Hi guys Full disclosure, I'm a beginner scalper. I have my stops set between 0.10-0.15$, seeking 2:1 ratio. Today I got in a trade which I thought was a decent entry, say for example $11.15, with a stop of around $11. Watching the level 2 as the next candle started to form, it dipped for a couple seconds down to around my stop, and I got out, but then candle went green and shot up to around $12. So in the end it was a larger green candle with a bottoming tail down to my stop. How long do you guys wait as the level 2 bounces around to confirm your exits? Seems like it is very easy to get stopped out with volatile stocks and prices on the level 2 are jumping around so fast, and potentially missing a lot of upside as the candle keeps forming a few seconds later. I have no problems cutting losers quickly, but I might be doing it too quickly? I'm not using an automatic stop loss, just doing it all manually. Just looking for what others are doing and advice on this, thanks.
you need to do a vol study to determine the most common average noise level of whatever your trading to get confidence with noise. i like perry kaufmans book smarter trading for that, his use of the smoothing constant and efficiency ratio as well as on page 232 is golden. armed with that you can best estimate what to expect out of any market noise which is what your trading - i trade futures the same way. good luck
so basically on es futures you can expect about 4 points of heat on a trade and when the volatility is above 4 points (the heavy white line) you can expect be in trouble if you choose the wrong direction. better to stop and reverse the entire position. page 232 formula summation(absvalue(c-c[1]),10) because it's absvalue even the negative plots are positive so a red up arrow really means sells although they are pointing up. so lets say i know the average chop is 4 points and i buy or sell scalping for 1 point - i may continue to add more contracts as the market moves against me expecting for it to revert to the mean at some point. if it doesn't i flip the entire trade and start over and may even double my size holding longer for a slight trendy trade. if its gets persistent above that chop zone.