How much $$ is required to be Scalp Day Trader ?

[Scientist]

Quote from esc_trader:

Longer-term holding periods would be better than scalping, if there were not so many changes in direction.
It's all this whipping around in the (US STK and FUT) markets that makes scalping a better choice.

I think the optimal frequency of your trading would be based on the number of directional changes anticipated. Longer term holders sit through the noise, scalpers find additional opportunities there.

Excellent. Very well said, esc_trader!

There are far too many directional changes in the markets these days. Particularly August. It just looks chaotic if you're a day trader. It also becomes quite obvious that it's the market makers and scalpers only who're making all the money here.

People call scalping "aggressive trading". Well, I don't know how to take that. I scalp in markets like these for purely defensive reasons. Why, is clear. Defense against trend swings and changes, defense against volatility in general, defense against drawdowns, defense against events.

I think it's so funny how often the same people who whinge about "the markets are so volatile these days" discredit the idea of scalping. What is "volatility" or "choppiness" to a day trader, is a set of very elegant, extensive ultra-short-term swings to a scalper. Born by scalpers and to be loved by scalpers. It's the enormous volatility of the US markets that makes scalping so attractive! Otherwise, if I'm a "trend or pattern day trader", I might as well trade i.e. Australian markets or particularly Forex, all of which have better and longer trends than the US issues. I mean, just look at Forex : How stretched are trends there? It's ridiculous, they seem to go on forever.

Regarding your point on trade frequency: Well, isn't it funny how people seem to not get this right? There are funny foes like nononsense around here that don't even understand the basic money management figures, thus rendering them amateurs, and nonetheless claim they do "500 trades per day to give you an idea"... LOL

It just makes me sick when I hear people mouthing off like that, and I should mention here, to the protection of the beginners who are reading that, not to listen to it, and not to even think about trying it. If you trade like that, you'll go broke very quickly.

Basically, when some jester talks about 500 trades a day, which is 390 trading minutes total, he's talking of making 1 trade every ~45 seconds. This is hard even for market makers!

I know somebody who's a prop "market maker", he actually does ~500 trades per day, but he very often doesn't make any money from trading, but only from the exchange rebates for providing liquidity! This guy must be the best scalper I know of all, he's seriously, seriously good not going broke doing that. Other "market makers" I know only do 100-300 trades per day, if that.

Basic private commission structure doesn't allow for that kind of trading. You don't get rebates etc, and with IB, for example, you'd have to make minimum $5 a day per share on a stock just to pay the commissions! Let's not even start about futures. So this is complete nonsense.

Personally, I sort of "cherry-pick" my scalp trades. I want to have a hitrate over 75%, so I don't trade that often at all. It's only the small margins per trade that make me a scalper. On stocks, I'll do between 20- 60 scalps per day. On futures these days maybe 10-40. This leaves me some money left after commish as well and gives me few losing days altogether. I.e. as said, yesterday I some ~80c or so on MXIM, last Friday I broke my all-time record on that stock with $1.60+ per share scalping revenue (57 trades I think). The day before I had my first losing day in several months, the next I broke my own record! So yes - Things change all the time, but scalping remains my favourite in this market environment. Why risk anything more?


Compliments,
~Scientist

 

[CalTrader]

Quote from nononsense:


...
Maybe, maybe not. It all depends on what you mean by "unless you are trading high-leverage". What if leverage is too low? This fellow will not be able to eat. From what point on does ...

Low Leverage = 4:1, higher leverage is more than a lowest level retail account. IMHO trying out your ideas on a retail account is not a bad idea. If you can make money on lower leverage you should be able to "adapt" to having a higher leverage option which makes other strategies viable.

Actually at the time, on just that initial account I could have paid all of the basic bills - supporting the wife, the kids college account, the nice house etc. I just posted this to show that it is possible to be profitable and not blow out your account on a smaller initial capitalization and without using higher leverage.
Another factor contributing to the - thus far- successful business was that it was risk money. I had cash flow from other businesses to fund this one.

 

[Scientist]

Quote from Mr Subliminal:

I see what you're saying and agree about using 2T in your case and for strategy testing. I was talking about "immediately" - no "wait, let it run" - in which case I can get 1T most of the time (assuming automated trading or bloody fast fingers).

OK Then. Here we go. I'll elaborate on a little more detailed here; For the benefit of others who requested via PM some comments on the probability of scalping.

Regarding automated trading or bloody fast fingers - Well, it is good to really have an excellent synergy of both. Using a good platform that actually lets you define scalping strategies can save you crucial milliseconds of comprehensive order entry procedures (i.e. I want to have a 3 in 1 order whenever I submit: 1. Entry 2. Stop 3. Target).

Because the snapshots take a while to update, you better have the get-out orders at the exchange by the time you get in. Also, if you got disconnected or the like, you'd be protected from entry on.

If you're with IB (and they're among the very fastest here!), they get the exchange data and redistribute it to their clients in 0.35s intervals. By the time you adjust your order, sent it halfway across the planet to IB, and from there to the exchange, you could be looking at a gaping 0.5s or more delay. Generally, I have tried to ping that a few times and it's about 0.4 - 0.65s latency to get the order in. In a market like the ES with hundreds of thousands of participants this can make a large difference when you compare this to the direct exchange link you can get when you have direct CME access. I think the DE link to CME can give you updates in <0.1s or something ridiculous like that. All this certainly matters if you're scalping within the possibilities of the gigantic short-term movements that the ridiculous speed of an automated quotron / electronic exchange can offer. After all, this is not NYSE.

So yeah - Having largely automated your scalping processes is one point of having an edge (and having your head clear for other stuff!), another point is to be able to still manually interfere / adjust orders lightning fast. In ButtonTrader, I can move my stop about 5X in 1 second. This is not possible with the general hotkey procedures etc that many people use. So this is an important edge I have over other traders.

Now, on top of this comes the mental challenge of seeing an opportunity window possibly within an already established trade, evaluating parameters and adjusting your order accordingly to fit the situation, possibly add or subtract some contracts, all this within a fraction of a second, maybe 1/2s or more, then you add another 1/2s execution latency and you're down 1s behind others. This really requires practice.

It's a bit like playing pro bac. You're already in that position, you could leave the shoe or take the next hand. Your chances are logically hardly higher than 50/50 for you next hand to double your bet, just like the previous hands. However, although statistically probability is always 50/50 for the next hand to be a winning, you also know that that real probability of a repetition decreases by 50% with each hand. After 5 banker hands, your chances are 1:16 that the next one is a player. After 10 banker hands, probability is 1:512 that the next one is a banker as well. And nevertheless it does happen. 1:512 means you could expect a 10X sequence in every 6th shoe or so. If you're playing a few hours a day, you can easily go through 6 shoes in a day. Realize here that while the probability of hand's outcome is always 50/50, the probability of repetition of a sequence is constantly decreasing!

As a trader, you can learn a lot from professional gambling theory and how you can tip the odds in your favour by using sequence probability against 'random walk', combined with money management. A lot of traders can make money just like that. They believe that random walk is predominant, but nevertheless enough to make you money and then they advocate the fat-tail distribution theory. Look at inandlong, for example, who gives examples of making a random entry and then leaving long-term returns to money management. It's the same thing. In scalping, this is not possible. You've got to be 'right' 75% of the time or more, which is why many traders don't grasp the concept of scalping (many think that probability in trading is always just 50/50 or so and offset this natural belief of theirs with R:R ratios and MM). In scalping, your stops are often 2-4X larger than the targets, meaning your R:R in $ terms is between 1:1 and 1:4, rather than between 2:1 and 4:1, as day traders 'require' or even 8:1, as in the case of position traders. That's the catch here, with shorter timeframe, R:R ratio decreases dramatically. Therefore, we need much higher hitrate. 50% = Not enough.

Anybody here argue that you need a hitrate higher than 50% in order to survive as a scalper? So we must assume we need to have a major edge. And this is what all the speed thing etc is about. Be prepared. Or be slaughtered. This is why so many people think you can't make money scalping. Of course you can. But higher rewards require harder work. Simple Darwinism.

Now explain to me what happened to Carlton this year. Where are the glory days of Alex Jesaulenko, Big John Nicholls and Wes Lofts?

Huh? Are they like soap actors or sth? No, seriously I have no idea. Carlton? Isn't that a beer brand? Like Carlton Draught? Uh, well I hardly drink Aussie beer anyway. I prefer Grolsch, Kilkenny, Guinness
Otherwise, Semillon-Sauvignon Blanc or Chardonnay, Verdelho and Botrytis Semillon is very nice, too. Plenty of that here, I live in a wine haven...


All the Best,
~Scientist

 

[NKNY]

Quote from Scientist:

I don't understand you here. On one hand you're quoting Vince, on the other you're asking for the most basic figures for day trading money management?

To deal with the "danger" aspect you only need to apply basic MM principles. Leverage becomes "dangerous" at the very point where you risk too much equity on a single trade or series of trades with low probability of success.

If you want figures: Well, if you take the widely used "rule of thumb", being not to risk more than 2% of your capital on any given trade, then you could take your $25K, equal to $100K with 4:1 Leverage, then divide 2% off $100K by 4 or simply take 2% off the initial $25K, and you're at a maximum of 0.5% or $500 per trade of maximum risk. This is far enough for scalping. If you require more than 0.5% risk scalping, you're not scalping.

If you were trading i.e. MXIM like I did today, a loss of of 0.5% would equate to 21.5c per share. This is what I'd consider an absolute disaster loss, and rather unlikely in such a liquid issue. Generally, in this stock, I would hardly risk more than 10c per trade per share. That's it. You can even reduce that, but I like to cut the issue a bit of slack quite frequently - I sort of 'scale in runners' quite often. You don't have to do that.

With this loss margin, you can come up with $10K, use 8:1 leverage and still only risk a max of 2% of your initial per trade, given that you get out before a 10.75c loss per share per trade.
Well, given that you know what you're doing, that is. But people have done it. And it's a lot better to blow a $10K intitial than to blow a $50K initial, too. You can get "professional" leverage at www.greentreetrading.com - I think they give you 10:1 if you ask for it. Good Luck

~Scientist

Hi guys, I'm what you would consider a novice to scalping and was wondering if you risk .10 on a trade what would be your target . Do you exit while its going your way and get positive slippage or wait for a pullback....

thanks

nick

 

[gotta_trade]

Quote from NKNY:



Hi guys, I'm what you would consider a novice to scalping and was wondering if you risk .10 on a trade what would be your target . Do you exit while its going your way and get positive slippage or wait for a pullback....

thanks

nick

Exit when you can, not when you have to.


gotta_trade

 

[Scientist]

Quote from NKNY:



Hi guys, I'm what you would consider a novice to scalping and was wondering if you risk .10 on a trade what would be your target . Do you exit while its going your way and get positive slippage or wait for a pullback....

thanks

nick

LOL. I know you don't wanna hear that, but profit targets are in this case generally 0.05 or 5 cents.

As I elaborated previously, your "stops" are much wider than the targets in scalping, often 3X as wide. Also, you don't use "stops" as such in scalping - you get out as soon as the market turns. This requires a lot of discipline.

Regarding "exit while it's going" - Yes. You don't wait for the pullback as such. You use the pullbacks to add.

As a scalper, you must sell into buying momentum and buy into selling momentum, otherwise it'll be hard to unload properly - You need to sell to greedy people or buy from scared people or you won't get much of a discount, basically. Scalping is all about getting a little "discount" from "real" value. Whatever you define that as, is your task to find out.

The way I scalp (in stocks) is that I enter a position in a strong move, exit after a few cents, then it pulls back a few cents (5-10c), then I enter again, exit again 5-10 cents later - And so on. Often I also enter a retracement (=pullback), wait for it to gain a few cents, then it may pull back a little, I add some more add the pullback, then it rises / falls a little more, I add some more at another pullback. This is strong trend scalping which I also like. I tend to prefer this in strong downmoves, though. This is just another variation of it.

What you will notice if you watch 15s or 1-min charts is how i.e. in a strong downmove, there will always be little retracements. The longer the move, the larger the retracements become. These are great entries for adding to a short position. This happens because other ppl are covering their shorts (and idiots think price is finally reversing and buy). So, you can keep adding, and keep taking off profits again as soon as momentum stalls a little. Carefully scale out again. You can do that with 500-share packs each or so. I don't use less, because commission will double. Again, this doesn't apply if you're just a beginner. Scalping with 500 shares of MXIM as a beginner will cost you about $500-$1000 per day. It is more fun than a casino, however.

It's all different with futures. In the futures, I do other things. But for you - Don't even think about scalping futures. Maybe after you've done the equities successfully for a few years.

I'd recommend you use a proper simulator for a few months before you start scalping seriously. Also, you need to know everything that day traders know, and how they think. Day traders are basically your "little brothers" if you're a scalper, and if you don't know what they're doing, you can't control them and they'll trample all over you. They do crazy things, like they'll all start to buy at the 50% fib retracement or sth, no matter what the market is worth. Make sure you know all this stuff. I have several timeframe charts open all the time, to know what's going on in the bigger picture - This is very important to me. Other, pure scalpers, don't use other TF's at all - They only use their short-term chart or even just the tape / LV2 screen! Personally, I wouldn't try it, and I wouldn't recommend it to you, either.


All the Best of Luck,
~The Scientist

 

[Scientist]

Quote from gotta_trade:

Exit when you can, not when you have to.

gotta_trade

LOL. NKNY, this will be the hardest, but nonetheless most important rule you'll ever learn about trading. Memorize this. Write it on your monitor:

EXIT WHEN YOU CAN, NOT WHEN YOU HAVE TO.

As said, it's best if you sell when they're buying and buy when they're selling. If you buy when they're buying or sell when they're selling, you're almost dead already. It's not easy to learn this, but that's what trading is all about.

Good Luck,
~Scientist

 

[NKNY]

Thanks for sharing strategies and advice....

The one thing that scares me the most is actually buying as price is coming towards you.... I have and still do trade counter trend strategies but i usually wait for price to confirm my trade. you guys are saying that i must buy as price is coming to me ... that I have never done before.....


Nick

 

[esc_trader]

Just my 2c.. Personally, I do not automate anymore or have set targets and stops. I'm hesitant to do so because I believe that there is increasing use of automation by other traders. The market will find a way to beat some of these folks. Obviously there are computers set to match bids and offers on the ECNs, for instance. We know that market makers are increasing using computers with no human intervention to make their markets.
I will trade against the computer, the rigidity of their programming making them more predictable than a human trader.
If I win, it does not mean they lose. They still have their customer order flow and commissions to give them their edge, so they may continue doing this. With their customer order flow and commission charge, their directional bets can net lose money, and they can still pull a profit. We don't have that luxury.

I hate "hard stops" (ie stops left on the servers). for the same reason the players don't show their cards to the other players on the World Poker Championship! I don't like targets either, would rather go on "feel". I do like scaling and cost averaging, since I typically take the counter-trend, especially extreme outside of BBands. This has been happening alot lately. Further evidence I think of automated participants, and panicky daytraders. (Seems always the ECNs, rarely the MMs) Don't knock the MMs. They put the liquidity there when you need it, unlike those ECN fakers.

ps, by the way. I saw BRUT offer 40,000 shares at the low of the day in my stock yesterday. They got eaten up for the whole lot of it, followed by the slingshot up. I consider BRUT to be Andover/Assent daytraders, so I had a ball with that yesterday! hee hee

 

[nononsense]

I just went trough the "Classifieds ›› I am selling my eSignal 1-year futures RT package at half price" thread, where sys80 tells us his sad story.

I could not help thinking back about "How much $$ is required to be Scalp Day Trader ?". A quick answer out would perhaps be that poor sys80 was either not really scalping or either not yet savvy enough in this field. He certainly has not been in touch with the Vinces and his colleagues.

I'm very sorry to read this sys80.

nononsense