Rethinking Scalping Concepts

[Kiwi 16]

I really loved "Combative? Me?" TRO.

 

As an occasional detractor I am amused. Its funny how much self-deception I've seen on the forum recently and most truly seem to miss-perceive themselves. I think a lot of people practice forms of somewhat passive aggression and in their minds say to themselves that they were being polite. Bizarre.

 

You on the other hand are, I suspect, perfectly in touch with reality. Combat with you is always a pleasure.

[SIUYA 11]

Kiwi - we all live in a world of self deception. from the way we perceive our world in the present , to the way we build our memories, to the way we think we shape our futures.

so whats new?

I am more surprised at the lack of common courtesy and the fact that (reportedly) grown adults cannot rationally discuss an issue without reverting to the name calling, and the fact that as successful traders who are meant to be able to put ego aside, and have thick skins, get so riled when someone disagrees with them.

Equally so while it can be that trolls etc; can hijack forums, this is then up to the moderators and the forum participants to self regulate (?) otherwise the competition will end up taking the customers.....which is effectively what we are.

[windsurfer 10]

Last time I was on TL, I was spurred by this scalping thread by Daedalus to think about a system to scalp. I programmed something in TS to try to determine the short term trend and then if it was up buy the dips with a small target (e.g. 3 and 4 points) with a similar stop. (And do the reverse if a downtrend). Since this test resulted in a ton of signals and I did not want to have them divert me from my regular trades, I just ran them on TS, and had them report them on C2. First I tried it on the ES and on Gold. Neither were profitable after taking into account trading costs, and the ES was a loser. Then I switched the Gold to the Russell (RussellScalper) and the ES to Crude (CrudeOilScalper). These are doing okay, but I doubt they will prove worth the trouble in the long run.

 

I do want to thank Daedalus for stimulating me in the thread. It also forced me to work through all sorts of problems trying to get the C2 and TS interface to work.

 

Windsurfer

[windsurfer 10]

Just an update: my scalp system on Crude continues to be insufficiently profitable to justify the number of trades. The Russell system shows promise, making about $80 per trade, but suffers occasional bad days- yesterday it lost $800 on 2 trades. I'll report again in a month.

[BlowFish 10]

Keep at it

 

...

[JerryHatfield 10]

I have been on a journey to rethink and re-examine everything i've "learned" about trading. So much of my career has focused on getting 10-100 pip swings out of the markets, keeping optimum risk:reward setups in my arsenal, hold for gold, all of that. And if i'm honest I can't really say i'm living the life I thought I would be when I started out 5 years ago.

 

Hey daedalus,

 

I read your post with much interest. You pretty much described the thinking I was unable to exactly put into words. That is exactly how I trade: an expectation of some profit, plenty of room to run, and throw out all of the risk-reward ratios.

 

For years, before trading, I read everything I could get my hands on about every aspect of trading. I could find a lot: Forex, Commodities, Options, Securities... you name it - I looked at it. Systems? You bet. Looked at a few. Near as I could figure, I needed six computer screens and a small supercomputer and about 90 hours a week to be profitable. Oh yeah! I forgot about the 10 Million account.

 

I was undeterred. I eventually opened a demo Forex account, and attempted to apply everything I learned, and got my ass handed to me. Not that my calls were wrong, per se, just that they were often a little "premature," for wont of a better word. Sometimes WAAAAYYY premature. To make matters worse, I wasn't getting at least 100 pips every trade! Man, I was getting discouraged. :crap:

 

So I revisited everything. I figured out that I really didn't care to learn how to code MT4 to back test anything. I didn't even want to learn how to code it enough to alert me to what became my winning setups. Also, the traditional 30 pip stop-loss was eating my lunch, often by just a couple of pips.

 

I had practice traded my setups enough to see them clearly with a few tweaked indicators and the old Mark I eyeball. I threw out the stops. When I put on a trade, I sit there and babysit 'em. Usually there's more than one on at a time. I don't watch every tick. I have a pretty fair idea of where I expect to add to a position or exit the trade.

 

As I mentioned in a different post, for me it's 90% TA, 5% FA, and 5% gut. As for FA? Sometimes good stuff just falls in your lap. Massive tsunamis and "Issues" with nuclear reactors in Japan? Simple: Hock the house, wife and kids and short the snot out of the USD/JPY! That was a gimme, and a lot of people should have made big, big money on all of that Yen going home. This or that "Economic smoke-and-mirrors" report being released? Keep your hand on the mouse and watch the candles. All I really try to do is catch that big, knee-jerk reaction, which usually sorts itself out in half an hour or less.

 

A steady 30 pip swing in a horizontal channel, with no breakout? If you read some of the people in here, that would turn their noses up at that. I see those as gas in the car, mortgage payment made, and a piece of cake 150-200 day. I might take me 10 or more trades to get there, but I'm not really counting.

 

daedalus, your post shows you are on the path to enlightenment. Throw out all the rubbish! Less really can be more. When you've learned to accept ten easy 10 pip trades as opposed to the frustration of trying to hit a 100 pip homer with every trade, you'll find you'll do a LOT better - and right away. Stay to the majors, and avoid the crosses unless something VERY dramatic is going on. Take the big gimme's. Assume EVERY trade will be a total loser, and rejoice in their small, consistent gains. If a trade goes way south for a while, hang in there and cost average on the way back. Relax. Treat the charts like a video game. Make it fun for yourself.

 

As the time I'm writing this at 8:37am, I've booked 34 pips and have a new EUR/USD position up 18 pips and I expect it to keep going. Best part is I haven't spent hours on analysis or, money on "systems." I'll eventually put in some "stops" later if I haven't already closed out the trade, since I have things to do. :missy:

 

Sincerely, I wish you the best of luck and trading.

 

JH

[windsurfer 10]

I am reminded that I said I would publish my scalping results. Remember, I am not a scalp trader, but I was curious whether I could write a successful auto-trading scalp system. My results were just for my interest, and were based on my view of how to scalp ("define a trend. If up trend, buy on dips and sell on small defined gains, with a stop. If down trend, do the reverse."). I auto-traded these on C2 until it came time to renew the fees for the first 2. I am still using C2 for the 3rd test to see if can be profitable long term.

 

I hope these will be of interest to someone on this site.

 

1. ES Scalper results:

 

Trades 318

# Profitable 152 (47.8%)

# months tracked 11

Profitable months 3 (27.3%)

Avg trade duration 1.3 hours

Annual return (compounded) 19.7%

Average win $431

Average loss $374

Profit factor 1.1:1

 

With 318 trades and a before fees profit of only $3,335, this was barely breakeven with a $10 RT cost. I do not see it (with the coding I gave it) as tradeable.

 

2. Crude Oil Scalper

 

This lost $

 

3. Silver Scalper

 

This looks promising and I will continue the test another 3 months.

 

Bruce

[maguiredan 10]

What i'm coming to terms with is that a scalping edge isn't defined by risk : reward - its defined by expectancy.

 

 

 

Thanks for starting a very thought-provoking discussion, Daedalus. When you think about it, much of the professional trading world operates with an approach of trying to pick up lots of small gains using high probability entries and guarding against the big loss. High frequency traders, market makers, algo traders - few of them are calculating Reward:Risk ratios. That's for swing and position traders - people with longer holding periods.

 

Although we're all trying to make a buck at the end of the day, the approaches are really quite different for various trading styles. When you use a swing trading approach, for example, you are looking for setups that have a high potential payoff relative to the loss. The loss is generally the point at which you should admit that your forecast about the future price of the security is wrong. Those gains and losses are normally measured in full points, not pips.

 

As your holding period becomes shorter and shorter the profit target and stop loss

prices move closer together. Generally, the setups also become more simple and repeatable. One of the characteristics of many very short term trading styles is that they need to be executed precisely and mechanically. They are ideal for automation. If you're bored with trading, this may not be the right direction for you to go.

[sdoma 10]

 

With 318 trades and a before fees profit of only $3,335, this was barely breakeven with a $10 RT cost. I do not see it (with the coding I gave it) as tradeable.

 

 

Bruce

 

Or you could lease a seat on the CME that would lower your transaction costs to a dollar or less per round turn.

[windsurfer 10]

Thanks, I'm going to look into it. Do you know anyone who has? I use IB and trade about 50 contracts a day.

[sdoma 10]

Thanks, I'm going to look into it. Do you know anyone who has? I use IB and trade about 50 contracts a day.

 

You'd need more volume than that to make it worth it. The application fee is where you get killed, it's $2000. After that, the seats lease at different rates. Call the CME and inquire about a membership.

[euro-scalper 10]

Jerry I like your post, in particular certain points that I'd like to comment on.

 

To make matters worse, I wasn't getting at least 100 pips every trade! Man, I was getting discouraged.JH

Wanting the home runs "is greed". Greed kills accounts. It killed a few of my early ones at least!

Think about this ..."how many times will the market move up & down 30 pips compared to how many times it will move up & down 100 pips in one day?"

The small moves present opportunities for small wins over & over & over.

 

A steady 30 pip swing in a horizontal channel, with no breakout? If you read some of the people in here, that would turn their noses up at that. I see those as gas in the car, mortgage payment made, and a piece of cake 150-200 day. I might take me 10 or more trades to get there, but I'm not really counting.JH

When I was a consistent loser I used to laugh at traders taking 10 pip profits. Now I love it as I can do that all day long. It only takes a handful to meet a sensible daily target and usually I let at least one of the "later trades in the day" run & get myself an extra 50 or so pips. It's low pressure trading!

 

When you've learned to accept ten easy 10 pip trades as opposed to the frustration of trying to hit a 100 pip homer with every trade, you'll find you'll do a LOT better - and right away.JH

This was an important step in my trading career

 

Assume EVERY trade will be a total loserJH

If you suffer from "wanting to be right" or "not wanting to lose", if you can get your mind to think in this new way, it will help conquer some of the typical self-sabotage.

 

Relax. Treat the charts like a video game. Make it fun for yourself.JH

You can do this provided you have some reasonable experience with price action and have an edge you can trust. If you have that, take every trade and after the wins & losses, the net profit will materialise

[sdoma 10]

So what do you guys think? Is it bullshit? Is there potential here? Lets dig into it.

 

Personally I started looking at charts today for a new kind of edge, not one where I could risk 20 pips and get 40, but one where I could reasonably expect to get a couple pips each and every time. Frankly I know what my results have been trying to do things the 'correct' way. I'm still not rolling in it. So i'm throwing that out for now and trying to look at things from a completely different standpoint.

 

If nothing else its exciting and thought provoking and to be honest I haven't been excited about trading for a long long time.

 

Cheers!

 

There's a saying about the type of trading you're looking at: You are picking up nickles in front of a steamroller. There are people who make money with this type of trading, of course, but before you get too deeply into it I want you to understand a few things:

 

1. The shorter your time frame, the better your technology has to be, and as you approach the state of the art, your costs increase astronomically. On the bleeding edge are co-located algorithms. These algos are so fast that their owners spend lots of money to get them as close to the exchange servers as possible so the light doesn't have to travel as far over the fiber-optic cables. Think about that, really think about it. An entrepreneur recently spent hundreds of millions of dollars laying an unbroken fiber optic connection from NYC to Chicago in as straight a line as possible to charge arbitrageurs out the ass to use it.

 

For a human scalper you'll need a first class trading gig with multiple PCs, TT or Orc, a first class data feed and if possible you should be on a fiber optic connection.

 

All this shit costs a ton of money.

 

2. Your margin of error is very, very small. Many scalpers' edge is a fraction of a tick per contract per trade. If you are off that day you will get blasted. You might as well stay home and masturbate. Sometimes you back test and it looks like there's an edge, but if you're a tick too optimistic on your fills you could actually lose money. You have to have the psychological strength of an I-beam. You hold one loss too long and there go your profits for the day, week, or month. You must be nearly perfect.

 

I'd say, instead of a scalper looking at 2-3 ticks per trade, try to be a micro swing trader. Look for 10-15 ticks per trade, and be open to a run every once in a while. I know a lot of scalpers who automated or went out of business. These guys weren't scrubs, either.

[SRspider 10]

The way I approach is to to scale out of most of the position as if I was scalping it, 4-10 ticks, and then try and keep a portion on for a larger move. Sometimes I can catch a good one, and if not I don't lose on the last portion, I just get out for a small gain or b/e. If you can get your percentages up, you will find that very quickly you will be at a decent profit for the day. I also tighten the stops as soon as possible to reduce the risk.

[windsurfer 10]

To follow up on my promise to discuss scalping SI:

 

To bring others up to date, I was not doing true scalping. I waited for a trend to be established (e.g. up) and waited for a reversal (e.g. a dip) and then went with the trend (e.g. bought 2 contracts). My scalp was for 4 cents with 2 contracts. I averaged 3 trades per day.

 

The SI is volatile. Auto-trading is too dangerous, because if there is an error in getting the stop executed, it can cost you $5,000 quickly. (The SI is $5,000 per $1.00 change in the price of silver, and I scalped 2 lots at a time).

 

Scalping it for $400 per trade was profitable, and I had over 85% winners, but getting stopped out was brutal- an average of $1400. My loss in one trade was $2400 in a fast market. And I once had 3 losers in a row!

 

How does this apply to those who thinking scalping is easy? Give an awful lot of attention to your stops. Focus not on how much you will make, but on how much you could lose. And make sure you are flat whenever you know that news that could move the market may be upcoming.

[bobcollett 10]

Dear Windsurfer

Can you please test the following. BBC (born before computers)

Only trade the breakouts. In any direction. As long as you see higher highs and higher lows in an uptreand and visa versa.

And your stop is a mental $100.It feels like if it goes against you , you are out!!!

5 minute chart.

Dont trade the dips.You must get out in the dips.And get back in on the upthrust.

Kind regards

bobc

[windsurfer 10]

Bob,

 

You can't be talking about Silver- a $100 stop is only 2 cents!

 

My responses in this thread have been about scalping- that is the topic here.

 

FWIW, I have found that breakout systems on the indicies are losing trades on 5 minute charts. (This my my personal view- others may dissent). One b-o system I just ran on the last 100 days for the ES lost $45 per trade.

 

In comparison, a simple (modified) scalping system on the same ES chart showed a profit (before commissions and slippage) of $70 per trade. (Personally, I dislike the ES, but that is a different topic). My recommendation to index traders is to take a look at scalping, rather than trading breakouts.

==

 

Note: re b-o systems on non-index products, I just ran one on the SI with an $1800 stop, and it averaged $900 per trade, but with only 30% winners. I'm not sure I could trade that way, but I'll monitor it for future trades.