Scalping Glossary: 120 Essential Terms for Scalping Trading

Scalping is a popular and fast-paced trading strategy that aims to profit from small price movements within a short time frame. To navigate the world of scalping effectively, it’s essential to understand the terminology commonly used in this trading style. Here’s a comprehensive glossary of 120 important terms for scalping trading:

A

Accumulation: Accumulation refers to the gradual acquisition of a large position in a particular asset over an extended period. Traders often engage in accumulation when they believe that the price of the asset will rise significantly in the future. It involves buying smaller quantities of the asset at various price levels, taking advantage of price dips to build a substantial position.

Algorithmic Trading: (complete definition) Algorithmic trading, or algo trading, involves the use of automated computer programs (algorithms) to execute trading strategies based on predefined rules and criteria. Scalpers often use algorithms to place and manage orders rapidly, aiming to capitalize on short-term price movements.

Arbitrageur: An arbitrageur is a trader who specializes in arbitrage, a strategy that exploits price discrepancies for the same asset on different exchanges or markets. Arbitrageurs buy the asset on the exchange where it’s cheaper and simultaneously sell it on the exchange where it’s more expensive, profiting from the price difference.

Arbitrage: Exploiting price differences of the same asset on different exchanges to make a profit.

Ask Price: The price at which a seller is willing to sell an asset.

Average True Range (ATR): (complete definition) A technical indicator that measures volatility.

B

Bracket Order: A bracket order is a combination of multiple orders placed simultaneously to manage a trade’s risk and potential profit. It typically includes a market order to enter the trade, a stop-loss order to limit potential losses, and a take-profit order to secure profits if the price moves in the desired direction.

Breakout: A breakout occurs when the price of an asset moves above or below a significant level of support or resistance, signaling the potential start of a new trend. Scalpers often look for breakout opportunities to enter trades when price momentum is strong.

Bull Market: A bull market is characterized by rising asset prices and optimistic investor sentiment. In such markets, traders often focus on buying assets with the expectation that prices will continue to increase.

Bear Market: A market characterized by falling prices and pessimistic sentiment.

Bid Price: The price at which a buyer is willing to purchase an asset.

C

Candlestick Chart: A chart that displays price data in candlestick form, providing information on open, close, high, and low prices.

Candlestick Patterns: (complete definition) Candlestick patterns are specific formations on candlestick charts that provide valuable information about price trends and potential reversals. Examples include doji, hammer, and engulfing patterns, each with its own interpretation.

Choppy Market: A choppy market is characterized by frequent and unpredictable price fluctuations, lacking a clear trend. Scalpers may find choppy markets challenging as they often prefer more defined price movements to profit from.

Correlation: Correlation measures the statistical relationship between two or more assets’ price movements. Positive correlation means that the assets tend to move in the same direction, while negative correlation indicates opposite movements. Scalpers use correlation analysis to diversify their portfolios and reduce risk.

Chart Patterns: Recognizable price patterns used for technical analysis.

Commissions: Fees charged by brokers for executing trades.

D

Day High: The day high is the highest price reached by an asset during a single trading session. Scalpers pay close attention to day highs as they may represent resistance levels or breakout points.

Day Low: The day low is the lowest price reached by an asset during a single trading session. Scalpers use day lows as potential support levels or breakout points.

Downtrend: A downtrend is a sustained period of declining prices for an asset. During downtrends, scalpers often focus on short-selling opportunities, aiming to profit from falling prices.

Day Trading: (complete definition) Buying and selling assets within the same trading day.

Divergence: A situation where the price of an asset moves in the opposite direction of an indicator.

E

ECN Broker: An Electronic Communication Network (ECN) broker connects traders directly to the interbank market, facilitating faster order execution and potentially offering tighter spreads. Scalpers often prefer ECN brokers for their rapid execution speeds.

Execution Speed: Execution speed refers to the time it takes for a trade to be filled after a trader places an order. In scalping, fast execution speed is crucial as even slight delays can impact profitability.

Execution: The process of placing and filling orders.

Exit Strategy: A predetermined plan for closing a trade to lock in profits or limit losses.

F

Fading: A contrarian trading strategy where traders go against the prevailing trend.

False Breakout: A false breakout occurs when the price briefly moves above or below a significant support or resistance level but then reverses, failing to establish a new trend. Scalpers must be cautious of false breakouts when entering trades.

Fibonacci Extension: Fibonacci extension levels are used to predict potential future price levels based on the Fibonacci ratios of a previous price move. Scalpers may use these extensions to identify potential profit targets.

Fill Price: The fill price is the actual price at which an order is executed in the market. It may differ slightly from the trader’s intended price due to market fluctuations and order execution speed.

Front Running: Front running is a prohibited practice where a trader or institution places orders ahead of a known large trade to benefit from the anticipated impact on prices. It is considered unethical and illegal in many financial markets.

Fibonacci Retracement: A technical analysis tool used to identify potential support and resistance levels.

Fill or Kill (FOK): An order that must be executed immediately and completely or canceled.

G

Gap: A significant price difference between the close of one trading session and the open of the next.

Gapping Down: Gapping down occurs when an asset’s price opens significantly lower than its previous closing price. This can happen due to overnight news events or market sentiment shifts.

Gapping Up: Gapping up occurs when an asset’s price opens significantly higher than its previous closing price. Positive news or strong investor sentiment can lead to gap-up openings.

Going Long: Buying an asset with the expectation that its price will rise.

H

Hedging: A strategy used to reduce risk by taking offsetting positions.

High-Frequency Trading (HFT): Trading strategies that utilize high-speed algorithms to execute numerous trades in a fraction of a second.

High-Frequency Trader (HFT): High-frequency traders use advanced algorithms and high-speed data connections to execute a large number of trades within milliseconds. HFT is prevalent in scalping due to the need for rapid order execution.

I

Indicators: Technical tools used to analyze price data, such as Moving Averages or Relative Strength Index (RSI).

Intraday: Within the same trading day.

Intraday Trading: (ading-strategies/) Intraday trading involves buying and selling assets within the same trading day, with positions typically closed before the market closes. Scalping is a form of intraday trading that focuses on short-term price movements.

Institutional Traders: Large financial institutions that trade in significant volumes.

L

Leverage: Borrowed funds used to amplify trading positions.

Limit Order: An order to buy or sell at a specific price.

Liquidity: The ease of buying or selling an asset without affecting its price significantly.

Liquidity Provider: A liquidity provider is a market participant or institution that offers to buy or sell an asset, contributing to market liquidity. Scalpers often rely on liquidity providers for fast order execution.

Low Float: Low float stocks have a limited number of shares available for trading, making them susceptible to rapid price movements. Scalpers may target low float stocks for their volatility.

Long Position: A position where you own an asset with the expectation that its price will rise.

M

Margin Call: A margin call occurs when a broker demands additional funds from a trader to cover potential losses in leveraged positions. Failure to meet a margin call can lead to position liquidation.

Market Maker: A market maker is a trader or institution that facilitates trading by providing liquidity to the market. Market makers quote both buy and sell prices for an asset, helping ensure that there are always buyers and sellers available.

Market Sentiment: (complete definition) Market sentiment reflects the collective outlook of traders and investors regarding a particular asset or market. Scalpers often consider market sentiment when making trading decisions.

Market Volatility: Market volatility measures the degree of price fluctuations in an asset. Scalpers thrive in volatile markets as they provide more frequent price movements to profit from.

Moving Average Convergence Divergence (MACD): (complete definition) MACD is a trend-following momentum indicator that consists of two moving averages. Traders use MACD to identify potential shifts in momentum and trend direction.

Momentum: The speed at which an asset’s price changes.

Market Order: An order to buy or sell at the current market price.

Margin: The collateral required to open and maintain leveraged positions.

Micro Scalping: Extremely short-term scalping with trades lasting only a few seconds.

Moving Average (MA): (complete definition) A widely used indicator that smoothens price data to identify trends.

N

Naked Short Selling: Naked short selling occurs when a trader sells an asset without actually owning it or borrowing it. It is often considered illegal and unethical, as it can lead to market manipulation.

No-Dealing Desk (NDD): A broker that connects traders directly to the interbank market.

News Trading: Scalping strategy based on market-moving news events.

O

Open Interest: Open interest represents the total number of outstanding futures or options contracts for a particular asset. Scalpers may monitor open interest to gauge market activity.

Overtrading: Overtrading is a common mistake where traders execute too many trades without proper analysis or risk management. Scalpers should avoid overtrading to maintain discipline.

Overbought: An asset’s price is considered too high and may be due for a reversal.

Oversold: An asset’s price is considered too low and may be due for a rebound.

P

Penny Stocks: Penny stocks are low-priced stocks with a small market capitalization. They are often characterized by high volatility and may be targeted by scalpers for short-term gains.

Pip: The smallest price movement in the Forex market.

Position Sizing: Determining the amount of capital to allocate to each trade.

Pullback: A temporary reversal in the prevailing trend.

Pyramiding: Adding to a winning position to maximize profits.

R

Range: The difference between an asset’s high and low prices over a specific period.

Resistance: A price level at which an asset tends to encounter selling pressure.

Risk Management: (complete definition) Strategies to minimize potential losses.

Rollover: The process of extending the maturity date of a futures or options contract.

S

Scalp Trading: A short-term trading strategy focused on profiting from small price movements.

Short Selling: (complete definition) Selling an asset with the expectation that its price will fall.

Slippage: The difference between the expected and actual execution price.

Spread: The difference between the bid and ask prices.

Stop-Loss Order: An order placed to limit potential losses by selling an asset if its price moves against the trader.

Support: A price level at which an asset tends to find buying interest.

T

Technical Analysis: Analyzing historical price and volume data to make trading decisions.

Tick: The smallest price movement in a market.

Tick Chart: A chart that displays price data using ticks.

Trend: The general direction in which an asset’s price is moving.

Trailing Stop: A dynamic stop-loss order that adjusts as the price moves in a favorable direction.

V

Volatility: A measure of price fluctuations in an asset.

Volume: The number of shares or contracts traded in a given period.

W

Whipsaw: A situation where a trader is caught in a series of losing trades due to rapid price reversals.

Wide Bid-Ask Spread: A large difference between the bid and ask prices, making trading less favorable.

Y

Yield Curve: A graphical representation of interest rates for different maturities of bonds.

Z

Zero-Cost Averaging: A risk management strategy where traders adjust position sizes to keep the same level of risk.

Understanding these scalping terms is crucial for success in the fast-paced world of scalping trading. Remember that while scalping can offer the potential for quick profits, it also carries higher risks due to the short time frames involved. Always practice risk management and continuously educate yourself to stay ahead in the competitive world of scalping trading.