Different traders follow different strategies to trade effectively in the stock market. Some traders follow the long-term trading, some other follow the short-term and swing trading and others follow intraday trading. Some traders follow the techniques of scalping. In scalping, the trader takes the benefit of the small price movements and gain profits. The profits can be incurred in both the buy and sell trades. Thus small downtrends can be profited from placing a sell signal first and then buying after the finish of the trades. Similarly, the small uptrends can be benefitted from buying first and selling after the trend has been exhausted. Thus the scalping involves the taking the benefits of the small up and down movements and trade accordingly.
There are many techniques the scalping can be done. The most common and old technique is to watch the bid and ask prices of the stock. The difference between the bid and ask is known as the spread. Now putting the buy trade and the sell trade at these levels of bid and ask can lead to profit the width of the spread. This technique is beneficial but it requires the trader to put the buy and the sell trades very fast. The bid and ask prices change very fast and to place the order at them require the very fast response. The traders for whom the automated trading is available they can program this strategy and can benefit from the fast response of computer to get the profit from the trades.
Other ways of scalping include the use of indicators like RSI and Bollinger Bands. The RSI stands for relative strength index. It is an index calculated on the past price values. The RSI index takes a value between 0 and 100. The value above 70 indicates the overbought condition and the values below 30 are known as oversold conditions. The trend reversal in case of overbought and oversold conditions can be used to enter into the trade, take the adequate position and get benefitted from the trade.