Is overtrading when scalping a problem on its own or only because of fees?

[nattybumppo]

I am reading about scalping and trying to get a better understanding of the strategy. I ran into 2 groups of people. Those that advocate for being picky about their trades and looking for 20, 30, 40 cents profit goals per trade, and another group that trades way more often and goes for 10, 15 cents.

Big scalp group emphasizes the importance of direct market access with fast order execution. They try to sell on ask but they often bail out on bid and they enter on ask as well.

But I have also encountered the small scalpers that use brokers that provide them with “no fee” trade execution (except regulatory fees). It seems to be that they care less about absolute speed because they also try to sell on the ask but they differ from the first group by trying to enter at bid.
I see successful (I assume they don’t all lie) traders with brokers that offer no commission trading but sell order flow to someone else. They don’t seem to be impacted by it but I don’t know what type of orders are they actually sending in.

Here is where I get confused about it:

Could this be achieved by using special order types like “buy stop-limit order” and “sell stop-limit order”? If I create such orders and send them in, does that increase the probability of me getting a fill when the market moves because my order is already there? Where is “there”?

Is there a separate internal que that the exchange keeps for these types of orders or are the orders not actually yet at the exchange and are at the market maker that received my order and did not yet send it to the exchange? Or could they actually still be at my broker, whish is even worse and will make execution slower?

Example:
Stock ABC trades at $9 and I want to buy it after it breaks $10.05. I send in a “buy stop-limit order” that triggers at $10.05 a buy limit order of $10.10.

Should this enable me to get in fast without the need of direct market access?
I guess this depends on where is my “buy stop-limit order” actually located after I create it.

Is it at my broker, is it at the market maker or was it already sent to the exchange and is there but invisible? I think the location of the order is critical to predict how fast it will execute.

After I am done with paper trading, I plan to try real trading with $2-10 priced shares with order size of 50. I think I should go with the no-fee trading at first because of how thin my profit margins will be.

Thanks for the help with figuring this out!

Overtrading is not taking "too many" trades. Indeed, the more trades you can do WITH A POSITIVE EXPECTANCY the faster you grow your account (OTHER THINGS BEING EQUAL!), and, perhaps more important, the faster you get down the learning curve. BUT--

having said this, I would argue strongly in favor of systems with fewer trades and higher profit margins per trade than those with many trades with tiny margins. It's just so much easier to do! Also, the former method is less affected by the HFT algo's.

Overtrading usually means one of two things: either putting on too big a position per trade (too much risk), OR you are taking low quality signals in order to do more trades than you are getting high quality signals for--something that is always a temptation for me! But don't be afraid to initiate trades if you are getting high quality set ups and you are not risking an excessive share of your trading account on any one trade.

 

[Fonz]

It’s not a matter of being a “believer”, it’s a matter of risk versus reward.

I would make the case that if you are manually trading - you’re better off taking 3 highly selective trades per day instead of 50 “scalps” per day.

If you want to take 50 trades per day: that’s what automated trading system platforms are for.

I totally agree with you regarding the 3 highly selective trades per day. A scalper today needs to be a sniper and wait for the right market condition that she/he sees as the right one to trade.
I also think that the right market condition can last few seconds to few minutes: Only during that period of time scalps or small trades if you prefer, can be made.
I see scalping today as more related to the small period of exposure instead of the (very small) number of ticks that one can scalp.
This is also why I think no successful scalper today needs to stay in front of the screens all day long, it just has to be planned.

Regarding the believers, they will always find a way to explain the inexplicable and the non-believers will always find another way to explain why what was explained, is just not possible.
But, only a believer will find enough motivation and internal ressources, to reach what appears to be unreachable.
Best!

 

[speedo]

It’s not a matter of being a “believer”, it’s a matter of risk versus reward.

I would make the case that if you are manually trading - you’re better off taking 3 highly selective trades per day instead of 50 “scalps” per day.

If you want to take 50 trades per day: that’s what automated trading system platforms are for.

More profit with fewer trades and less stress...what a concept

 

[qlai]

More profit with fewer trades and less stress...what a concept

But flawed. Can be extrapolated to buy-and-hold.

 

[speedo]

But flawed. Can be extrapolated to buy-and-hold.

3 trades a day buy and hold ?....lol. Look, I scalped for years using tick charts but "scalp" needs to be defined. In my case, it was for 2-3 points in the ES per contract with 6-8 ticks of initial risk and was perfectly satisfied. On a highly volatile day, upwards of 20 signals were generated. Since going to a day swing methodology on 5 minute charts, indeed overall profitability on fewer trades with less stress was the result...a result I am happy with. They are still day trades and never "buy and hold" but signals range typically between 1 and 5 per day.

 

[qlai]

3 trades a day buy and hold ?....lol

I mean I can make the same argument that 3 trades a year is better, and 3 trades a decade is even better, and buy once and hold is the best.

Scalping is very close in risk profile to selling naked options, imho. Very high win rate with occasional large losses. It’s trading for income.

 

[bone]

Now there's an extrapolation.

I wish everyone good fortune ! If you can make consistent profits over a protracted period of time scalping and competing directly with the Bots and Algos and ATS's and the order flow buyers, then by all means keep doing what you're doing.

Personally, I'm all about taking fewer trades with better risk/reward and targeting bigger chunks of trading range.

Very high win rate with occasional large losses. It’s trading for income.

 

[deepfkvalue]

Sure you give up a few ticks when scalping because you're competing with bots, but that does not mean that you cannot be massively profitable. Think of the the ticks you give up competing with algos as an additional cost to playing the game, but if you play the game right then you can still make a ton of money. Just look no further than Big Mike.

The big mistake traders make is spending too much in front of their computers all day long. They are waiting for the perfect setup, and if it does not come right away then they jump into a suboptimal trade and break their winning rules.

Since switching to https://www.ninjamobiletrader.com/, my patience for waiting for the right setups has increased exponentially, leading to much higher win rates and positive expectancy.