Will this scalping strategy work?

Discussion in 'Strategy Building' started by Sandybestdog, Oct 29, 2008.

  1. HI I have been an active ET reader for awhile, but generally don't post much. I figured I'd start my first thread about
    an idea I have, so please go easy on me. I recently signed up with a prop firm and basically get free commissions
    now. I did this for a simple reason. I am sick of going to the casino to gamble, I want to be the casino. Let me explain.

    Let's say you buy 100 shares at $10. You have a deep discount broker that charges you $1 per 100 shares. So after you buy you are now down $1
    on the trade. When you sell, you are down another $1. The odds are immediately against you. You are the gambler. You are going to either loose or win. The guy on the other side will either lose or win. Both of you both pay commissions to "the Man." In the end, the odds are against both of you and you will both end up losing. If any of you are good and do win more, that just means that 2 people have to lose so that you can win. It's a cruel world, but that's how things go. I have been on the losing end for a long time and am slowly figuring out that doing the same losing thing over and over again and expecting different results is crazy.

    Now take my current account at the prop firm. I buy a stock at $10 and add liquidity, I am now instantly ahead by 20 cents. When I sell and add liquidity,
    I get another 20 cents. Whereas the other guy is now instantly down, I am instantly up. The odds are now in my favor. I am now the casino. I might win some and I might loose some, but the odds are in my favor. Forget about indicators and news and holy grails. They don't work, at least not intraday. I have tested this stuff and most of the traditional indicators not only don't make money, but they actually loose. It's funny how we are supposed to
    follow all of these rules and indicators, but they have rarely ever been tested. Do the market makers try to predict where price is going? No, they play the odds. Buy on the bid, sell on the ask, and collect rebates.

    My question to you is, does this make any sense whatsoever? I have been cautiously trying this for the past week and have mostly broken even so far.
    Yesterday I took 6 stop outs in a row, today I have 12 wins in a row before taking one loss. I am waiting to go all in on this until I can automate it. I generally place buy and sell orders along the bollinger bands with a one minute chart. Sometimes they reach them and bounce back and sometimes it continues through and hits my stop. I generally use a 2-3 cent profit target and a 10 cent hard stop. I never chase the market. If I get stopped out and it reverses, I don't try to reenter. I will play the other side at that point.

    The goal is to make as many trades as possible because now I'm actually getting paid to do so. This is not rebate trading per se, it's just using them to increase the odds. I'm also hoping that by going counter trend I will also be able to come out slightly ahead on the trades. If a stock is at $10, there is a 50% chance it will go to $9.90 and a 50% chance it will go to $10.10. So if it goes to $9.90, then that means selling pressure has pushed it down 10 cents. Sooner or later there will be not be enough selling pressure to keep it going lower. At that point the buyers take over. So I think by going counter trend and scalping for a few cents, the odds are a little more in my favor.

    Has anybody else tried this approach? Does anybody have any thoughts as to where I should place the entry orders? I have backtested very simple scalping strategies with very good results. Although that assumes that you are filled on every trade, which obviously won't happen. So far my fills have been pretty good. I often catch the swing high or low. The goal in all of this is to pull $100-200 a day out of the market.
    Let me know what you think.
  2. 1) You're risking a lot in order to make a little.
    2) You'll end up making too many trades and not netting out any profit. You'll also get very tired and burned out from trading that way. :cool:
  3. kxvid


    Why don't you get a real job. You prop isn't going to like your trading style just going for the per share commission.
  4. Instead of buying the 100 shares, buy the ATM or ITM option.
    You can normally get about 3 options contracts for what you would be paying for when you buy the stock. Now you will be controlling 300 shares for the same cost. If you are daytrading this, you wont have to worry too much about the time decay either. I can easily make around $300 per day doing options
  5. jem


    trading for reversion to the mean works great until it doesn't. Then you blow up.

    make sure you know when you have to take your losses.
  6. Aok


    You sound like an insurance company that has no hedge against a Hurricane.

    And there will BE a hurricane.

    Then all your gains will be smoked.

    I hate to break it to you but you are only half correct in your analysis of indicators etc, etc.

    Because your "new" thought is not a new one. You think Goldman Sachs hasnt thought of what you have? The have the resources that dwarf you and guess what, there's no $ in that either. Not without mondo risk.

    Discovery consists of seeing what everyone else has seen but thinking what no one else has thought.

    Keep thinking.

    http://www.gnpcb.org/esv/search/?q=Ecclesiastes 1:9
  7. lindq


    LOL. Minus the $300/day in spreads and commissions.

    Trying to daytrade options on equities is a fools game.
  8. rosy2


    many firms do this in some way or another. granted its all done by computers. i agree with the other poster in that you will burn out manually doing this for almost no money. I suggest you automate it and run it on 1000s of stocks.
  9. telozo


    I don't trade options, but I thought that scalping them is extremely hard because of the large spread.
  10. That's correct, I'm risking 10 cents to make 3 cents. However if I'm correct, a stock at 10 has a 50% chance of going to 9.99 and 50% chance of going to 10.01. If you wanted it to go to 10.02. That's only a 33% chance compared to 66% chance of it going to 9.99. So if I buy it at 10 and put in a sell at 10.03 and a stop at 9.90, there's a 70% chance that I will get out at 10.03 and a 30% chance of being stopped out. In the end the odds dictate that you will break even.

    As to the second point, it does require a lot of trades, but that's exactly what I'm trying to do since now I get paid to do so. I am trying to automate it. You're right, after only 55 round trips today, I'm exhausted. Thanks for the response.
    #10     Oct 29, 2008