Trading the Nasdaq

[Naz]

I like to talk about two styles of trading on the Nasdaq.Scalping which is taking 15c-25c from a move using a level 2 screen and all its executions and swing trading which is taking moves from $1 upwards.Everybody has their own definitions of those terms.

Many players use charts and technical analysis for swing trades.This is good because the Nasdaq market is so liquid that technical analysis tends to work extremely well.However swing traders looking for over $1 profit might have a stop of 50c and upwards.

A scalper of course has stops of maybe 10c.He also has access to view how the market looks at key support and resistance levels.Based on his view of the technical anaysis and the level 2 screen a scalper can enter a trade within 10c of support and resistance,where as a swing player will need more conformation appearing on his graph or indicator to take the trade.He then may need to get on to his on line broker to take the trade.All this length of time may mean him entering the stock 50c away from the start of a strong move.

Nothing wrong with that if that style is acceptable.However when the swing trader gets his fill the scalper is 40c up and managing his trade.He is also able to read the strength of the stock by using his level 2 screen.

Now lets say the swing trader has a risk reward of 3/1 and has a$1/2 stop and a reward of $1 1/2 ,thats great but the other trader who gets a scalpers entry into a swing trade has got a risk reward of approx 20/1.He risked 10c in order to go for $2.

Now when we get to the resistance level the scalper can see the resistance on his level 2 screen and use his scalping tactics to get out when he sees the move fade.If its going further he'll see that as well.He will definately be out within 10c of the top.Pocketing $1.80 on the move.

The swing player however can only see whats going on from his graph and dosn't know if were going any further so he has to place a trailing stop 25c below resistance.If it gets hit he makes $1.25 from the move.

The swing player did everything correctly and took his profit,but the trader who used a scalpers entry into a swing trade made an extra 55c on the trade.Keep adding that up on every trade and it comes to a lot of money.(For every 500 shares traded it is $275 extra profit)

The trouble with scalpers is they dont look at the bigger swing play picture and are quite happy taking small clips all the time.They have got fantastic software and if it is used to look for swing plays frankly they've got an enormous edge.

I hope this helps understand two styles of trading and how bringing them together can offer such huge advantages.

 

[TraderPattern]

Great post Naz

Great post naz. On Friday I shorted Providian using a scalper's entry and held the short for hours. I shorted 2000 shares, risking 20cents using a precision scalp entry. I swung for a point gain of $1.80 on 2000 shares.... Reward: Risk = 9:1

I agree with you fully about using a scalp mentality to swing with. Like you, I have the scalper mentality... this gives me a real edge against people who solely play charts.

 

[Naz]

Hi TraderPattern.Thanks so much for the reply.I am so pleased that i've had a reply from someone who is using these tactics to do so well.With 2000 shares you had a nice result.

I also totaly agree with your statement how having that scalpers mentality gives an edge over people who solely play charts.

Great trading,keep up the good work.Lets hope your reply may spur other UK players into looking at the type of trading that we do.

 

[ChartMan]

These $ moves you are talking about Naz.... are you referring to general stocks, or to COMPX?
If it's stocks, what sort of point value would you be looking for when scalping COMPX.....?

 

[Naz]

The $ moves being talked about are on stocks.

When i trade the compx i'm actualy trading the NDX (Nasdaq 100).To do this i trade the QQQ which is the nasdaq 100 tracking stock.This is traded on the Amex.So i trade it using the island book.Which is islands in house level 2 screen(for an easy way of explaining it) i do this because i want instant executions and the chance to buy on the bid and sell on the ask.

There are 10 major stocks that make up approx 40% of the QQQ's so i'm looking at them on my market monitor to see which way they are trading.Info on the QQQ can be found on www.Nasdaq.com

The QQQ's are quite a slow moving stock and the scalps are normaly 30c long of which one would hope to grab 20c with a ten cent stop.However when the QQQ start taking off the moves can be seen on the 10 major stocks that make up the index.That is when a scalping entry can be turned into a swing play.The risk reward can be excellent.This is when a scalpers stop of 10c can be parlayed into a swing traders move and end up with a risk reward of 10/1.A good example of which was the late day rally in the indices on Friady night.

A ten cent scalpers stop was used to manage a profit of $1.

 

[chaders]

naz. what would be involved in getting a (us) account with L2 access. I use s/b at the moment but i am getting a bit sick of them moving the goalposts. I dont have internet access at work so playing the nas would be ok.

 

[Naz]

If you'd like to read my post on this board entitled.

US,it's not that frightening. This might help you somewhat.