I've run backtests on multiple systems for scalping the 5 min.
On 8 months of data simulating around 1000-5000 trades.
(Warning: next part is boring. For the tl;dr go to last paragraph)
Literally nothing works. The best edge I've found is around 1%. Which, to be frank, is more than likely just random. Based on volatility, breakouts, vwap. Here is my logarithmic equity curve on over fitted parameters with a risk management strategy that is optimised for drawdown no larger than 30% from peak with 1% kelly;
Here is the same curve with 10% kelly and risk management optimised for a max drawdown of 60%;
As you can see the curves are not so smooth...
There are 600 trades in each. The expectation of a 20% edge with 1% kelly would be (1 * 1.01 ^ (0.6 * 300)) * 0.99 ^ (0.4 * 300) = 1.8
Similar to the top curve. However because the curve is not smooth, when we apply 10% kelly sizing the profitability does not match the same expectation;
(1 * 1.1 ^ (0.6 * 300)) * 0.9 ^ (0.4 * 300) = 91.15
Which is different to the result of "10" in the second graph.
TL;DR
Where is the best place to go and look for an edge in scalping? The 4 hour+ time frames seem pretty easy to beat since you can just do a trend following system and it will have a 5-20% edge but the downside being you can only make 5-15 trades a month. Even on a 20% edge, it will hardly deliver consistent results.
Fundamentally, what drives price on a lower timeframe?
