Scalping: Market Versus Limit Orders

[lastninja2 10]

Hi

 

Here's what's on my mind:

 

I believe it is probably possible to consistently take a couple of ticks from the market by simultaneously posting limit orders, both bids & offers, around high/growing volume areas (as observed on the market profile).

 

Trouble is, while I find this approach interesting, the trade simulators available to me (both Ninja & MD_Trader) are essentially useless when it comes to order-matching.*

 

Personally I believe it would be a gross error to participate in the market, even with 1 lot, before gaining !!!extensive!!! experience with a trade simulator. This got me thinking. To what extent are limit orders used by successful intra-day scalpers (ROUGHLY defining scalper as someone in the market <60 seconds), versus market orders?

 

I had contact once with a proprietary trader, presumably successful, who claimed to use almost exclusively market orders in a fast market to scalp a couple of ticks here and there. I would feel more comfortable using a trade simulator with faux-market orders, than with limit orders... more inclined to trust the results over a 6-month period.

This prop trader said he doesn't use indicators, trend lines, market profile... only price action with the occasional Support/Resistance line to judge areas of potential stop runs. Oh. And a decent news service to stay out of the market for scheduled events.

 

Any discussion on the relative merits of order types, would be very welcome.

My own undeveloped thoughts are:

1) Limits are better in range-bound markets. If you see the market breaking out of the range, probably better off with a market order to make sure you don't miss the move

2) Market orders are more appropriate in fast moving markets such as FDAX and CL, rather than slow burners like FESX, FGBS.

3) A scalping strategy that relies on market orders... is better for the trainee because it allows them to use a trade simulator that won't provide unreliable results

4) A scalping strategy that relies on market orders... may not be viable if you suffer retail commissions and second-rate technology.

 

:cinema:

 

 

*

Appendix

Fuller explanation of why I don't trust simulators:

Ninja simulator, for instance, will only match my simulated order when the entire price level is taken out. It does not attempt to estimate my place in the queue at all.

As for MD_Trader simulator (Velocity futures, data via TT), I just don't trust the simulated server. The market profile often is radically different to the reality, and I've even seen the high or low prices differ from reality too!

Edited March 19, 2012 by lastninja2

[TheNegotiator 13]

Scalping is literally taking a cut off the top of order flow(often a reversal in). So if it gets to a big level and some offers come in(if we're moving higher), a scalper who see's this might sell the price action in order to get very fast and high probability, but small profits. The method is less useful today due to algos, but I'm sure there are people who still do it. If you are thinking about trying it, then don't even bother unless you have very quick connections and are close to the exchange. I suspect you are not because you are talking about ninja and velocity tt, meaning you're probably retail. Either way, it's up to you.

 

Re: order types, it depends. Depends on the market, depends on liquidity, volatility etc.

 

Plenty of scalpers "hit market" as the price looks like it is about to change. So often their attempted market order becomes a limit if they dont hit it in time. This is an important distinction. That prop guy's market orders were not orders to fill at best market price, but market orders limited to a certain price. This is basically true because of the DOM. If a trader hits the offer to buy, but the market has already gone bid(before the screen refreshes) his order is a limit, if it hasn't gone bid then it's a market order. This is different to hitting the buy market or sell market button where you get best fill whatever happens. Scalpers dont do this as it's too dangerous considering that they only look to take a few prices at a time.

Edited March 19, 2012 by TheNegotiator

[lastninja2 10]

Yeah Thanks Neg, good info. Never really thought about the market / turning limit scenario.

 

I keep hearing how difficult it is to scalp in such a manner as a retailer (your guess that I am retail was correct of course). Still on an endless quest to figure out precisely what time-frame/style is most suitable given both my own psychological make-up and technical constraints as a retailer.

 

Still, reckon it might be worth pursuing on simulation, with a view to convincing a prop shop to take me on-board further down the line? Don't have any income but don't have many outgoings either - and even for a retailer there might be a few Armageddon trades when something unexpected occurs somewhere in the world, to keep CL DOM-watching interesting.

 

When in doubt, just be quiet and watch the DOM, is becoming my motto. Not necessarily the most amusing or effective way to spend my day but more screen-time the better, yo?!

[TheNegotiator 13]

I wouldn't think that'd it'd be useful to convince a prop shop to take you- unless a mate can get you in the door that is.(not by trading simulated on a retail platform. if you can trade live and present the figures, that's different-but then i'm not suggesting to scalp retail either).

 

Screen time is only useful if you figure something out. Sitting in front of a screen for the sake of it is unlikely to be useful imho.

 

Try this. Write down headings for personal psychology, personal capital, risk management, product selection, trading methods, trade selection, etc etc.

 

Useful conclusions come from organising your thoughts clearly, not just thinking.

Edited March 19, 2012 by TheNegotiator