We talked about how to trade around a core position in last post. Today we’ll discuss about another technique called scalping. This technique is very effective when trade with volatile stocks. Because of the volatile nature of the stock, it comes with high risk as well. It is not recommended to beginner traders. First, you will need to find a low float stock which is trading with high volume. Generally, stocks with 20M or lower tradable shares are considered as low float. Here is the formula you can calculate the public float: Outstanding shares – restricted shares = public float. Secondly, after you pick out 1 or 2 stocks you are going scalping, you would need to see its pricing patterns. You should always try to buy in when the price is in decline pattern.Don’t worry if you were not able to get in at the lowest cost possible, 9 out of 10 the stock price would rebound to certain level. Once the price rebounds, we suggest to sell it within 50 cents range. Because of the volatile nature, the price is very unstable. That’s why you would need to discipline yourself not to be greedy otherwise you may lose all gains in a blink of your eyes. Sell for small profit and come back in again when the price is on the decline pattern. Sometimes you could repeat the buy, sell, buy, sell, actions a couple more time within the same day if the volume and catalyst are there. Sure looks like a small profit, it does add up over time. Hope this could help you with your future investing.
P.S. This technique is suitable for experienced day traders. However, it is still a very risky technique. Please use it with caution. Happy investing!