum trading has to do with waiting for a big market move and then jumping in. Momentum trading works better the better educated you are about the stock or market you are trading. If you get in too late you might as well be a long-term investor, missing out on most of the stock’s profit.

So, assume that your momentum trading gets you in early. Do you sell bit by bit as the stock price runs or do you wait for the stock to show signs of turning around? Sounds like more work with paper and pencil.

Here is where successful momentum trading depends so heavily on you knowledge of the market conditions, stock fundamentals, and investor psychology. If you have a clear ideal why the stock is heading North or South then you can choose your point or points of exit wisely and not based upon greed or fear.

Wise traders will tell you that you have not made a profit until you have taken the profit. On the other hand if you understand what is happening and expect a long run you can wait a bit before taking you momentum trading money out of trade.

Whether scalping is your thing or momentum trading and waiting for the big move, it is wise to set profit targets. How much is your time worth? You need to do homework on whether you are scalping or momentum trading and you need to do simulation trading. Look at the total time you spend trading, preparing for trading, and reviewing your trades. Then, look at what you do best and which activity gives you the best return on investment, both capital and time.

Scalping and momentum trading are only part of the range of strategies available to the day trader. Whatever your strategy, look at what makes you money and how much time you need to devote to make a living. This will give you the perspective to recognize the forest when you are among a lot of trees.

Popularity: 53% [?]

Related Products