Day-Trading 2.0 for small traders

amitman · Mar 6, 2008

Quote from rdhtci:

Amitman,

Sorry to hear you've had a bad period.

I don't know if this will help, but here's what I see from your post...

If you're getting 5 winners out of 7 trades and losing money it says two things:
1) 5 winners out of 7 says the method you are using works
2) losing money on that performance ratio says the math is wrong

If you are using a 20c profit target (which, in my view, is about right for those stocks), and your stop gives you 1:1 R/R, and this becomes 2:1 R/R with commission etc, your commission is too high proportionately for the trade size, and/or your slippage is too high. You don't break them down, so it's not clear which, or both. At those ratios, it sounds like you may be trading lots which are too small for the method. I wouldn't ask what size lots you trade, but for example, $5 commission on 1000 shares x 20c is very different from $5 on 100 shares x 20c. If that's where the problem lies, you need bigger lots, or a bigger timeframe -- $5 on 100 shares x $2 is OK, too...

Ref: "I still scalp AMZN and RIMM but I'm starting to think that with my profit targets (20-30 cent) these stocks are just to fast for me."
I trade similar stocks to you, with similar stops and targets. I'm sure these stocks are not too fast for you -- they may just be too fast for your current execution method. I don't know if you are familiar with any of the third-party execution systems, but I use NinjaTrader -- here's a couple of things which may be relevant to your post: you can set up Stop Limit orders in advance -- eg limit is 5c above stop for long entry. You can also set up simple strategies in advance, where stop loss and profit targets are set as soon as you are filled, at levels you set up in advance. Once those parameters are set, you can place the order very quickly with one click on a chart -- this is how I do it, I get filled pretty much every time, and at decent fills. With a 5c limit above stop, I can still use a 20c target.

I think you're dead right about scaling out, too. My experience has been the same. When you look back at charts it looks like a bigger target would get hit, but in practice I found that after exiting half and moving the stop to B/E, most often the second half of the position fell back and stopped out.

I would say, don't get discouraged -- 5 out of 7 is great going, (as long as your losers are not too big...).

Rob

Thank for encoureging me but I have to disagree because it's very easy to get from a 1:1 R/R to a 2:1. lest have a typical example:
let's say the bar that triggers is a bar with low at 60.00 and high at 60.20.
The stop limit order will be a 60.21 with a limit of 60.25 and our target will be 60.41(for the 20C) the stop will be 59.99 (below last bar low), this is a very typical example from my experience using 20,000 Vol bars on AMZN. Now, in theory this is about a 1:1 R:R ratio (22 cent stop for 20 reward).
Now, for the sake of the example let's say i use 100 shares with 2$ commisions.
But now, lets see what happens in practice:
So now with normal slippage i get filled at 60.23
If the trade is good i get the fill at 60.41 = 18-2 (commish)= 16$ Reward.
If the trade fails with normal slippage my stop order would get filled at 59.97 meaning = 60.23-59.97 = 26 +2 (commish)= 28$ loss.
as u can see It's very easy to get a 1:1 ratio to become a 2:1 and this is unfortunatly a thing that happens to me all the time when sometimes i even have a much worse slippage on my stop losses (10-15c and even 35c one time!!)

nugundam · Mar 6, 2008

Quote from jjrvat:

iii. A scalper is not interested in taking the whole move to the next pivot point, neither is trying to forecast when its going to happen. A scalper is only looking for the âmacroâ direction in the current time for increasing his probabilities of making a good round of scalps.

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Good stuff and excellent advice. Definitely agree with this statement and i believe this is the key in minimizing your risk as well. Sometimes though i get tempted to try and get the whole move as the Risk / Reward ratio is really high in these instances. I personally prefer to keep the high probability quick scalps strategy though

BTW its a bit scary to see how accurate some of these pivots are in terms of acting as S/R levels. Personally i simply use them as guidelines where consolidation occurs and usually will draw a circle at these points to understand that sometimes the price will go a bit below or above these points. Cut point is usually when these points are breached by a large margin.

amitman · Mar 6, 2008

Quote from nugundam:

[---------------
Good stuff and excellent advice. Definitely agree with this statement and i believe this is the key in minimizing your risk as well. Sometimes though i get tempted to try and get the whole move as the Risk / Reward ratio is really high in these instances. I personally prefer to keep the high probability quick scalps strategy though
[/B]

I don't understand how this minimize your risk. Accpording to JJVrat method your stop should be at least on tick below last bar's low this mostly bring you to a 1:1 R/R ratio or worse and you can even go through all the charts of JJrvat in this thread to see that I'm right.

rdhtci · Mar 6, 2008

Amitman,

It's the position size.

And the execution.

Let's look at your example with a different position size:

Firstly, the target would be different according to my example above -- if the stop limit order is 60.21 with a limit of 60.25, the target is set at 20c, but doesn't calculate until you are filled -- ie you are filled at 60.23, your target becomes 60.43 and is entered only when you are filled. The execution software does that for you.

The trade is good and your target is filled at 60.43 for 20c gain

You are trading 1000 shares

Your gain is $200 less your $2 commission...

I'm not saying you have to trade 1000-share lots, it's just an example to show how position size changes all your figures.

If the trade fails, your slippage should not be that much. How are you entering your stop loss orders? Again, execution software can help. Your initial stop loss would be placed as a limit order by NinjaTrader automatically as soon as the entry is filled. There is a mechanism where the limit is either switched to market if not filled, or the limit is chased. Fills have been very good.

I think you should feel encouraged -- with a 70% win rate (your 5 out of 7), 1:1 R/R, sufficient position size (or leverage) and decent execution, you can do very well...

Rob

StillStanding · Mar 6, 2008

to AmitMAN

some suggestions

at some point before your price possibly gets to the 20 point target, you should move stop to breakeven +1 . Perhaps after market has moved 8-9 ticks in your favor?

You should also be scaling out and not just going for the 20 cent target. leave some shares on to catch larger runs.

nugundam · Mar 7, 2008

Quote from rdhtci:

Amitman,

Sorry to hear you've had a bad period.

If you're getting 5 winners out of 7 trades and losing money it says two things:
1) 5 winners out of 7 says the method you are using works
2) losing money on that performance ratio says the math is wrong

If you are using a 20c profit target (which, in my view, is about right for those stocks), and your stop gives you 1:1 R/R, and this becomes 2:1 R/R with commission etc, your commission is too high proportionately for the trade size, and/or your slippage is too high. You don't break them down, so it's not clear which, or both. At those ratios, it sounds like you may be trading lots which are too small for the method. I wouldn't ask what size lots you trade, but for example, $5 commission on 1000 shares x 20c is very different from $5 on 100 shares x 20c. If that's where the problem lies, you need bigger lots, or a bigger timeframe -- $5 on 100 shares x $2 is OK, too...

I think you're dead right about scaling out, too. My experience has been the same. When you look back at charts it looks like a bigger target would get hit, but in practice I found that after exiting half and moving the stop to B/E, most often the second half of the position fell back and stopped out.

I would say, don't get discouraged -- 5 out of 7 is great going, (as long as your losers are not too big...).

Rob

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Excellent advice and i must agree with you completely on that analysis rdhtci. The book by Dr. Van Tharp, Trade your way to Financial Freedom , clearly explains how slippage can and will distort your R/R ratios if you do not account for them (therfore a need to adjust your strategy accordingly). By the looks of it Amitman, your PNL would greatly be enhanced if you looked for another broker (seems by your fees you are with a retail firm) with better rates and/or worked for a prop. firm. (To give you an idea, the prop. firm i am with has such a low cost structure setup that I only pay literally a penny for 100 share lots plus i get the credits/rebates which equates to negative transaction costs!). Its actually a scalper's dream come true, being able to profit from even money trades

(also another reason why i don't trade the futures). The only other option i see is to do what is stated above, ie Trade bigger size to dilute the fixed costs of trading. Of course, this may increase your risk depending on your portfolio size (clearly trading 100 share lots as opposed to 1000 share lots will increase $ amount risked which may be hard to stomach so the psychological factors may change as well). IMHO, if you have the capital, increasing size should do the trick for you (unless your fees increase proportionately as you increase size) to become profitable.

nugundam · Mar 7, 2008

Quote from amitman:

I don't understand how this minimize your risk. Accpording to JJVrat method your stop should be at least on tick below last bar's low this mostly bring you to a 1:1 R/R ratio or worse and you can even go through all the charts of JJrvat in this thread to see that I'm right.

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Amitman, when i made that first comment i didn't read through the whole thread so it was just a general comment about JJVrat's advice. I personally simply use the Pivots as my basis for entry and exits (as this is usually where the maximum pain occurs and most stops are hit). I do try to get a general bias for the market whether trending up or down but when you go for quick scalps it does't matter too much as JJVrat mentioned as long as you trade the high probability setups. I mainly do discretionary trading so i don't have a fixed R/R ratio but i am definitely one of the few of the opinion that even with poor ratios one can be consistently profitable scalping. Always making sure your losses don't get too out of hand

In general i believe there is an optimal "profit take" strategy in each individual stock given its volatility and it is the scalpers job to find out what that is IMHO. I am also a firm believer of scaling in and out of positions simply because i don't believe one can pick tops and bottoms with one shot in a consistent manner.

That being said, i've always felt that to be able to scalp efficiently and effectively one must ensure that the proper systems are in place, ie low cost structure setup, i cannot overemphasize this aspect of trading (if you have a large enough trading account then this would be less of an issue as previously mentioned). I feel this is also the reason why so many people believe scalping is risky. They are not equipped properly and it is not fair to judge them accordingly.

Just my thoughts

"From my viewpoint, the investors are the big gamblers. They make a bet, stay with it, and if it goes wrong, they lost it all."

"You know, a professional gambler is not looking for long shots, but for sure money..." -livermore

amitman · Mar 7, 2008

thank everybody for the good advice.
Unfortulnetly prop is not an option for me since I live in Israel and there are no prop shops in my country.
Enlarging the size is also problematic becuase I'm currently very close to the 25,000$ line and i can't afforrd to risk too much in a trade. Also the commision grow as the size grows (I actually pay 1c per share for the first 500 stocks and 0.5c per share above 500). and finally and most importantly you forget that scalping AMZN or RIMM with 1000 share blocks is nearly impposible as the slippage for this kind of size is usually very big (at least 8c), just watch T&S to see how many shares it takes to move AMZN 20c to any direction (hint: not many), so this is also not an option.
What might be a good option is using a 3rd party execution software. I'm currently testing Ninja Trader, but I have to learn more. Another option is slowing the time-frame i trade and tweaking my strategy a bit to get better fill. And a third option I'm testing is moving to the futures market which offer a much higher liquidity thus making them easier to scalp.
Anyways thank you all I'm hoping next week will be better then the last two I'll come back with reports and thoughts.

jjrvat · Mar 23, 2008

Sorry for the delay, I have been out of office for a few weeksâ¦

What is the importance and relationship of wave height with these rules and principles of trading? (mktman)

If price analysis is the key for successful trading, the relationship of wave height is the key stone to develop a sustainable trading plan. Why? Because waves are dependent variables of the timeframe, risk, time and the instrument you have in your trading plan and they will determine your entries and exits (and obviously the size of your winners or losers). Consequently, waves will establish the playing field in which you will apply price analysis.

Understanding price analysis is one thing, developing your own trading plan based on this is a different issue.

(tnttrader)
Is this methodology more appropriate for the currencies?
I've tested this methodology on charts ranging from 8t, 21t, 89t, 144t, 2500v, 1 min, and 5 minâ¦

(amitman)
Does any of you use JJvrat method to scalp stocks?
if so, which stocks you find best to scalp and what bars do you use (volume,range,tick,time)?

In my opinion price analysis will work with any instrument in any timeframe. What may fail is the trading plan a trader is using.

(tnttrader)
Which time frame have you found the best for incorporating risk with profit potential. I really don't like going for more on a trade than I riskâ¦
If you donât like going for more on a trade than you risk I may only recommend you to move as far as possible from the âscalpingâ side. The longer the timeframe the best risk/reward you will have.
(amitman)
what is you're entry method? I'm currntly using a 25HMA cross, the problem though is that i wait for a cross and then put a stop above the high of the bar that crossed (for a long trade) but using a stop order causes me to either get a very bad price or somtimes not succeding to put the order before the stock is already making it's way up and it's too late to enter.
On the other hand entering without a stop order can cause many loosing trades as many times the stock cross the 25HMA but then immidietly return back.
what do you use to enter in terms of trigger and orders?
4) when do you exit? do you scale out or do you have a fixed targets? [/color] [/b]

I read your example posts and I do agree with rdhtci, "If you're getting 5 winners out of 7 trades and losing money it says two things...":

1. 5 winners out of 7 says the method you are using works (Price analysis is excellent)
2. Losing money on that performance ratio says the math is wrong (Trading plan is not consistent)

In any case, I received many emails and PMs with the same subject so for those who are still following this thread or use a similar price analysis approach I am posting the next set of posts so we can have a productive discussion on this issue.

jjrvat

pkchilly · Mar 23, 2008

Good to see you back from your travels! Hope you enjoyed. Just some questions if you would like to delve into them. 1. What are some of the size constraints of the futures market? I have not started trading different instruments than bp, jpy, and eur, and I am sure there are other instruments where 1 lot = a whole lot more than $6.25 or $12.50. I would assume that a trade for say 10jpy would be filled much slower than a trade for 1jpy--I have not done this live yet as I am working my way up...lol. In following yours and others advice to not over trade, but also in wanting to make a decent living off my capital, I am wondering where you think the line is for scalping. It's easy to get 1 lot, and also 2, and 3, but those larger sizes often don't get wholly taken--then, with oec at least, I'm pulling my hair out trying to get my sl's and tp's reset to the amount of lots that were taken...

2. How did you go about setting up the wma's for the different instruments you trade? I've gone ahead and plagiarized your settings for bp, to just get an idea, but I suppose screentime on the tf you trade will help a whole lot...were you constantly changing out wma's until you felt comfortable? I suppose 2 is enough for questions...and again, I just want to thank you for the teaching time you put in!!! pkchilly