The Main Differences between Day Trading and Scalping

Beginner Forex or CFDs traders sometimes mistake day trading with scalping strategies. While similar in some regards (but not many), these two strategies show significant differences and lead to different results. Day traders and scalpers can rely on the same trading platform and factor in similar indicators in their analyses, but the way they trade and the trades themselves are not alike. Today we will focus on such differences to make things clearer.

Factors Making the Difference between Day Trading and Scalping

First things first, you should never worry about the fact that you are a day trader or a scalper. There is no correct or improper technique of trading from this point of view. Trading and scalping are trading styles and methods. Seasoned traders know how to apply each to the correct situation, switching between the two types of strategies when necessary.

For instance, scalping is usually part of a strong CFD DAX trading strategy, as they rely on ultrafast changes and take advantage of the price action strategies. Since the DAX is quite volatile, scalping is an excellent way to approach CFDs trading on this index. Nobody says you cannot day-trade on DAX, but a scalping approach is indeed more suitable according to experts.

As you can see, one of the main differences between scalping and day trading is the timeframe. Let’s analyze things in more detail!

1. Timeframe

Usually, in day-trades, traders focus on the best market opportunities of the day, holding to a target for a few hours (but no more than a full market day) aiming for a more substantial profit within one trade. Day traders seek to find the most valuable buy/sell points of a financial instrument in the timeframe of a day trade the target, buying and selling for a reasonable amount of hours.

Usually, day traders limit themselves to two-three trades a day.

Scalpers, on the other hand, have a primary goal the achievement of profits by exploiting small price changes. They enter and exit trades in a matter of seconds or minutes and usually open and close a large number of trades during a day – tens maybe. The purpose is to gain small profits that amount to large ones.

Fast paced and somewhat risky, especially from a psychological point of view (as the tension is high), one scalping move can take one or two minutes.

  • The timeframe and trading style can also reveal two different types of trader mentalities: the scalper wants small, multiple, and fast gains (which, in turn, require expertise, alertness, and precision), while the day trader prefers fewer benefits but with longer holds, thus demonstrating patience and control.

2. Level of Experience

As we hinted above, scalpers are the seasoned traders who know the market, understand trends, use a complex combination of tools and fundamental or technical analysis very fast, and can decide a matter of seconds.

While beginners in DAX trading can take the middle approach, combining scalping with day trading strategies, the best scalpers have years of experience. On the other hand, even beginner day traders who have patience, understand the market and aim for longer, but safer results can gain profits when they follow the more extended holds method.

Nevertheless, both such types of traders operate with stop-loss and stop-limit orders and make the best out of indicators and tools, no matter if they trade on Forex or work with CFDs.

3. Account Size

Even if you can enter the trading environment with $100, this does not mean you should. Scalpers know this best, as they need more significant accounts to achieve their goals, whereas “traditional” day traders can manage things very well with average accounts.

Scalpers face many risks, but the well-prepared ones have established, and robust risk management plans. Scalping is a trading style famous for its speed and the necessity of making fast decisions. Good scalping systems often feature a handful of characteristics, such as:

  • A higher number of setups in comparison to day trading styles;
  • Higher win ratios,
  • Lower reward to risk rates (we are talking about many but minor wins versus less frequent but superior losses). Scalpers strive to keep their win sizes large enough to cover for the losses when they take place.
  • Pro scalpers execute great lot size trades and losses are not unheard of.
  • When the losses do occur, scalpers need to execute their risk management plan in a matter of seconds.

To be a successful scalper, you thus need more than the patience, alertness, precision, and skills to enter and exit a trade for profit – you need a sizeable account to allow you the versatility, control, and recovery instruments you need.

What do Scalpers and Day Traders have in common?

These traders share – or should share – a few things in common, such as:

  • A professional and reliable brokering company to offer them the theoretical and practical support for successful trading;
  • Impeccable risk management plans, no matter how safe or risky they approach the trading field;
  • Full control of their emotions, reactions, and attitudes; the psychology of a successful trader is a lot more complicated than one might think. Besides being able to keep the frustration levels in check at all times, the trader should also gain control of his fears, anxiety, self-overestimation, disappointment, depression, and so on.

Bottom Line

As we tried to stress in the beginning, there is no such thing as a good or bad trading style. They both work – but it all depends on what you trade, what your goals are, and how you position yourself in a report to winning or losing.

1 COMMENT

  1. I think both types of trading requires a high number of trades. Scalpers take a lot more trades for sure, but daytraders I have studied also have a high number of trades. It becomes a numbers game – more trades means more opportunity for profit (but also loss). With a good system, taking lots of trades can give you a statistical advantage.

LEAVE A REPLY

Please enter your comment!
Please enter your name here