Scalping

Discussion in 'Trading' started by arzoo, Aug 22, 2002.

  1. arzoo

    arzoo

    I'm new to trading and basically do a bit of day trading and swing trades on stocks. I've seen a lot of posts on scalping and from them understand them more or less.

    Hope you experienced guys can tell me how much of a spread a scalper looks out for. I guess his is important since you pay commission per share, which leads to quite a big amount & makes it difficult to make gains if you have losses?

    Also, which issues are better to scalp. I ask this since I noticed scalpers trade a lot of shares & make money or small gains but big volume. I noticed that there seems to be only a few issues on the nasdaq that can take such big volumes, and am not sure if issues on the nyse are volatile enough?

    Sorry if the questions sound ridiculous, I'm just trying to learn as much as I can.

    Thanks
     
  2. Just do the math. If you pay penny a share, that's 2 cetns per roundtrip. If you make dime per trade + 2 cetns = 12 cents. On 1000 sahres, that's $100. Wait patirently all day nad make 5 - 10 trades, they add up to $500 - $1000 per day. Not a bad living.

    There is a caveat: for scalping purposes, the setup HAS to have above average probability of succeeding. Risk-reward thing. If you want to trade SPW or NOC or NVR..you are taking huge risks, therefore, you deserve higher reward. But if you are after reward of only 10 cents, your risk should match that...i.e., low risk, higher rate of success.. The blotter should have 10 - 15 trades...with maybe 20% losing trades, 80% winning trades....and net P&L of + $500 + at 1000 share positions.

    Now..what are those set-ups???? There is the holy grail.
     
  3. arzoo

    arzoo

    Thanks NYC! That's as clear as it gets.

    Am I right to assume that scalpers take about 1 or maybe 2 positions at a time only since your only running after the quick gain?

    And how does cutting losses play its part, since you'd have to be quick at it or else 3-4 winners may be offset by a single loser. How does this part work in the total management of things?

    Hope you're not irritated by my simple questions.
     
  4. bone

    bone ET Sponsor

    It seems to me that scalping stocks can be a losing proposition for the trader but a winning proposition for the clearing and prop firms. Talk about commission-intensive. I think that's why so many traders are doing the e-minis.
     
  5. Going for "quick" gains is not necessarily an advantage; sometimes "scalping" conveys a picture of constantly getting in and out of positions, but don't confuse it with market making. Your one advantage (vs the disadvantage of commissions and the spread) is being able to wait for ideal conditions before entering a trade.

    That then begs the question: if you are really capable of being patient and wait for those "ideal" situations, shouldn't you be taking more than a few dimes on the trade? I think it's a good idea to err on the side of trading less, going for more, and setting trailing stops, rather than just targeting .20 on every trade; at least be open to the possibility of hitting that home run, you'll need it to make up for feeding your broker every day.
     
  6. "Just do the math. If you pay penny a share, that's 2 cetns per roundtrip. If you make dime per trade + 2 cetns = 12 cents. On 1000 sahres, that's $100. Wait patirently all day nad make 5 - 10 trades, they add up to $500 - $1000 per day. Not a bad living. "

    not one mention of any losers.i guess people dont have losing trades anymore.
    thats the problem with scalping for pennies.one loss that gets away from you for a dime can wipe out a days work.
     
  7. That's why I said the scalping trades has to have above average possibility of being a winner. If they possibility of being a positive trade is 80% @ 12 cent profit, and there is 20% losers @ 25 cents, and you do 20 setups in a day, that adds up to:

    16 x .12 = 1.92 x 1000 = $1,920
    4 x .27 (commish expense) = 1.08 x 1000 = $1080

    1920 - 1080 = $840 (including commish expenses).

    Like I said, not a bad living.

    I repeat: the key to scalping successfully is to discover that "scalping setup". NObody will tell you what that setup is...takes years of trial and error and tons of tuition money to come up with just a few setups that will give you that positive outcome 80%+ of the time. I never said you have to make money on every single trade...you dont have to.
     
  8. 16 x .12 = 1.92 x 1000 = $1,920
    4 x .27 (commish expense) = 1.08 x 1000 = $1080

    1920 - 1080 = $840 (including commish expenses).


    --------------------------------------------------------------

    If you're going to add commission expenses to the losers, then you also need to subtract commission expenses from the winners.

    So the difference would be:

    16 x .10 = $1.60 x 1,000 = $1,600
    4 x .27 = $1.08 x 1,000 = $1,080

    $1,600 - $1,080 = $520 a day

    So you really aren't making much per day anymore.

    aphie
     
  9. Steve72

    Steve72

    $520 times 225 trading days (guy has to take a vaca now and then) equals $117,000 per year and in the top 1% of income. Seems OK to me. Having said that I think this would be much harder than it seems.
     
  10. arzoo

    arzoo

    Bone mentioned e-minis, as I've mentioned I'm new at this, what are e-minis, and how do they work?

    Are they like bullets that only guys in prop firms can use them.

    Also, I noted that people say it is better to scalp NYSE issues than nas issues. Why is this so?

    So far I've been mostly trading nasdaq shares.
     
    #10     Aug 23, 2002