To me, scalping simply means your style is to go for small, predetermined gains while risking only a small amount on each trade. In order to be successful at scalping, you need a winning rate of 70% minimum to overcome commissions and the losing trades. Scalping offers the best opportunity for regular, consistent income, as opposed to swing trading and longer-term day trading. But it is also the most physically demanding, as the trader cannot look away for even a moment while in a trade.
My best scalping system entered on a stop for a 1 pt profit. Sometimes my entry stop would be as far as 6 points away from the market. I figured, if it goes six, it'll go seven. I doubled my account in a very short time, then I figured I better be careful and started using stops, and then it went all to hell. es may be liquid, but not when you're 256th in line. That's why I started getting my orders in early to get a good place in line. Then I tried buying the bid and selling the ask. I hit 22 in a row one day and still after a few got away from me ended up having a losing day. IB made out all right though. It's surprisingly easy to scratch, if you do it quickly. But very difficult to overcome $4.80. Not sure if I got burned out or my personality just changed. But I'm not scalping anymore.
Correct me if my assumption is wrong, but you seem to be a newbie... if you are indeed a newbie, I suggest that you stay away from scalping... it requires execution skills and speed of decision-making that is simply not suited to the newly initiated... it will accelerate the drawdowns that are inevitable for any newbie's learning curve... You should only contemplate scalping once you have achieved consistent profitabiliy in the longer timeframes e.g. swing trading daily candles... Scalping can be a highly profitable activity for the experienced who specialize in it... however, it is akin to walking across a heavily mined field for a newbie... stay away from it, if you are indeed a newbie...
Most of the guys got the definition right, but here's one more from Jack Schwager..."A floor broker who trades for his own account and seeks to profit from very small price fluctuations. Typically, the scalper attempts to profit from the edge available in selling at the bid price and buying at the offered price---a trading approach that also provides liquidity to the market."...The New Market Wizards. pg 492 The problem with us trying to do that is commissions. Like profitseer said, he had 22 winners in a row, but a couple of losers and commissions ate his profits up.
The short term swings I'm doing now would be more expensive with IB than with Ameritrade. A round trip at Ameritrade costs me $22 and I can trade as many shares as I want. Typically, I trade around 5000 share lots with 1 to 3 dollar stocks. With IB, this round trip would cost me $60 (unless I have my math wrong). Once I get over to IB I plan to trade higher priced stocks, in lower quantities. But for now, I might as well use the leverage that Ameritrade gives me by being able to buy many more shares for a flat commission. Oh, also maybee someone can answer this for me. I would switch to IB right now, but since I'm under the 25k day trader minimum, I'm worried they would place the margin call on me and actually enforce it. Or worse, restrict my trades until I work up to 25k. With Ameritrade, I have the margin call, but they do not enforce it. I'm free to make as many day trades as I want, but am limited to 2x margin, instead of the 4x that I would have with the 25k. Does IB operate the same way when it comes to day trade margin calls?
wow, i didn't know Ameritrade illegally allowed traders to get past the daytrading rule. in either case, why don't you trade higher priced stocks on fewer shares? i don't know exactly what your strategy is, but trading 1 to 3 dollar stocks seems risky to me....good luck!
Thank You for your post....You have saved me a lot of time. The 1.25 figure was generous of you to share. Michael B.
Well, I don't know if I'm past the NASD day trading rule per se, because I don't get the 4x margin that true daytraders have. And I suppose they COULD enforce their margin call if they wanted to, but when I called techsupport when they put the call on me originally, they said they didn't actually enforce day trading margin calls. I didn't argue... Actually most of the time I do 1-3 day swings... it's just nice to have the ability to do a day trade, which comes in handy. But, once I get to a certain critical mass, I will start doing lower risk higher dollar stocks. But for now I've found a few < 5 stocks that seem to channel nicely, and I'm playing those for now. Higher risk I know, but I want faster short term gains, and I seem to be doing ok at it, so I'm gonna stick with it for a little while longer.
I would like to know if someone is scalping compltely systemised and what his/her/their sharpe ratio is. i mean real sharpe ratio not the thing provided by trade station. i would expect huge figures. thnx peace
I havent calculated any Sharpe ratio for those of my trades which are scalps (which, in any case, are not completely systemized), but I would agree with you that a scalping Sharpe ratio for a guy who knows what he is doing is probably pretty high, if you are using gross returns in the formulation... however, if you are using returns net of commissions (the bane of the scalper), the Sharpe ratio is brought back to some semblance of reality...