Scalping strategy management?

[Creech]

Just wondering how you manage a scalping strategy? From what i understand you place your position on the chart above the chart time you manage it. So, if your a swing trader you would perhaps place a trade on a 15-min chart but manage it on a 5-min chart. However, with scalping how does this work? Do you solely use 1-min and/or real-time charts? Im just a bit confused on this aspect.

Thanks!

 

[anley]

There is no strategy for scalping.

In order to take a few ticks here and there many things can work (charts, gut feel etc) but then for most people many things don't work.

I reckon that scalping for 95% of people is a slow way to the poor house. Same with day-trading.

 

[TWI]

Scalping is the nads if you have direct access to an electronic exchange and a good, tight, rangebound but volatile spread.
Any form of scalping involving outright products I would not entertain as it is likely to be the death of a thousand cuts for most. I do know that some people manage it but they are few and have a volatile PnL.

 

[Roberto]

From what i understand you place your position on the chart above the chart time you manage it

I usually do, for intraday spread-trading of indices (and to a lesser extent currencies). Without going into details, I'll usually open a position using a 10-minute chart - having also looked at much longer timescale charts first! - and then manage it using a 5-minute or even a 3-minute chart. (I'm not quite sure if this is what you mean?). Or sometimes I'll open a position using a 15-minute chart and again manage it using a chart of shorter periodicity.

I'm also not quite sure if you'd necessarily call what I do "scalping", though: some of my trades are sometimes open for as long as 3 or 4 hours. I think of "scalpers" as being people who are in and out of the market in about 5 minutes, but it's very difficult and stressful (not impossible, as some strongly opinionated folk love to say with great finality and force!) to do that with spread-betting and make consistent monthly returns, and it's certainly not for me.

Maybe it's just a semantic point, but I think there's such a thing as short intraday trading which is still usually longer than "scalping"?

 

[Roberto]

Sorry ... forgot to say: in my opinion, anyone doing any form of intraday trading should only ever be using real-time charts. Using something that's unreliable or delayed by even a few minutes would certainly make it extremely difficult! For the first 6 months I traded, in my great naivety and technophobia, I used almost nothing more complicated than the free real-time charts of the major indices at Yahoo Finance. This limited what I could trade, with my style, to 3 or 4 products and was often pretty difficult if (as sometimes happened back then) the Yahoo charts were running 3 or 4 minutes late. I wouldn't recommend these now for real trading with real money (and neither do Yahoo, by the way!). But a useful resource nevertheless, and quite a good range of technical analysis parameters are available there.

 

[Creech]

I usually do, for intraday spread-trading of indices (and to a lesser extent currencies). Without going into details, I'll usually open a position using a 10-minute chart - having also looked at much longer timescale charts first! - and then manage it using a 5-minute or even a 3-minute chart. (I'm not quite sure if this is what you mean?). Or sometimes I'll open a position using a 15-minute chart and again manage it using a chart of shorter periodicity.

Thanks Roberto. Yeah this is what i mean. I guess what you do isnt technically scalping but nevertheless its helped me understand a bit more. Im just trying to figure out how scalpers manage their positions? Do they solely use 1-min charts to open/close positions or do they manage it as you do?

 

[Roberto]

Do they solely use 1-min charts to open/close positions or do they manage it as you do?

Not really sure ... I think there's nothing intrinsically wrong with 1-minute charts but it depends what you're doing with them! I've certainly seen people trading the Dow intraday using a 1-minute chart but looking at a 100-minute exponential moving average and opening trades when the price crosses the MA, when confirmed by whatever other technical analysis parameters they're using.

A couple of years ago (bit more now, actually) I met a guy who works for one of the private "asset management companies" in London; basically he and his colleagues are salaried/commissioned traders who play professionally at intraday and slightly longer spreadbetting with the clients' ultra-high-risk investment capital. There are a couple of other companies like this in London. They seek no publicity at all (quite the opposite, in fact - they are so private and discreet that one wonders how they ever get any clients at all!) but I recall having read a fascinating article about them in the London Evening Standard which made some very remarkable claims about their consistency and successes, and it was very interesting actually to meet one of them. Perhaps not a good subject for detailed discussion here where so many strong and negative opinions prevail. PM me if you want to chat.

 

[wisestguy]

actually , what most refer to as scalping is really very short term day trades .

for individuals , pure scalping would be difficult because the transaction costs would outweigh the best trades . ie) costs = 2 tics , target profit = 1 tic , doesn't take a genius to work that out.

so pure scalping is only lucrative if you have somesort of direct participation on the exchange . most individuals would do this as a " local " ( private member ) . then your cost would be less than 1 tic and you could be profitable .
However , what most people also fail to mention is that to be a local on a worthwhile exchange is very costly to start with ! usually US$ 100k plus just to buy the seat , before 1 scrap or scalp of trading even occurs.

beware the term scalping, it can be a false God.

 

[JTrader]

Hi
following on from wisestguy's comments, here are definitions that I recently came across on the very useful website - www.investopedia.com, for the different timeframes for trading. -

Day Trading
Day traders buy and sell stocks throughout the day in the hope that the price of the stock will fluctuate in value during the day, allowing them to earn quick profits. A day trader will hold a stock anywhere from a few seconds to a few hours, but will always sell all of those stocks before the close of each day. The day trader will therefore not own any positions at the close of any day, thereby eliminating overnight risk. The objective of day trading is to quickly get in and out of any particular stock for a profit anywhere from a few cents to several points per share on an intraday basis. Day trading can be further subdivided into a number of styles, including:
Scalpers:This style of trading involves the rapid and repeated buying and selling of a large volume of stocks within seconds or minutes. The objective is to earn a small per share profit on each transaction while minimizing the risk.
Momentum Traders: This style of day trading involves identifying and trading stocks that are in a moving pattern during the day, in an attempt to buy such stocks at bottoms and sell at tops.

Swing Trading
Swing traders hold their stock positions longer than day traders, with trade durations ranging from 2 days to more than a week. The main objective of a swing trader is to benefit from intra-week price changes in that stock and profit from price movements over several days, since price movements may be much larger over the course of a few days as opposed to one day. The longer exposure in that position tends to present more risk, and extensive use of technical analyses is used to help determine when to enter and exit the position.

Position Trading
Position trading is a trading approach characterized by the trader holding meaningful positions for an extended period of time. Position traders may hold a position for one month or even up to 12 months. Position traders may qualify their purchases through fundamental analysis or expectations of success and profitability within a given company, sector or even the market as a whole. Position traders do have an established time frame for these long held positions. It is the existence of this time frame that separates position trading from investors.

Investing
An Investor purchases a stake in a company and holds that position for an indefinite period of time. Typically, investors seek fundamentally sound and profitable companies, where they will invest significant amounts of capital with the idea of appreciation and potential income over the course of several years.


Hope this helps

jtrader

 

[Creech]

Interesting stuff and appreciate everyones input. But does anyone still have any ideas as to what chart time-frames to use?

 

[TWI]

5-min chart is usually sufficient for intraday spreads.

 

[Roberto]

5-min chart is usually sufficient for intraday spreads.

Sufficiently long, or sufficiently short, do you mean?

I've just started reading through all Chartman's excellent analysis in these forums of his daytrading of the Dow (which is absolutely fascinating and I'm already learning a bit from it), and I notice he seems to use 1-minute charts.

 

[Creech]

Yeah ive read through his stuff...very interesting too. 1-min makes sense as a trade could only last a couple mins, although i thought posssibly that you would use 5-min charts to place the position (thats where my confusion was!).

 

[Roberto]

Yeah ive read through his stuff...very interesting too. 1-min makes sense as a trade could only last a couple mins, although i thought posssibly that you would use 5-min charts to place the position (thats where my confusion was!).

Yes, interesting point. (My guess is that if you used a 5-minute chart to enter trades, there would be _far_ fewer of them, with later entries, and that although the "strike-rate" might be higher, the number of points won overall would be greatly reduced. I haven't read enough of this stuff to know, though ... there's certainly no shortage of reading-material here!)

 

[TWI]

I use 5-min chart to find range to trade. Shorter made no sense for me, longer confused what range was.
Probably better to use 1-min chart for some markets particularly when looking for short term breakouts. I do not do that I trade short term ranges.

 

[Roberto]

I've often wondered what this means (says he, displaying his profound ignorance). What exactly do you do when you're "trading ranges"? Does it mean identifying the top and bottom of the current range, and going long close to the bottom and short close to the top as the price fluctuates? I'd imagine that with very accurate timing, this might be a way of buying in a falling market and selling in a rising one, thereby taking some advantage of SB biases, which sounds attractive (as long as an unexpected breakout doesn't hammer your position) ... is this about right?

 

[TWI]

That is correct. If you find a market within a range then you do exactly that on short term. Often this works better with sprads as you get less volatility and more chance to get out when it breaks one way or the other.

 

[StockCoach]

I think you will find that scalping is done with tick charts. Like you said, a chart above that timeframe (like a 1-minute chart) would be also suitable for scalping. Scalping can also be achieved without using charts, but by simply watching/listening to the tape. I find that it is MUCH easier to listen to the market, because my audio part of the brain processes it quicker and more instinctively than my visual part of the brain. I knew of a friend who wrote software to "listen" to his charts. He could hear the market get active before he realized it on the chart. Pretty interesting stuff!

 

[tech_trader]

Interesting stuff and appreciate everyones input. But does anyone still have any ideas as to what chart time-frames to use?

Totally depends on your strategy. I trade a scalping strategy that actually works on pretty much any time frame and any commodity. I can even put it on a daily chart and use it as a position trading strategy. The best time frame is where I as a trader am most comfortable.... and where I make the most money.

 

[ZDO]

Creech,

For scalping, use the shortest timeframe that you can read and operate in.
(I have also always had the the additional requirment that the chart 'still looks like a price chart'. What do I mean by 'still looks like a price chart'? An example: for whatever and several reasons, the 1 min ES looks very 'square', blocky but the 1 minute YM 'looks' like a price chart. Unless square and blocky works for you, then for the ES you would need to move up to 3 min charts (or something like a 500 ticks per bar chart) to get enough 'non-symmetry' / non square action to trade off of, while the 1 min on the YM would work fine because the YM 1 min looks like a chart - (and a chart is a chart is a chart??. ))

Keep in mind though that the true scalping time frame is at the tick level and you need to be close to, no, in the middle of the action. As others have said here, scalping is taking a few ticks per trade. Real scalpers are actually whales that take many many tinies (and who knows, they might actually choke on bigger 'profits'). Are you a whale content to take many mini krill? Or are you a whale wannabe? Taking enough from the same krill cloud without upsetting the whales and being able to keep up with them when they move to the next krill cloud, etc. is not as straightforward and simple a game as it seems at first. As others have said, the time frame to use for scalping is determined really by what works for you. Whale wannabe's use shorter time frames to increase the number of setups - since they're sitting there watching anyway. This metaphor is starting to suck some krill now... so to wrap up -
longer time frames give better scalping signals (ie better odds) but therein lies the bind - it requires full time to watch for fewer signals on the longer time frames but the decreased frequency of rewards mean only part time rewards for full time work. Shorten the timeframe(s) for the setups and signals and the desired outcomes' odds decrease enough to make it tough to thrive in 'whale turbulance' day in and day out. . It blows…

hth
have a good weekend,
hope you hear the whale songs next week…

zdo