How to change from futures book scalper to longer term trader

Discussion in 'Strategy Development' started by downtickboy, Jun 7, 2005.

  1. I have been watching and trading a system for a little while now that I believe to be viable and fairly accurate. It is not a black box or automated, but just gives signals on when I want to participate and which direction. However I am having some difficulty trading it like I should be. Part of the big problem is that I have a background of scalping and trading futures intraday mostly by relying on the order book for timing entry and exit. However this point of view directed clashes with what I am trying to do in that the book is not reliable or relevant in what I am now trying to accomplish. Also I am having to use larger stops then I have had in the past which has been difficult to adjust too. Basically the scalping habit/technique is clashing with what I am trying to accomplish which has the potential to be much more profitable and less stressful if I can get over these hurdles. The problem is I get in based on my signal but then switch to scalper book trader mode which messes up what I am trying to do.

    Anyway I wanted to see if there are other ex-scalper or book traders who have made the successful transition to longer term intraday trading where you are going for moves of several ticks rather then trading for 1 or 2 ticks. If you have made the move what helped you make that transition and change your perspective and break the scalping habits.
  2. Well, I am not a futures scalper. But to try to help you, I would do a few things regarding the switch. First, if you can, find someone who trades the timeframe you think you prefer and see what you can learn from their style. Many of the guys who used to be floor traders and moved "upstairs" made the transition you say you wish to make. Second, quantify that system you pickup on from these role models or from one you create, and test it to get an idea of what kind of volatility you would need to stomach in order to be able to stay with the plan.

    If you don't find anyone or can't make one up, then you can do a google search and look. There are people who love to show off their systems, who are not traders, god knows why. I bet some of these work, but you gotta test them also see if you can do them.

    Okay...sorry no specific help. But its reasonable that the info is out there and once you confirm it works and that YOU can trade that way...well, then, problem solved.
  3. This actually, once I reread your post, is your key issue. Its the 80/20 pareto thing. Dude, or my friend, stick with the system you are trading. All the other stuff is meaningless when you can't follow the plan. I think others will echo my sentiment.
    If you were not a successful scalper because of this issue, then I suggest you rethink your trading before switching timeframes. This bad habit carrys over to any type of trading and its one that you need to eradicate from your behavior once and for all.

    Successful trading at any timeframe typically involves: 1. Have plan with positive expectancy 2. Follow Plan 3. Repeat step 2.
  4. Banjo


    You are probably "panicing"out, if there is no reason, actual exit signal, to leave the trade don't. Of course this means you have to have an actual exit sig.
  5. silk


    You have to get a feel for how much the stock you are in usually pays the players under the given circumstances. When it pays you adequately that is when you get out. Don't get too greedy and don't be not greedy enough.

    For example, if you are in an oil stock short and the price of oil falls a buck, dont cover till your oil short falls 60-80 cents which is a typical mvoe for a buck move in crude.

    At the same time you are constantly analyzing the situation to determine should you be a little less greedy and cover a bit early. Or is this the big move that you have been waiting for and maybe you can get a couple of points out of it.

    Hope this helps.
  6. Thanks for the posts. Your right about sticking to the system I am trading. That is where the difficulty has been. What feels kind of dumb on my part is I found something I believe in, know that works, yet I am having trouble following because it goes against the instincts and habits that I have ingrained in myself to scalp. It used to be with scalping the market would never really go against me more then a tic or so and I knew I was wrong and there were a lot of scratch trades. This style of risk management does not complement the new method as I have to widen this out and pay less attention to the flipping and short term back and forth action. The reason I am wanting to move out of the futures scalping business is that I found something that works much better, more scaleable, and potentially less stressful. Also when I started scalping futures there were much more actually short term edges that now no longer exist in most futures markets.

    It is my belief that the order book used to be an edge with the right knowledge while my new belief is that order book is just an order entry tool now and provides little if any edge anymore. I came this to conclusion from my trading experience and from watching many mainly order book scalpers who used to make a poop load of money suddenly not be able to do much on a CONSISTENT basis.
  7. There is an actually exit signal for trades that follow through as planned but after intially entry the exit is suppose to be either the entry signal going away or the trade hitting a specific stop loss which is greater then I have been trained to take. However it needs this size stop to avoid being shaken out of good trades before they fully develop. I have looked over what this stop needed to be in order to allow me to stay in the majority of the good trades without getting stopped out. You are right about panicing out based on previously developed habits that I have but need to change.
  8. hello downtickboy

    have you ever traded this order book
    " scalp style"
    overnight ( i.e. after hours ) ?

    and if this too has been harder to do this yr
    for you compared to recent yrs ?

    - many mainly order book scalpers who used to make a poop load of money suddenly not be able to do much on a CONSISTENT basis.-
  9. twalker


    Ultimately the discipline in directional trades is the same as for scalping. If you cannot be disciplined enough to follow a defined directional methodology, then imagine you were probably not that disciplined as a scalper either.

    With directional trades it is essential that you have conviction, a reason and a well thought out plan of "what ifs" before you enter the trade.

    Have a mental or actual stop for every trade and when that is hit, it is a market order, NO EXCEPTIONS.

    A very important distinction is that whereas with scalping you always err on the volume side as it is a tick or scratch game, with directional you will go underwater for a time on a lot of trades so you should really feel like you are trading too small otherwise you will be taken out by fear from the start. Trade smaller when losing and larger when winning. You will find this happens naturally anyway if you abide by this rule. Even better is to have an algorithm which controls trade size so it takes out your emotional judgement.

    Ultimately exercise extreme DISCIPLINE at all times.
  10. Are you switching "to scalper book trader mode" in an effort to control/reduce perceived risk? In that case change your perception. No, seriously. What I mean is that you need to figure out, with reasonable accuracy, how much drawdown you expect during each *profitable* trade.

    Then see how the outcome changes (for the worse!) if you curtail those drawdowns or if you take small profits instead of larger ones.

    The point is that you "switch to scalper book trader mode" because you're doubtful whether your longer term trading has an edge. You need to be certain. Do the numbers.
    #10     Jun 8, 2005