Hey everyone ... I'm a newbie to the boards here, but have been lurking for a while during my "get acquainted with trading" phase... I started off doing some discretionary stuff, but have decided that it's too hit-or-miss for me right now and that I'll do better with a set automated strategy. That, and I'm a big nerd and like the idea of hacking together eSignal, IB, Wealth-Lab, Dynaorder, etc. I'm extremely interested in developing some automated strategies for very short-term intra-day equities trading (i.e. using 15-second, 30-second, and 1-minute bars) on active (i.e. news) stocks. Does anyone have any good starting points/suggestions as far as a direction to take strategy-wise? What type of strategies are good / what should I avoid / what will i waste time with / etc. Again, I'm interested in pure short-term daytrading systems, and I have no intention / desire to hold positions overnight (or, generally, for more than 30 minutes, if that) I have a few ideas that I'm in the process of coding up in Wealth-Lab (I'm comfortable programming, and I think that's a great tool to work with) and as soon as that's done, I'll report and get feedback here, but I wanted to see if anyone had any pointers first. Thanks! --Noah
When you speak of 15 sec and 30 sec bars then you want to scalp. If you are looking to scalp, using a momentum indicator set very fast will be a good start. Websites such as clearstation.com and stockcharts.com provide good discussions about momentum indicators. Warning: you will hear that all indicators lag. They do to the extent that they measure what has happened. However, human behavior being what it is, repeats in such a way that it is fairly quantifiable at least for the time frame you desire to look at.
One thing is for sure. If you want to trade in that time frame your data feed, connection, and broker have to be lightening fast or your dead. Those things are also very expensive. If your are not well capitlized you could be setting yourself up for failure. Even if you have a brilliant trading plan. Just something to think about.
Thanks for the thoughtful replies so far guys. I will certainly look into the websites suggested for info on momentum indicators. So far, I've been using eSignal for my data feed and IB for execution and have been quite pleased with both. IB execution truly is lightning fast, and market orders on liquid NASDAQ stocks are filled with minimal ($0.01 - $0.03) slippage, if any. --Noah
My advice for you is not to scalp. Scalping is very dangerous because a trader tends to use entirely too much money and margin to make a bit of money on a tick or two. All you need is one mess up to end that career. I suggest not trading money that you can not afford to lose. I also think that it is prudent to trade in volume sizes that you can handle. The best advice that I can give a newbie is too trade less volume, and play support and resistance levels, like price channels or triangle patterns. You will learn to make money on larger price movements with less risk. It all comes down to lowering risk and getting more return out of that risk. WARNING: I bet you are really really tempted to trade big size on the scalps, but I'm telling you that if you go the scalping route, you will in all likelihood regret that decision. I do not know of one trully successful scalper.
I am not a system trader. However, I would be concerned with bad data causing erroneous trades to be taken. Particularly with an automated system.
Another thing to keep in mind is that since your holding times are so short, you won't be able to scale up much if what you find works very well and you are tempted to.
true, but that's the beauty of scalping, you start small, when it works, you make back all the mistakes very quickly by maximizing size. The high number of trades show you when it is working in a short amount of time. But I concede, you max out size also very quickly. If indicators lag, then fade them. (wouldn't recommend this one) If it's so easy to lose trading for a few ticks, then why is it also so easy to lose (according to some) using stops of a few ticks? Scalping is definately IN MHO the best way to go. The best way to learn, the best way to start out. If you can't make it as a scalper, I doubt you will have much luck with the bigger moves. My only advice to a scalper is, never ever no matter how much sense it makes, even if it would have worked great in the past, never under any circumstances, fade anything. You don't need momentum, but you need the same thing everybody from profitseer to Warren Buffet needs, and that is a trend. So, a starting point? Enter on a stop, or the equivalent. And most importantly, know what a profit is. I wouldn't mess with any system where the hitrate is less than 75%. You can make very good money scalping, and contrary to popular opinion, it doesn't take a lot of trades. 4 a day is plenty if all 4 are winners, and that is not at all uncommon. But yes, you quickly max out on size, and then something has to change. The scalper has the luxury of being even more selective than all other traders. There are so many borderline scalps to choose from every hour, you only need one of the very best. No gambling, not with tc. Like my mother always said, never gamble with Gods Trading Capital. It isn't a numbers game, you need that high hit rate. You don't make money by many small moves, you make it by trading much larger size per account equity than you would with longer holding time, and I mean full flat out full as much as they'll let you margin. But from day one, you gotta be thinking about where you're going next. Always working, working working working. Especially when it's going good. That's the time to work and make changes. Good luck scalping. If scalping is so bad, why did they invent ticks? Don't let em kid you, when it gets down to the entry and the exit, most of these traders all become scalpers fighting over the last tick.
Personally, my preferred strategy is somewhere between hyperactive scalping and day holding... however, it is not quite intraday swinging, it is slightly shorter term than that... perhaps the best term for my preferred strategy in the current market environment would be swing scalping... my hit rate is around 50% of winners:losers... over the years, I have been consistently unable to get my hit rate to significantly over 50% within all timeframes, so I have had to develop profitable strategies that recognise this... In the first instance, I would suggest that you should papertrade a variety of approaches, work out which ones you feel psychologically comfortable with and make the trade-offs between comfort level (which is a key determinant of whether you will be able to implement your strategy day in and day out) and profitabilty... sometimes it's worth going for a less profitable strategy, if it better suits your personality, since the overall trading experience will be more pleasurable and you will be able to execute at a high level of consistency... I would advise against your ultra short term approach, unless your papertrading shows a hit rate of at least 80%... anything less than that would probably result in a breakeven strategy (or worse), if you are operating in such a short term framework...