Day trading and scalping : two established short term trading strategies

While both are short-term trading strategies, day trading and scalping differ in several ways and are not aimed at the same investor profiles.

The promise of large and rapid gains in short-term trading is attracting more and more individual traders. Of the leading short-term strategies, day trading and scalping are of particular interest. Often confused and misidentified, the two methods differ in many ways.

Here is a comprehensive summary of the information you need to choose the right short-term trading strategy for you.

Investment method

Day trading

Day trading is an investment method in which the trader opens and closes positions within the same day. Trades therefore last only a few minutes or hours and are all closed at the end of the day. The goal is to limit losses and have a positive balance at the end of the day. Target gains are 10 to 100 pips or points.

Scalping

Scalping is an investment method based on making a large number of trades in a short period of time. Scalpers make dozens of trades a day, each of which may last only a few seconds. The investor's goal is to profit from the smallest price fluctuations in the financial markets. The profit target is 1 to 10 pips or points.

Trader profile

Day trading

Day trading is particularly popular with non-professional investors. Although it is time consuming, positions can remain open for several hours and all risk is eliminated overnight, making this trading method a good complement to a full-time job. You’ll need technical analysis skills and up to date knowledge about the latest financial news in order to maximize your profits.

Scalping

Scalping is more suitable for experienced traders. It requires total availability as well as a strong resistance to stress, because of the large number of operations carried out in a small amount of time. In addition, a large amount of capital is required to make it profitable. What’s more, scalping is widely used in algorithmic trading, and novice traders will find themselves competing with extremely fast, high-performance robots.

Main advantages

Day trading

The success rate doesn’t need to be too high, and is on a wide scale. For day trading to be profitable, you only need 50 to 70% winning trades.
Risk exposure is low. Positions’ short duration and the fact that there is no overnight risk greatly limit errors related to unexpected price changes.
Exposure to stress is lower compared to other trading strategies.
Investors can speculate up or down, unlike long term trades.
The costs involved are relatively low, due to the lack of currency fluctuations and the absence of rollover.

Scalping

Profitability. According to its followers, scalping can generate big capital gains through leverage, with a high percentage of success. You can exploit periods of high market volatility or not as you prefer.
Exposure to market fluctuations is low due to the very short duration of the trades.

Main disadvantages

Day trading

Day trading is time-consuming. To be profitable, it requires time every day, taking up a significant amount of time in your schedule, even as a non-professional.
Dependence on macroeconomic data. Day traders must constantly adapt to financial news in order to avoid periods of high market volatility.

Scalping

Low profitability for individual traders. Studies clearly show that most scalpers lose money in the long run, with a high success rate, but with gains much lower than losses, and therefore a negative overall balance.
High psychological pressure due to the large number of positions to be opened and closed in a very short period of time.
The important capital needed to hope to make it profitable.
Brokerage fees can quickly eat into profitability, due to the large number of trades.

While day trading and scalping are both short-term trading strategies, the former seems to be more accessible to individuals and beginners, while the latter appears more suitable for experienced and even professional investors. They do not require the same capital, nor do they involve the same costs or psychological pressure.