How Do You Scalp?

[NYSEGOP 10]

Is scalping all computer generated? Is there a way to do it on mac? What are the pros and cons of scalping?

[Predictor 11]

Scalping or liquidity provision is the goal of buying bid and selling offer or selling offer/buying bid. This is very difficult to do for a retail trader due to commissions, sub penny, etc. Some traders take "micro" trades and refer to these as scalps. This is possible in the futures market but difficult.

 

I imagine most scalping is done by computers that are co-located at the exchanges.

 

  NYSEGOP said:

Is scalping all computer generated? Is there a way to do it on mac? What are the pros and cons of scalping?

[Tams 20]

  NYSEGOP said:

Is scalping all computer generated? Is there a way to do it on mac? What are the pros and cons of scalping?

 

most of the futures traders scalp

 

scalping simply means trading for small increments (vs swing trading or buy and hold investing, which look for a larger profit target).

 

you can use any computer to scalp, so long as your broker supports the platform.

 

you don't need special software to scalp. HFT is the most abused term on public forums. People like to throw out acronyms and buzz words to sound important. Most people who talk about HFT don't know what it is, nor know how it works.

Edited February 6, 2012 by Tams

[BlueHorseshoe 10]

  Tams said:

 

scalping simply means trading for small increments (vs swing trading or buy and hold investing, which look for a larger profit target).

 

 

Hi Tams,

 

Just wanted to add that although this is the common use of the term nowadays, 'scalping' traditionally meant buying at bid and selling at offer, as another post points out. Confusing!

 

Cheers.

[jswanson 10]

  NYSEGOP said:

Is scalping all computer generated? Is there a way to do it on mac? What are the pros and cons of scalping?

 

I have a lot of Apple hardware. I run TradeStation 9.1 on my computers, natively. Remember, you can easily create a dual-boot computer. One partition you can run the latest window's OS and the other run the latest Mac OS. It's really simple and a great way to run TradeStation.

 

I actually have dedicated Apple hardware just to run Windows so I can load TradeStation. I use macmini computers because they are so small. 7.7 inch square and 1.4 inches thin. They run TradeStation just fine.

 

Mac Mini

Apple - Mac mini

[rickc66 10]

Set your target to 1/2 your stop. Now you've got a simple scalping algorithm.

[BlueHorseshoe 10]

  rickc66 said:

Set your target to 1/2 your stop. Now you've got a simple scalping algorithm.

 

An adverse risk:reward ratio is probably a pretty good way to define scalping in fact.

 

With both kinds of scalping (buying at bid, selling at offer, and trading for small intraday moves) another thing to bear in mind is the frequency with which the strategy can be implemented. A strategy that only makes $10 per trade but trades twenty times per day is obviously going to produce a better return than one that trades once per day and makes $100 per trade. So as well as the expectancy of a scalping system you need to consider the opportunity to exercise that edge.

[Tams 20]

  rickc66 said:

Set your target to 1/2 your stop. Now you've got a simple scalping algorithm.

 

that pretty well sums up the essence of scalping

[Everettmick 10]

Useful discussion on scalp.... Thanks for sharing, what is the exact process on scalping?

[Obsidian 10]

this is the exact process:

[khellian 10]

Agreed ! But also with scalping you must take into account commissions if they are payable on the instruments that you are trading. A large number of trades will produce a large number of commissions and they are payable irrespective of whether the trade produced a profit or a loss.

[onesmith 10]

Can you be more specific?

 

 

  Obsidian said:

this is the exact process:

[wrbtrader 10]

Don't scalp until you're getting special commission rates that correlates to the lowest rates your broker has posted publicly. In fact, the few profitable scalpers I know are leasing exchange seats.

[Obsidian 10]

  onesmith said:

Can you be more specific?

 

you can either find an instrument which is moving in a flat range or you can wait for high volatility to get fast pips/points

[MightyMouse 12]

Scalpers were pit traders and had the advantage of being able to buy at the bid and sell at the ask. They weren't able to do so all the time, but a keen trader could take advantage of pit chaos and enjoy the theoretical advantage. These days, electronically, your trade is placed in a queue. Trades are executed on a FIFO basis and the only way to guarantee that you get execution is for the market to trade through your entry price and your exit price which generally means you would have been better off staying out of the trade when you got in and better off staying in the trade when you got out.

[BlueHorseshoe 10]

  MightyMouse said:

which generally means you would have been better off staying out of the trade when you got in and better off staying in the trade when you got out.

 

Adverse selection is what the books call it. Quite frankly, I was shocked the first time I tested a system and required the software to only fill orders when price traded through the limit rather than trade at it. Although I was fully aware of adverse selection, I had massively underestimated the effect it would have.

 

There are ways in which the order queue can be 'jumped' (not literally), but these require a level of sophistication beyond anything I could achieve.

[Mysticforex 13]

@ Onesmith

 

The example Obsidian uses is a good one. I don't know what time frame he is on, but

it is the Euro - Swiss Frank, spot forex market. Oanda is the broker, tight spread ( 1.9 pips as I type this ) and no commission.

 

As you can see he is using no indicators. The pair is range bound, He is selling at the top of the range, and buying at the bottom. This is a skill that requires a great deal of time and practice.

[TheDude 10]

you cant scalp with a retail fx platform. if you find success doing this, you are just being fooled by randomness. this will be temporary. as is having a 'target' less than a 'stop'. understanding outcome expectancy with probability makes this a losing proposition. anyway, neither stops or targets are used in scalping (or any real trading program). you exit when the flow dries up. if it doesnt come in the first place you scratch. you dont need a stop in the market when you have understanding and discipline. the concept of a stop was invented by retail brokers to earn commission more quickly. period. theres a never ending line of people willing to try their hand at trading. since 1900's reading wyckoff in fact.

 

scalping is about much more than nicking a few ticks and being the fastest to get the front of the queue. all most firms do anyway is load up the order book before the rth open to get priority. a lot is also to do with reading the order book, placing size in the book, and pulling the size to create the impression of strength or weakness to trick other participants.

 

if you trade stirs which work on pro rate not fifo, then youre not even so worried about speed so much - speed is only considered on pulling orders.

 

on the subject of speed, remember the cost of fpga's are falling. technologies like those offered by fixnetix etc are almost commodity items these days, yet 5 years ago were bleeding edge costing millions.

 

thats why urma blame isnt round much these days. guess hes blown up thinking his tradestation app could compete.

Edited March 7, 2012 by TheDude

[BlueHorseshoe 10]

  TheDude said:

you cant scalp with a retail fx platform. if you find success doing this, you are just being fooled by randomness. this will be temporary. as is having a 'target' less than a 'stop'. understanding outcome expectancy with probability makes this a losing proposition. anyway, neither stops or targets are used in scalping (or any real trading program). you exit when the flow dries up. if it doesnt come in the first place you scratch. you dont need a stop in the market when you have understanding and discipline. the concept of a stop was invented by retail brokers to earn commission more quickly. period. theres a never ending line of people willing to try their hand at trading. since 1900's reading wyckoff in fact.

 

scalping is about much more than nicking a few ticks and being the fastest to get the front of the queue. all most firms do anyway is load up the order book before the rth open to get priority. a lot is also to do with reading the order book, placing size in the book, and pulling the size to create the impression of strength or weakness to trick other participants.

 

if you trade stirs which work on pro rate not fifo, then youre not even so worried about speed so much - speed is only considered on pulling orders.

 

on the subject of speed, remember the cost of fpga's are falling. technologies like those offered by fixnetix etc are almost commodity items these days, yet 5 years ago were bleeding edge costing millions.

 

thats why urma blame isnt round much these days. guess hes blown up thinking his tradestation app could compete.

 

You seem to contradict yourself here: having a target less than a stop is much closer to having a target and no stop than it is to having a target and a stop that is less than it. If you keep making a stop-loss bigger, in the end it becomes so big that to all intents and purposes it isn't there. Does that make sense?

[TheDude 10]

  BlueHorseshoe said:

You seem to contradict yourself here: having a target less than a stop is much closer to having a target and no stop than it is to having a target and a stop that is less than it. If you keep making a stop-loss bigger, in the end it becomes so big that to all intents and purposes it isn't there. Does that make sense?

 

i see what you mean i thinks - im sorry, very tiered at the mo. screen fatigue..... im not a big fan of stops - hard stops in a market i mean. mental stops fine. we all need an out. that out imo should be a scenario, not noise like market printing a price once.

 

ok so you have 999/1000 chance of making $1. You have 1/1000 chance of losing $2,000. it's tempting to keep at the game, but eventually you know where you'll end up.

 

kind of like people who say 90% of options expire worthless so I'll sell options for a career. it kind of ignores the fact that the 10% that dont expire worthless can really do something special. if you're on the wrong side of that 10% you could well be history - trust me - ive been there unfortunately.

 

probability and expectancy go together. you cant just look at one of them and ignore the other.

 

kind of why scalpers dont approach it with stops and especially targets. its a high volume game where 50-80% of trades may scratch, 20% may lose, so just like any trend following idea (on a micro scale), when you hit gold, you wanna stay in for a ride, not say ''hey i'm a scalper so i can only take 1-2 tiks''

[SunTrader 10]

  Obsidian said:

this is the exact process:

Might be your idea but it is not even close to the real deal.

[Obsidian 10]

  SunTrader said:

Might be your idea but it is not even close to the real deal.

it would be more informative for readers if you would share your idea and show the real deal...

 

  TheDude said:

you cant scalp with a retail fx platform...

not impossible but still depends on your broker imo

[TheDude 10]

  Obsidian said:

 

 

not impossible but still depends on your broker imo

 

well as long as your 'broker' gives you access to the interbank market on a platform like ebs, currenext or autobahn then yes. this is because you'll need to see the full aggregated order book so you can spoof accordingly. you'll also need an agreement that says you can throw in a few yards of size (thats BILLIONS of DOLLARS), and be able to cover if hit.

 

having said that, if you meet the criteria above, then you're not really retail and wouldnt have an oanda account or similar.

 

not only that, the fragmentation of the interbank market would make scalping almost impossible as arbs come in pretty quickly. banks may scalp a few ticks here and there, but of course they have customer flow to trade against - you dont - the average reatl fx trader is sitting in his kitchen in his PJ's trying to trade against his broker from a lap top dreaming of hot girls and a ferrari......one day.......

 

scalping is about reading the order book and anticipating the next few ticks - and having the patience (as ever) to wait for the right spot. it isnt about reading support or an ma on a chart - that support only exits in the eye of the beholder. its the order book that will determine when a prize zone/level will hold and when it will break

[BlueHorseshoe 10]

  TheDude said:

i see what you mean i thinks - im sorry, very tiered at the mo. screen fatigue..... im not a big fan of stops - hard stops in a market i mean. mental stops fine. we all need an out. that out imo should be a scenario, not noise like market printing a price once.

 

ok so you have 999/1000 chance of making $1. You have 1/1000 chance of losing $2,000. it's tempting to keep at the game, but eventually you know where you'll end up.

 

kind of like people who say 90% of options expire worthless so I'll sell options for a career. it kind of ignores the fact that the 10% that dont expire worthless can really do something special. if you're on the wrong side of that 10% you could well be history - trust me - ive been there unfortunately.

 

probability and expectancy go together. you cant just look at one of them and ignore the other.

 

kind of why scalpers dont approach it with stops and especially targets. its a high volume game where 50-80% of trades may scratch, 20% may lose, so just like any trend following idea (on a micro scale), when you hit gold, you wanna stay in for a ride, not say ''hey i'm a scalper so i can only take 1-2 tiks''

 

I trade without a stop or target as well (though I don't scalp, in any sense of the word), so I agree there. I understand the point you're making about probability and expectancy, and I know just enough about options to understand what you're saying.

 

However, I think that people on this thread are often talking at cross-purposes (I posted to this effect early on) - they're using the term 'scalping' both to refer to trading for the spread (like a true, traditional scalper might, requiring low fees etc), and also for day-trading from short timeframe charts. With the latter, there are certainly many strategies where having a larger stop than target makes sense, as this is simply the only way to get a stop inside intraday volatility and keep a stop outside of it. I wouldn't tend to call these people scalpers myself though.

 

While I agree that most strategies with larger stops will eventually experience some sort of 'black swan' event, I think most fail for a whole bunch of other reasons before they even get to that stage.

 

Incidentally, if it's not too difficult to talk about, I'd be really interested to hear about your experiences with writing options.

[jkshemaraja 10]

My first trade of the day. Went short.

 

I trade the 30 seconds TF.

 

Prices broke the bottom level of the range.

 

Why did I not get in, when prices broke 9 candle before? Because there was not any build up before the break, (see the two doji just before my actual entry) and if there is not pressure, I like to stay aside (my favourite position)

 

Soon after my entry, she pulled back forming a double top (1 and 2) and went down through the round number of 1.3140.

Soon after that she pulled back strongly back to the double top, at that stage I was ready to get out of the trade if she was going to close above the double top, (less than my risk) but she did not and went down again and I got out before my TP got reached because a double bottom formed.

 

Made 4.9 pips on 2% risk (7 pips)