Most people when they talk about scalping actually mean what I have called - scraping.
Let me clarify this in simple plain terms and give you my view as to why scraping does not really work.
First what is scalping ? real scalps occur when you can profitably sell on the offer and buy on the bid . This will depend on :
1) simultaneous buy and sell trades
you put an order and sit on the bid and offer at the same time and hope that they both get hit before the bid/offer changes. sell at 38.5 , buy at 38, net profit gross comms and costs = 1 tic .
so this is crucial , otherwise you cannot scalp you may be doing sonething else but it's not real scalping. in order to do this the market MUST ALLOW YOU TO SIT ON BOTH SIDES OF THE B/O SPREAD. usually this means an exchange traded market , likle the S&P.
most people overlook this very important fact when they think about scalping. for instance the forex interbank market is NOT an exchange .
It is literally many markets MADE UP of multiple banks quoting prices . the spread is NOT constantly known or singular , it is MADE UP when you ask for a quote. The trade sizes are not known either.
so the scalper has no control over the 2 way trade and over what size the trade would be. petentially , he could be hit 1 side only with a large order . that is a position he has and NOT a scalp.
you cannot also be a market maker unless you join a bank , even then they cannot scalp in the true sense due to the aforesaid.
2) commisions and transaction cost less than 1 tic/ bid.
quite obviously if this is more than 1 tic , you cannot in trade profitably within the b/o spread.
3) the market not suddenlymoivng leaving you open at the wrong end.
also if the market suddenly shoots away , one side of your scalp will be hit leaving an open position opposite to the market move. Thus you are bidding@ 38 , offering @ 38.5 on the spread.
MrBig/weakego steps in and takes all the offers in sight shooting the market up 20tics.
the market is now 58.5 and you are short @38.5 . bad news and you are in trouble,losing 20 tics .
Most Retail Players do not have the above advantages so they CANNOT scalp ,mainly due to (2) but also SET UP COSTS which can be huge .
to gain direct access to the exchanges , you either have to be a member ( a local ) or rent a seat , then only will your comms and deal costs be competitive . buying a seat at the major excahnges in Chicago , Osaka , Singapore will cost you an arm and a leg ( $ 100's of thousands ). And so will renting , at least in reward to costs terms.
This will be out of the reach of 99% pf people here .
so we are left with what I've coined " scraping " . what this is , is basically a trader taking a profit as soon as he can with the idea of preventing a slippage which wipes away his profit.
He cannot do a classic scalp because:
Say his comms and fees are 1.5 tic . he cannot sit on the bid @ 35 and the ask @ 36 , even is he gets taken on both sides at , he is still out the money by 0.5 tic.
( retail comms/fees are more than exchange members , that's why you have to buy membership. )
no use , multiply by 100's and thats a lot of loss to give the market .
so they only way is a pseudo scalp , he does not sit on the spread but he makes a mini directional call . he say takes the offer @ 36 and hopes the market goes up by more than 2 tics .
so if the market goes up say 7 tics tp 43 , he quickly sells for a 7 tic gain minus his comms etc and the profit is 5.5 tics, something he hopes to repeat as much a she can.
But this is a HIGH risk and LOW reward style . why ?
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let's say he uses a stop , at the tightest possible price - @ 34 , with comms @ 1.5 tic , his min. loss , barring slippage etc, which is not uncommon is 3.5 tic , thereby giving him a reward to risk ratio on a typical trade of 5.5/3.5 , less than 1 , which is crap !
if you say - ' ah I will not just take my 7 tics , I'm a clever dick I will let profits run ' . well then you are not scraping anymore but regular swing trading.
But also you now risk any small scrape profits being eaten away by the swings that inevitably occur when sw. trading . again not scraping anymore.
So now we come to the fool's gold part . we see a lot of " systems " hyped as giving 90% winning trades , and usually they advocate scraping as the method of choice.
I think this is B*ll**ks:
- I would like someone to show me he has traded proftably with a high R:R over a couple of years , then I may believe you . I have seen NO such eveidence despite such unsubstaniated claims. who wouldn't want a 90% system if true.
- Even if true , the R:R would be low , less than 1 ( see above ) . Thus it would only take that 10% of losing trades to come at an inoppurtune time and all your gains will turn to losses , since you had so little in the bank anyway.
- if you swing then that's swing trading not scraping , and you would have to lenghten your stops to accomadate the swings , and trading at high frequency over time will lose you a large chunk of a sustained trend . either way your R:R will be comparatively unsatisfactory as agaunst more normal systems.
so scraping isn't scalping and it's 90% winners ain't gold or silver or even brass. take it for what it is - fools gold .
of course I am happy to be proved wrong but I doubt it .
This has taken me some time and trouble and I had planned on doing 3 articles as agreed on the " things are getting better " thread but recent events have reveled to me that this place is no longer totally condusive for free open creative discourse .
So.... enjoy .
Let me clarify this in simple plain terms and give you my view as to why scraping does not really work.
First what is scalping ? real scalps occur when you can profitably sell on the offer and buy on the bid . This will depend on :
1) simultaneous buy and sell trades
you put an order and sit on the bid and offer at the same time and hope that they both get hit before the bid/offer changes. sell at 38.5 , buy at 38, net profit gross comms and costs = 1 tic .
so this is crucial , otherwise you cannot scalp you may be doing sonething else but it's not real scalping. in order to do this the market MUST ALLOW YOU TO SIT ON BOTH SIDES OF THE B/O SPREAD. usually this means an exchange traded market , likle the S&P.
most people overlook this very important fact when they think about scalping. for instance the forex interbank market is NOT an exchange .
It is literally many markets MADE UP of multiple banks quoting prices . the spread is NOT constantly known or singular , it is MADE UP when you ask for a quote. The trade sizes are not known either.
so the scalper has no control over the 2 way trade and over what size the trade would be. petentially , he could be hit 1 side only with a large order . that is a position he has and NOT a scalp.
you cannot also be a market maker unless you join a bank , even then they cannot scalp in the true sense due to the aforesaid.
2) commisions and transaction cost less than 1 tic/ bid.
quite obviously if this is more than 1 tic , you cannot in trade profitably within the b/o spread.
3) the market not suddenlymoivng leaving you open at the wrong end.
also if the market suddenly shoots away , one side of your scalp will be hit leaving an open position opposite to the market move. Thus you are bidding@ 38 , offering @ 38.5 on the spread.
MrBig/weakego steps in and takes all the offers in sight shooting the market up 20tics.
the market is now 58.5 and you are short @38.5 . bad news and you are in trouble,losing 20 tics .
Most Retail Players do not have the above advantages so they CANNOT scalp ,mainly due to (2) but also SET UP COSTS which can be huge .
to gain direct access to the exchanges , you either have to be a member ( a local ) or rent a seat , then only will your comms and deal costs be competitive . buying a seat at the major excahnges in Chicago , Osaka , Singapore will cost you an arm and a leg ( $ 100's of thousands ). And so will renting , at least in reward to costs terms.
This will be out of the reach of 99% pf people here .
so we are left with what I've coined " scraping " . what this is , is basically a trader taking a profit as soon as he can with the idea of preventing a slippage which wipes away his profit.
He cannot do a classic scalp because:
Say his comms and fees are 1.5 tic . he cannot sit on the bid @ 35 and the ask @ 36 , even is he gets taken on both sides at , he is still out the money by 0.5 tic.
( retail comms/fees are more than exchange members , that's why you have to buy membership. )
no use , multiply by 100's and thats a lot of loss to give the market .
so they only way is a pseudo scalp , he does not sit on the spread but he makes a mini directional call . he say takes the offer @ 36 and hopes the market goes up by more than 2 tics .
so if the market goes up say 7 tics tp 43 , he quickly sells for a 7 tic gain minus his comms etc and the profit is 5.5 tics, something he hopes to repeat as much a she can.
But this is a HIGH risk and LOW reward style . why ?
-----------------------------------------------------------------------
let's say he uses a stop , at the tightest possible price - @ 34 , with comms @ 1.5 tic , his min. loss , barring slippage etc, which is not uncommon is 3.5 tic , thereby giving him a reward to risk ratio on a typical trade of 5.5/3.5 , less than 1 , which is crap !
if you say - ' ah I will not just take my 7 tics , I'm a clever dick I will let profits run ' . well then you are not scraping anymore but regular swing trading.
But also you now risk any small scrape profits being eaten away by the swings that inevitably occur when sw. trading . again not scraping anymore.
So now we come to the fool's gold part . we see a lot of " systems " hyped as giving 90% winning trades , and usually they advocate scraping as the method of choice.
I think this is B*ll**ks:
- I would like someone to show me he has traded proftably with a high R:R over a couple of years , then I may believe you . I have seen NO such eveidence despite such unsubstaniated claims. who wouldn't want a 90% system if true.
- Even if true , the R:R would be low , less than 1 ( see above ) . Thus it would only take that 10% of losing trades to come at an inoppurtune time and all your gains will turn to losses , since you had so little in the bank anyway.
- if you swing then that's swing trading not scraping , and you would have to lenghten your stops to accomadate the swings , and trading at high frequency over time will lose you a large chunk of a sustained trend . either way your R:R will be comparatively unsatisfactory as agaunst more normal systems.
so scraping isn't scalping and it's 90% winners ain't gold or silver or even brass. take it for what it is - fools gold .
of course I am happy to be proved wrong but I doubt it .
This has taken me some time and trouble and I had planned on doing 3 articles as agreed on the " things are getting better " thread but recent events have reveled to me that this place is no longer totally condusive for free open creative discourse .
So.... enjoy .
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