Is Scalping or High Frequency Trading Less Risky?

Discussion in 'Strategy Building' started by aeliodon, Mar 7, 2007.

  1. Here is the paradox: But putting on many trades you have more risk exposure because it seems you can get stopped out on all or most of the trades in a worst case senerio. Furthermore by trading actively - you limit your profit potential relative to losses (you limit your reward to risk ratio). You're commissions and fees also go up tremendously.
    But if you're limiting your time exposure in the market then doesn't that lower risk in the sense that you position isn't exposed to much loss making it less risky? Yes you're not exposed to much profits either but the market chops more than it trends anyhow so in most cases you can get back in and profit again.
  2. One one hand you have Buffet - the anti-active speculator that has made more money then any speculator in history.
    But then you also have hyper-active traders like Steve Cohen and Bill Simon - both billionaires. And don't forget the swifties - the uber/super/hyper-active traders that bang out a few hundred bucks like clockwork each day on the trader PL thread.
  3. Position traders (even intraday position traders) have to make forecasts that go far out in time - and chaos theory has a way to mess things up over time. So position traders can have a lot of volitility in their equity curve.
    But if scalping is so risky then how come the most consistent guys in the trader PL thread are some of the most active traders out there. Isn't consistency an indication of lower risk?
  4. Scalping is most definitely lower risk, but there is a significant problem with doing it other than commish charges.

    Its hard as hell to do profitably. I am a pure day trader, but I only scalp when I get taken out of a position really fast. i.e. unintentional scalp. I'd scalp all day long if I could. I think its fun. Instead, I often sit for hours waiting for a setup. I don't like it, but it works.

    When I was at Bright years ago, there were a couple guys popping off 50+ trades per day, and they made money EVERY day. But that was two guys out of an office of 20. Maybe half the guys there were multi year veterans as well.
  5. Lets just call scalping HFT - high frequency trading - as it is the current industry jargon term.
    Most of the hedge funds are all about HFT these days - most of the programs that do 70% of today's trading are probably HFT programs. Even though it goes against everything taught in economics - mainly, the more you trade, the more you lose.
    Yet every single trader that has ever had amazing consistency that I know and I've seen here on ET is a HFT trader.
  6. HFT tracks R:R more closely second per second then any other type of trading. The key is to be fluid as possible and not be fixated on the money flowing in and out. But following the price and deciphering its bias early on.

    As the bias becomes more clearer, you can increase bet size, and have parabolic equity curves intraday.

    The problem comes in from a unexpected gap against you that blows you out within seconds by a greater then average deviation in equity, some traders become 'deer in headlights' syndrome and fail to act as immediately as needed. They end up cost averaging hoping it turns around.

    A local today got caught towards the close in spooz, the price kept on going against him, and he kept on buying it trying to average. Now the same person who people think was caught could have had net sales on the way down, giving the impression to the pit, he's 'caught'. When in actuality hes been selling net all the way down.
  7. Scalping is nice if you want money every day. But extremely stressful. But you will never ever get the big moves by scalping. I am sitting here watching ice with tears now. Every time I get into that crap, it fucks me and today I decided to stay away from it and look at the move... As a scalper, if I shorted it at the low the first time, I woulda got killed. But as a position trader, there is absolutely no reason to cover at a loss, because its hitting multi week lows with a fucker that is constantly shorting it all day long. So a position trader would expect 130 and just sit there and a scalper won't and can't do that... Do you want big gains or consistent gains, is the question... Apparently I can't even seem to decide on one. Everytime I decide to hold, I get screwed and everytime I get out fast, I still get screwed... I am beginning to hate trading.
  8. bjohn


    There's another thing I like about HFT in stocks: by virtue of never holding a position overnight, you're not exposed to the gap on opening. The opening gap takes many suckers down, I see it all the time.
  9. lot of scalpers can intraday position trade. Directional bias doesnt shift second per second as many people might think. There is 'drift' second per second around the directional bias. But you can leave positions alone when entered at key levels to run for the day.

    but just moving with the price keeps you on your toes. And you become more skillful at turning with the true turns intraday.
  10. I find Scalping to be Extremely Relaxing....and holding a Position for too long....Much Less Relaxing.

    I do a combination of Trend trading and Scalp trading. Unless I am convinced....the Market is beginning to Trend....I just Scalp only. Sometimes it is best to Trend trade and sometimes it is best to Scalp....and sometimes you may need to stay out of the market. It is not Either_Or....for me....I like doing both.

    My normal set-up is:

    610 tick chart = Trend
    20 tick chart = Scalping

    However....I do adjust my Scalping chart....depending how the Speed of the Market. Lately....I have been Scalping a lot using a 10 tick chart for the ER. The ER has changed some since the big Down move a week or so ago....I see less Big Money in the I adjusted down to a 10 tick Scalping chart.

    Some of you may have seen the Scalping_My Way with ACV thread that I started last year. If know I take the ACV into consideration....both for Scalping and for Trend trading. While not perfect....the ACV will give you a good indication for Entering a trade.

    One thing many traders do....when they get to Greedy. I am guilty of that as well....but that is in the past. I go for 2 ticks with 4 contracts....probably 95% of the time. If the market is Slow....I may back off to a One tick target. If the Market speeds up....and my indicator starts to Oscillate_Sine Wave....from Top to Bottom....Up and Down....I may then try for more than 2 Ticks. But....even then....I look at my Trend see if I am Near Support or Resistance.

    Scalping can be very rewarding....providing you follow some Strict Rules when trading this way.

    Good trading to all.

    #10     Mar 7, 2007