esc_trader Very well said. As a "scalper" I trade for very little risk and really don't care about my margin all that much. Sounds silly, but if I trade 200,000 shares a day for only $2,000 gross that is still a pretty decent day with where costs are now a days. Anyone that wants to complain or declare lack of value in a strategy where you can net close to 1K/day on a BAD day doesn't understand the style.
Indeed well said. Smallest risk in the industry. I'm almost scared of 'day trading' as they call it. Why 'sit through' drawdowns etc if you could trade them instead? I'm afraid there's a LOT of people out there who don't understand this style. It's actually pretty simple logic : The smaller the timeframe and the more often you trade, the higher the consistency, the smaller the drawdowns and the larger the cumulative profits will be. Scalping beats the crap out of any other trading style. That's one of the reasons why exchange traders actually scalp and not so much day trade. Zooming into smaller timefractals = Catch more moves within moves. What I don't get is that active traders who already comprehend that smaller timeframes are more profitable (i.e. day trading over position trading), do all of a sudden change their opinion when it comes to the smallest fractal? It's in order of time in VS cumulative: Scalping > Microtrading > Day Trading > Swing Trading > Position Trading > Investing. The smaller the fractal you trade on = The larger the potential profit. Period. I think the main reason people think otherwise is that they've either listened to far too many people saying the same things about scalping or due to their own inability to use this style. Just because somebody can't do it, doesn't mean it's impossible. To me, scalping is the most risk-free and the most fun way of trading. I don't really have the patience to day trade, anyway. If I want to work, I work, not sit around waiting - And god knows, waiting for the worst to happen. IMO scalping is the only form of trading where you truly have contact with the market participants. You're facing your foes here, you're seeing action unfold live. The longer the timeframe, the more "noise" comes in from all sort of market influences, longer timeframes etc etc. I wouldn't recommend any starting trader to start with scalping, though. It requires many trading skills to be developed to a level where they're factually disciplined, intuitive, automatic and reflectory. These aren't exactly the skills of most beginning traders. But the fact that it's the most "difficult" verifies that it should be the most rewarding, too. It's the law of nature. Compliments, ~Scientist
i never said you couldn't make money scalping. i actually do a form of scalping. i do nyse open orders and enveloping along with longer term position trading. i just said i didn't like it and it was a tough game and i didn't see much value added and would try to work with longer timeframes. what i mean by value added is can you increase returns by scalping vrs a longer timeframe of minutes to days. you cant compare exchange scalping with retail scalping because those guys don't have commission costs. as far as scalping being the safest form of trading i don't think the figures back that statement up. it has been documented that 90% fail. if you are making money scalping and you like doing it by all means continue.
I chose scalping over other forms of trading, because of the following: - Lower risk trading strategy - Small timeframes, which again, translates into lower risk. - You are trading momentary, supply/demand imbalances, much moreso than TA and Fundamentals. - It is fun and challenging (for me !) - It is a style of trading that I personally feel very comfortable with. - The upside potential is not great (i.e., you more than likely are not going to get rich doing it), but my upside is sufficient to support my family. The mitigated upside potential is made up for with the very low downside risk. - You can make consistent money over time. Trading, if done right, is not gambling. Scalping provides me with a steady stream of income, without gambling.
P.S. to last post: The inspiration to become a scalp trader, came directly from a single book that I read, "Day Trading Online", by Christopher Farrell. Although the book is somewhat dated (doesn't deal with decimalization, price improvement, NYSE Open Book, etc.), I used this as the basis for my scalping career. I have augmented his process with some of my own rules, and have automated much of what I do (from a screening perspective), via some DDE applications that I run off of my marketfeed. Although I use IB as my broker (and they have an API), I haven't trusted myself to automate the trading aspect of my business, via program trading. I still prefer to execute trades on a "manual" basis. Has anyone else read Farrell's book ? He also wrote "Day Trader's Survival Guide", which didn't turn me on as much.
Second, scalping is simply trading in a shorter time frame and more frequently. It has been said that this cuts into margins due to higher costs, but the goal here is NOT higher margins, it is achieving the highest overall profit possible. This has nothing to do with margins, or percentage returns for that matter. All is judged on net P&L, if you are trading for money and not for ego, that is. Yeah, I hear ya. Then again, it can also be said that higher profitability (or any profitability ) is attained by maximizing the margins on the trade. Mathematically it's really a wash. Both methods can achieve the same result. It's a debate over which is the most likely to. I would argue that with shorter term scalping, you reduce the likelihood that luck is a factor, because with the larger sample size of past trades, you have greater assurance that your past success is based on your ability. For instance, if I won on 6000 out of 10000 past trades, I am more confident that I didn't just get lucky, as opposed to if I won on 60 out of 100 previous trades. This is vital, because if it is true that my past success is attributed to luck, then I will certainly fail some point in the future. Maybe not "luck", but what you describe seems illusory nonetheless. You trade during a period of time when the market is acting favorably to the trading habits you've developed. Market changes, you .. ? (I don't mean this as a snide remark, it's just something that happens in trading, and doubts as regards ability vs transitory market conditions are something every trader has, at least at some time, dwelt on.)
Scientist, again I would ask you hold off making absolutist comments like that until you've made your millions. Whilst what you say may be mathematically correct -- ie, trade frequency is greatest in scalping -- the other variables are from even. And, I submit, it's the other variables in the trading equation that are simply much more important than trade frequency. It's an open question. Possibility -- profit potential -- vs Probability -- profit likelihood You may disagree, but, as far as I can tell, you don't because that's what your experience has taught you, rather because it's what you want to believe. Take a 100 people. Let 50 scalp their way to financial freedom, and the other 50 invest {gasp}, using some basic diversification and money management principles. After 30 years who do you think is going to be ahead?
Scientist, I just wanted to chime in here to say I think you made some very good points both in specifics and in general. It takes the ability to adapt and to be open to adjusting not only style, but trading vehicles to be fully competent in today's market. If one limits themselves to a particular marketplace, or a particular time frame, or anything else, this is trading with a handicap. You also mentioned that you did not have what you consider a strong understanding of order routing. While it is always good to know more than less, separating what is important from what is not is efficient. Yeah, a lot of us (myself included) have the series 55, which, in theory, means we have a greater than average understanding of routing for stocks. Still, this knowledge serves little use (except for knowing your rights and responsibilities in cases involving errors). Like driving a car, or using a computer....knowing how the thing works isn't really critical to their use, as long as you know how to get out of it what it was designed to give you. You also make an interesting point about liquidity, slippage, and competition regarding stocks as opposed to futures. No matter how "shark infested" (to paraphrase you) the index futures markets are, there is opportunity for those who are patient and disciplined in any market. Remember....the weaklings in any "game" are those who THINK they know what they are doing, and are willing to learn by paying to play. As far as stocks, which I personally prefer for reasons I will not get into here (but have mentioned in the past), there seems always to be opportunities. The universe of equities is huge, and special situations always arise. Trading the minis (for example, same for ETFs) is a different game. You are proven right or wrong immediately. With stocks, you may be right (or wrong) and not have the price movement confirm your decision immediately. Makes "scalping" (IMO) a different type of thing than in the futures. Yes, you can scalp stocks. No, I do not believe that it is something you can do in a matter of seconds like with the index futures. "Scalping" stocks takes a bit more conviction. No one has perfect timing obviously. So in essence, I believe if your "scalp" of an equity goes against you initially (and in truth, because of spreads and commissions, all trades are against you initially anyway), compelling reasons for entering a trade should be strong enough to withstand a first move against you. Far different from scalping index futures. All in all, I think your posts were fine food for thought for those who consider themselves "specialists" or "experts" in one type of trading. To me, this really just means they have found something they are comfortable with, and win or lose, they stay with it. Which would be fine if this was a result of real experience. But my belief is that in most cases it is more a matter of what they started with, and therefore have been trying to master just one "game". This is great for anyone who has been consistently successful at their "one game". But in truth, I believe it is more a matter of lack of experience (not a bad thing...just reality), or, the unwillingness to educate one's self in other approaches (this IS a bad thing). Nothing is more expensive to a trader than a closed mind. It costs nothing to learn other strategies and other markets. It is not necessary to "learn by losing" just to understand these "new" approaches. Yes, it may cost $ to acquire experience in them, but not to simply understand what they are about. I have traded stocks, options, futures and done them in different environments and with different basic approaches as well as in different capacities (such as customer, market maker, prop, and pro). Yet still, even though I have been primarily trading equities for the past 9 years or so, the knowledge of other markets has only served me well. certainly NEVER was damaging to my trading. Learn it all. I have mentioned many times that I think every trader who takes his or her profession seriously should study for (if not take) the series #3 exam. If they never trade a futures contract, it will still help in every other kind of trading imaginable. Traders never stop being students. Unlike the video games you mentioned, trading cannot ever be "mastered". Sort of like golf. But still, one must strive to understand what is out there. And even understanding the "WHY"s of what is out there can only help. How many traders trade stocks and really only know they are something you can buy or sell that may go up or down or not move without knowing what they represent? Sadly, more than most of us would believe. Series 7 may be a pain in the ass, but at least understanding the difference between equity and debt is knowledge that is essential to all traders. Yet amazingly, there are HUGE numbers of self - styled traders that do not have this most basic understanding. Yet they are trading e-minis, stocks, ETFs, ....name it. Proof? Just the other day I read a thread about "investing in gold". Not futures, not gold stocks, but gold itself. This was proof enough for me that there are people who seriously need an education. Yet they participate in markets, lose money, and attribute it to poor market conditions, crooked specialists and market makers, and inefficient exchanges and ECNs. You need to be a citizen to sit on a jury. But you are not required to know how many pennies to a dollar to be allowed to trade. GET EDUCATED!!! So back to the driving a car or using a computer analogy. You don't need to know the inner workings of camshafts, or serial ports. But you do need to know to drive on the right (correct) side of the road. You do need to know to be prepared for a drunk or inattentive driver that may run a stop sign and IMPACT YOU. You need to know the RULES OF THE ROAD! They are pretty simple, but essential to survival. Peace, RS
Scientist: I'll just do a new discussion experiment here and comment on this via blue font, so it's clear who's saying what. Alfonso is originally replying to esc_tader here: esc_trader is black, Alfonso is red, I am blue. esc_trader: Second, scalping is simply trading in a shorter time frame and more frequently. It has been said that this cuts into margins due to higher costs, but the goal here is NOT higher margins, it is achieving the highest overall profit possible. This has nothing to do with margins, or percentage returns for that matter. All is judged on net P&L, if you are trading for money and not for ego, that is. Alfonso: Yeah, I hear ya. Then again, it can also be said that higher profitability (or any profitability ) is attained by maximizing the margins on the trade. Mathematically it's really a wash. Both methods can achieve the same result. It's a debate over which is the most likely to. Scientist: The "wash" argument you're bringing would be true if the losses would also be the same. However, the losses tend to be (generally) smaller in scalping, so while you're just focusing at one side of the equation (maximizing margin), esc_trader and me (the scalpers) in our elaborations were focusing more on the downside. If it only was about maximizing margin - then yes - both kinds of trading would be a wash - However, as you know too well, the main objective of successful trading is to limit the downside as much as possible. Nowhere is this possible to the extent it is in scalping, where you can limit your downside to as little as 2-6T. So there is the other side of the argument, and your argument "both methods achieve the same result" is misleading, since it's only focusing only on the upside. Over the long run, if a scalper is skilled, he can outperform the other styles because of his low downside (or call it drawdowns, if you like!) esc_trader: I would argue that with shorter term scalping, you reduce the likelihood that luck is a factor, because with the larger sample size of past trades, you have greater assurance that your past success is based on your ability. For instance, if I won on 6000 out of 10000 past trades, I am more confident that I didn't just get lucky, as opposed to if I won on 60 out of 100 previous trades. This is vital, because if it is true that my past success is attributed to luck, then I will certainly fail some point in the future. Alfonso: Maybe not "luck", but what you describe seems illusory nonetheless. You trade during a period of time when the market is acting favorably to the trading habits you've developed. Market changes, you .. ? (I don't mean this as a snide remark, it's just something that happens in trading, and doubts as regards ability vs transitory market conditions are something every trader has, at least at some time, dwelt on.) Scientist: I'm not getting this, either. Isn't this the same for any kind of trading? "Market changes, you...?" - Well, the answer is simple: Market changes - You ... get out. Just like in any other form of trading. Correct me if I'm wrong. The way you're saying it makes it sound like the market doesn't change in day trading vs scalping?! Market changes in any timeframe, and you have to get out, either way. However, in scalping, you can get out a lot earlier, with a much smaller loss. You're not waiting for "drawdowns" - So? The answer is: Day Trading : Market changes ... You ... wait ... wait ... (hope ) ... wait ... wait ... get out. Scalping: Market changes - You - Get out. Period. Yes, this requires discipline and fast reaction. However, this is the line of argument we're pursuing here in this day trading vs scalping thing. All the Best, ~Scientist
Quote from alfonso: Scientist, again I would ask you hold off making absolutist comments like that until you've made your millions. You're right, I'm sorry, brother Alfonso. I have nothing against day trading (I do use it, too, in a bracketed approach). I suppose every trader thinks his style is the best in the world, which is why ET is so full of flames between different style traders LOL. The purpose of my comments, however, wasn't to make absolutist statements, but rather to express observations of fractal mathematics which reinforce the scalping argument made by others and myself on this thread. Whilst what you say may be mathematically correct -- ie, trade frequency is greatest in scalping -- the other variables are from even. And, I submit, it's the other variables in the trading equation that are simply much more important than trade frequency. It's an open question. Possibility -- profit potential -- vs Probability -- profit likelihood You may disagree, but, as far as I can tell, you don't because that's what your experience has taught you, rather because it's what you want to believe. As I already elaborated in my last reply - You're only focusing on profit potential, forgetting the factor of downside, which is reduced in scalping vs microtrading, day trading etc. That's where the catch is. You saying "other variables in the equation are simply more important than trade frequency" makes me reply "Of course they are: The most important variable of all is the downside" - Which loops my argument. You're saying "I may disagree, because that's what my experience has taught me" - Well, this isn't precisely true. It's not just experience (wouldn't that be terrible?), I have myself started the long route via pos trading, then dabbled into day trading, did that for quite a while and then went shorter and shorter TF as I got better and better. I didn't just "go down" - I did a lot of testing and weiging of slippage, market factors, downside, commissions etc etc to find the most profitable way of trading. I spent a long time, namely hundreds of hours testing anything from scalping to LT IntraDay altogether via bracket trading platforms etc. With bracket trading platforms you can fully strategically test and statistically evaluate what works the best, over several timeframes. An approach I'm currently working on really perfectioning is what I call "TimeBracket Trading". This basically involves trading several timeframe trends (i.e. D, 60m, 10m, 2m, 15S) basically synchronously. So basically, each smaller TF trade is bracketed inside a larger one. On each smaller timelevel I'm using more contracts, offsetting the impact of the larger timeframes. What is a retracement on each larger timeframe, is a trend on each smaller timeframe, all the way to smallest. So I'm trading the "trend" on the smaller TF, which could "extend", that is run / keep trending rather than reversing, thus making the move in the next larger timeframe a reversal rather than a retracement! However, this way, (by using more contracts in the smaller TF), I have considerably offset the "losses" caused in the next larger TF(s)! So the "stops" are basically "active stops" in that they involve active, smaller TF trading, rather than "passive" firm stops! I hope this makes sense to you - This is quite a continuos trading approach, and with high certainty the most profitable out there by far, plus no particular style trader can argue with it. It basically summarizes much of what Jack Hershey does, just in a little simpler language. Jack is a master of this kind of trading, and there are a few things to know about it. However, I'm getting there. Wait and see Take a 100 people. Let 50 scalp their way to financial freedom, and the other 50 invest {gasp}, using some basic diversification and money management principles. After 30 years who do you think is going to be ahead? Invest. LOL! You're cutting a large cake here, but again you're only considering accumulated money. Yeah, you're right, many investors make more than scalpers. However, don't forget that the scalpers draw a living, mortgage, lifestyle, medical bills for heart attack treatment etc etc from their scalping revenue, while the investors generally tend to pursue some other kind of career, while being on the cruise regarding the financials. Remember that scalping or day trading is a career, a profession you're getting paid for, rather than something you're expecting "ROI" for. I just cringe when people talk about ROI in terms of trading. We're workers, for chrissake, and we work hard. Also, please realize that of those "50 people that invest with basic diversification and MM principles", 49 people have lost a shit-load of money over the last couple of years, some even 80%+ of their portfolios. Anybody here who wants to argue this point, please stand up and shout! To me, investing into stocks is the most risky form of trading altogether, and looking at what the recent past has brought, we're looking towards a future with greatest uncertainty, in which I certainly wouldn't like to be invested in any form other than gold or real estate, if you know what I mean. By the way, may I recommend reading the book "Rich Dad's Prophecy - Why the Biggest Stock Market Crash in History Is Still Coming..." By Robert Kiyosaki. He basically talks about the ERISA dilemma in the US, it's impact on pensioners, how storm clouds are gathering for a new, final crash of the US market around 2012 or so and how you can build a "financial ark" and profit from it. The book's been hyped as excellent even by Kiyosaki's worst critics and it's worth a read for sure. He's done some excellent research there. And yes - it's good to to know this kind of stuff, even if you're just a "15-second investor". I hope all this has inspired you in some small way. All the Best, ~Scientist