# ES & YM Micro Scalping

#### elsaQ

##### Junior member
Although I actually swing trade I've been paper trading various scalping methods recently based on simple S+R and have had quite a lot of success picking up 0.5 on the ES and 2 points on the YM per scalp.

My question is, assuming all contracts get filled at the desired level and I understand thats a big assumption, is this a viable approach?

Additionally after costs how much \$ would be left per contract per scalp?

All input would be gratefully recieved.

ElsaQ

0.5 on the s&p is about 4 points on the YM, so why not got for 4 points on YM.

what are you stops

Win two points on the YM and you make \$10 minus coms about \$4 = \$6
Lose on your next trade 2 points means lose \$10 plus coms \$4 = - \$14

Based on the above you need to win 3 out of 4 trades to eek out a small profit of \$4.
I think a 2 point stop on the YM would be difficult to place without being hit more often than your target (you would certainly need an automated program to enter these exit orders instantly with your entry). Also with slippage you would probably lose 3 points, if so then your win target must rise to 4 wins out of 5 trades.

You might stand more of a chance of you were prepared to let some of your profitable trades run on?
pete

statistically, micro scalping is only profitable if you pay tiny commissions and have an exceptionally good win rate.

With tiny scalps you invariably have to have a stop that is bigger than your target to avoid being stopped out by the inevitable noise.

for example, if your target is 2pts dow and stop is 4pts - assuming you pay retail rates, commissions account for nearly all your first tick of profit and add an extra tick onto your losses.

so for every losing trade you lose a gross total of 5pts vs every win net gain of 1pt. At this ratio you would need to be able to guarantee that 80% of all trades were winners JUST TO BREAK EVEN!

that sort of ratio is extremely difficult to acheive with any reliability, and the drawdowns are savage and difficult to recover from.

if you really want to super scalp the YM, the way to do it would be legging the outrights against the exchange quoted spread.

For example, if the front month is quoted as follows as it is right now with my cursory glance at the prices:

......June 06 .............. Aug 06
.... 10988 offer ...........10910 offer
bid 10987..............bid 10909......

and the exchange quoted spread market was quoted as so:
........81 offer
bid....80......

You could try working the offer in the back month - in the example above if you managed to sell the offer at 10910 and got a fill, you could then sell the spread at 80 bid and buy the front month at 10988 offer to go flat.

The maths of this trade would be as so:
short Aug 06 at 10910 minus your long at 10988 = a difference (spread) of 79. Since you bought the front month and sold the back month, this would put you long the spread market at 79 and since the spread market is bid at 80 you could sell the spread in the exchange quoted spread market - so your were long the spread via the outright legs at 79, sold the spread market at 80 = 1 tick profit with "limited" risk since you are hedged agains big moves by being both long and short.

A lot of the depth of market you see in the DOM ladder is derived in exactly this way since the market makers's can quote the market against the spreads and back month.

The downside is that your 1 tick will cost you four lots (front month + back month and spread counts as + two) so you can see why uber cheap commissions are an absolute necessity for any type of scalping.

Easier said than done however, and I do not suggest you even consider trying this unless you understand exactly what you are doing and have the right tools to do it (ie: autospreader or similar)

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My experience of trading YM would suggest that if you're trading with a 2pt stop, you may as well just set fire to your \$10 and be done with it - it'll be a lot less stressful.

There are many trading styles and trading objectives, but I have never come across anyone who could be consistently profitable using 2 point stops on the YM.

I use 20 point stops on the YM and 2 point stops on the Emini S&P and most people reckon these stops are pretty tight. Another point is if you look at the volatility over the last 2 weeks (VIX at 19) even 20 point YM stops are being blown away within seconds.

That said looking back two months, when the VIX was 12, you could certainly use very tight stops for large parts of the day.

I think, to be consistent, you will have to look at wider stops. Risk /Reward is a tricky thing to get right and as markets become more or less volatile you change your stops accordingly.

elsaQ said:
Although I actually swing trade I've been paper trading various scalping methods recently based on simple S+R and have had quite a lot of success picking up 0.5 on the ES and 2 points on the YM per scalp.

My question is, assuming all contracts get filled at the desired level and I understand thats a big assumption, is this a viable approach?

Additionally after costs how much \$ would be left per contract per scalp?

All input would be gratefully recieved.

ElsaQ

hi, you ask if this is a viable approach. that depends on whether you get a fill,
the market trades in your direction and what you are paying for commissions.
the attached show todays trading on my account. as you can see i often only trade
2 ticks

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If you buy at market which most do trading the YM. on 15 R/T a day, he would need to make 30 YM points just to cover the cost of trading,. let me give you an example Based on \$5 R/T

You buy the offer at.. .12025

bid...........offer
12024 / 12025

12025 / 12026 Market moves, 1 point

12026 / 12027.Market moves 1 points

You sell the bid at...12026

The market needs to move 2 points just to breakeven. if you are trading 15 R/T a day. you need to make 30 points just to cover trading cost, somthing to think about

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DAX has one of the lowest commish to tick value ratios - much better than YM.

If you're scalping YM for <5 ticks several times a day, I'd advise that you lease a seat on the CBOT. \$83 a month at the moment + around \$1500 once off membership admin fee. Doing so will cut commissions down to around \$1.50 a round trip.

http://www.cbot.com/cbot/pub/page/0,3181,936,00.html

frugi said:
If you're scalping YM for <5 ticks several times a day, I'd advise that you lease a seat on the CBOT. \$83 a month at the moment + around \$1500 once off membership admin fee. Doing so will cut commissions down to around \$1.50 a round trip.

http://www.cbot.com/cbot/pub/page/0,3181,936,00.html

frug,

Yes you are corret. I'm just giving an exaple of your average trader. And you average broker.

flyingeagle said:
hi, you ask if this is a viable approach. that depends on whether you get a fill,
the market trades in your direction and what you are paying for commissions.
the attached show todays trading on my account. as you can see i often only trade
2 ticks

I think that this type of thinking may be better for a trader instead of thinking what the stop price should be.

For me, I do not define a stop price for scalping. I exit ASAP (market order) if the trade does not develop as I thought it would.

If you can perfect your entry (time your entry correctly) so that the price moves in your favour very quickly after entering the market - the amount of times you will then need to exit with a loss will be greatly reduced.

Once a trade entry strategy is mastered - how much you make will then become a function of how much you want to risk - i.e. do I trade 5, 10, 20 contracts (or even more if you have the capital).

The same Market Data will be interpreted differently by each individual, due to fact that each individual has their own way of thinking.

One way for a trader to develop a successful trade entry strategy is to be shown how to do it by someone who has already mastered it.

This is very hard, of course, as very few have actually mastered it, and those that have tend to want to keep it to themselves.

So the only other way may be to stick with and master it yourself - but if one wants to go down this route then it may be better to prove that you can actually do it first before you risk real money - in other words papertrade.

I think it may be better to forget about all the other issues associated with trading the markets with real money - fear, greed, feeling good, feeling bad, etc, etc, etc.

The FACT is, if I can't time my entries, so that the price moves as I anticipated very quickly after getting filled, then I may never get the opportunity to make any consistent gains.

My success rate - No. of % wins- will be in direct proportion to my level of knowledge, experience and determination.

elsaQ said:
Although I actually swing trade I've been paper trading various scalping methods recently based on simple S+R and have had quite a lot of success picking up 0.5 on the ES and 2 points on the YM per scalp.

My question is, assuming all contracts get filled at the desired level and I understand thats a big assumption, is this a viable approach?

Additionally after costs how much \$ would be left per contract per scalp?

All input would be gratefully recieved.

ElsaQ
have tried several differant ways of trading the dow . find myself that on a choppy day, (like yesterday) between 5-7 points can be had with 10 point mental stop . 4 times i traded that way yesterday. all within the short time frame trend.

I finally figured out my cost of trading on the YM. This is with my broker so I am NOT talking about anything else but MY broker.
On the YM it comes with all fee included to about 3 dollars a side. This includes commissions, and all stupid little fees. So on 1 contract it will take atleast 2 tics to make a profit. But the best is atleast 3 tics. Then you totally pay for your fees and everything else if profit. Learning how to beat the spread on FX has been a big help here. I recommend everyone do a little currency and then you can beat the spread here and yes, there is a spread plus fees. That's what makes trading so expensive. Good luck

laptop1 said:

If you buy at market which most do trading the YM. on 15 R/T a day, he would need to make 30 YM points just to cover the cost of trading,. let me give you an example Based on \$5 R/T

You buy the offer at.. .12025

bid...........offer
12024 / 12025

12025 / 12026 Market moves, 1 point

12026 / 12027.Market moves 1 points

You sell the bid at...12026

The market needs to move 2 points just to breakeven. if you are trading 15 R/T a day. you need to make 30 points just to cover trading cost, somthing to think about

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