Scalping vs Day Trading: Differences and Strategies

Day trading is getting relatively popular globally. This growth is partly because of the Covid-19 pandemic that pushed more people at home. At the same time, the strong performance of the financial market was an incentive to many people about trading.

Companies like Robinhood, WeBull, and Schwab that offer free trading experience have also made it relatively attractive for people to trade.

Day tarding is not the only way to trade in the financial markets, and is often confused with swing trading or scalping trading. Which, as we see now, are very different approaches.

Trading approaches

Broadly, there are four main types of traders. First, there are those, who, like Warren Buffett, believe in buying and holding financial assets for months and years. These people are generally known as investors since they have a long-term horizon.

Second, there are swing traders, who have a medium-term horizon. These are people who buy and short assets and then hold them for just a few days. As the name suggests, they simply want to identify swings and then ride them for a while.

Third, there are people who have a relatively short time horizon. Day traders are those who believe in buying and holding financial assets for just a day. They don’t believe in holding an asset overnight.

Finally, there are scalpers, who believe in buying and selling financial assets within a few minutes.

trading styles timeframes

Day trading vs scalping: are they the same?

A common question among new traders is on whether day trading and scalping are the same. The answer is relatively easy to explain.

As mentioned, day trading is simply the process of buying and selling assets within a day. Therefore, since scalping does not involve holding trades overnight, it is a form of day trading.

A scalper, however, is much more active and makes many more trades during the day, because he focuses on achieving small but repeated gains.

» Related: To scalp or not to scalp?

Differences and similarities of day trading and scalping

There are several similarities between scalping and day trading. Let us look at the similarity first. First, the two approaches don’t believe in leaving trades open overnight. They believe that the overnight session presents substantial risks that can lead to significant losses.

Second, the two approaches can be applied in all types of assets, including stocks, currencies, bonds, and even exchange-traded funds.

Third, day trading and scalping require excellent money and risk management strategies to work. Some of the top risk management strategies to use are having a stop-loss, position sizing, and leverage.

There are also several differences.

First, scalping refers to a situation where a trader holds a financial asset for less than 5 minutes. In most cases, a scalper can hold a trade for even two minutes. Day traders, on the other hand, can hold trades for several hours.

Second, scalping requires opening tens or even hundreds of trades per day. This is simply because the overall profits per trade will be relatively low. Day traders, on the other hand, can open just a few trades per day.

Third, at times, day traders can rely on concepts like fundamental analysis. In scalping, this type of analysis is usually not necessary.

Timeframes for scalping vs day trading

As mentioned, scalping is a form of day trading. Therefore, in this part, we will differentiate the two by looking at scalping vs day trading that involves relatively longer timelines.

In scalping, traders focus on relatively short timeframes. Most scalpers use as little short timeframes like about 2 minutes. In general, the average timeframe for most scalpers is less than 5 minutes.

Day traders, on the other hand, use relatively short timeframes. For example, they cannot use a four-hour chart because each bar in the chart represents four hours.

Therefore, since a day has 6 four-hour periods, it will not make sense to use such a period. Therefore, they too use relatively short timeframes, with the maximum being 30 minutes.

» Related: How to Find Better Trades With Multi-Timeframe Analysis

Day trading and scalping strategies

Different day traders and scalpers use various approaches to day trade and scalp. Let us look at some of the most popular strategies you can use when you are a day trader.

Momentum trading

This is a trading strategy that aims to profit in assets that are showing a strong momentum within a day. For example, if you see that a stock like AMC is surging in premarket trading, a scalper can buy it and get out when they make a small profit.

Similarly, if they see that a stock is making a strong bearish trend, they can short it and make a profit.

Using the VWAP

Second, there is a strategy that uses the VWAP indicator that we have looked at before. VWAP is the short form for the volume-weighted average price. Therefore, some traders buy stocks when they are above the VWAP and exit when they move below the VWAP.

Finding reversals

Another strategy you can use to both scalp and day trade is to find reversals. This is where you use several strategies and indicators to determine whether a reversal is about to take place. For example, you can look at patterns like head and shoulders and double-tops to determine when the reversal is about to happen.

You can also look at candlestick patterns like hammer and engulfing to determine when these reversals are about to happen. Also, you could use indicator reversals like MACD and moving averages to determine whether a reversal is about to happen.

Finding continuations

The opposite of reversals is known as continuations. This is a process where you identify points of potential continuations. You can look at patterns like bullish and bearish pennants and flags and ascending and descending triangles.

Finding breakouts

The next key strategy in scalping is where you seek to find breakouts. You can trade breakouts using strategies like pending orders like buy stop and sell stop.

Summary: Scapling vs Day Trading, which is better?

Traders have preferences between scalping and day trading. In our experience, We have found day trading that involves longer timeframes to be a better trading option. This is because it does not involve opening of so many trades in a day.

External Useful Resources

  • Scalping vs Day Trading - What is the Difference - Fxssi

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