You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
SCALPERS: Criteria for cutting losses / profit-taking
- Thread starter arzoo
- Start date
In the olden days (for those fans of nostalgia amongst us), a scalp on a stock for me was usually an 1/8... now this 1/8 could be gotten by buying the ask and offering out at the ask; this technique could be called 'momentum' scalping since it required momentum to reach the next level. Alternatively, 'passive' scalping could be used to get the 1/8 (buy bid, sell ask); there was no momentum prerequisite for this latter definition of scalping, since we were working the spread, not playing for a new level...
Now in this decimal world of 1-2 cent levels, things have changed somewhat. Unless you are doing very large size (e.g. 10,000 shares) on very low prices* (e.g. $5 stocks), the above definition cannot hold anymore because the profits on a captured penny may not even cover commissions. So the definition of scalping has necessarily had to move away from spread-based definitions to more of a momentum based definition...
I suggest that, for all but the cheapest stocks, a scalp could feasibly be defined in terms of capturing momentum bites of 5 to 10 cents...
Moving away from stocks, with the S&P eminis, you would need to be trading 10 contracts to be able to usefully scalp in accordance with the spread-based definitions encapsulated in paragraph 2 above. The 0.25point spread on 10 contracts would result in the $125 that scalping 1000 shares of a stock for an 1/8 used to give us. I have the feeling that most retail daytraders will be doing less than 10 S&P eminis, so 'their' definition of scalping cannot be spread based but is momentum based, with a higher objective than 0.25points....
* low prices only, in order to keep risk exposure at sensible levels
Now in this decimal world of 1-2 cent levels, things have changed somewhat. Unless you are doing very large size (e.g. 10,000 shares) on very low prices* (e.g. $5 stocks), the above definition cannot hold anymore because the profits on a captured penny may not even cover commissions. So the definition of scalping has necessarily had to move away from spread-based definitions to more of a momentum based definition...
I suggest that, for all but the cheapest stocks, a scalp could feasibly be defined in terms of capturing momentum bites of 5 to 10 cents...
Moving away from stocks, with the S&P eminis, you would need to be trading 10 contracts to be able to usefully scalp in accordance with the spread-based definitions encapsulated in paragraph 2 above. The 0.25point spread on 10 contracts would result in the $125 that scalping 1000 shares of a stock for an 1/8 used to give us. I have the feeling that most retail daytraders will be doing less than 10 S&P eminis, so 'their' definition of scalping cannot be spread based but is momentum based, with a higher objective than 0.25points....
* low prices only, in order to keep risk exposure at sensible levels
Quote from tntneo:
funny, I thought 'scalper' was clearly admitted as : "an individual that makes dozens or hundreds of trades per day, âscalpingâ a small profit from each trade by exploiting the bid-ask spread".
I'd agree liquidity trading is something else, although I think it is a variation of scalping. but OK, we can agree to disagree on that.
where I'd disagree is when I read scalping is based on momentum.
I don't think so. Momentum trading is something else, and that's not scalping. Often I think people refer to scalping when they mean momentum trading.
"Momentum traders look to find stocks that are moving significantly in one direction on high volume, and try to âjump on boardâ and ride the momentum train to a desired profit".
I can scalp (I consider myself a scalper) when trading as a specialist surrogate. I am often against the momentum, still I scalp the profit.
I'd say pure scalping almost disappeared. It's now a combination scalp/momentum. Because spreads are much smaller than they used to.
but by definition to trade momentum, there must be a momemtum (dah!). So that's why I don't call scalping against momentum, momentum trading.. maybe we should create a new kind of traders : anti momentum traders !
just kidding, definitions aside, it's legitimate to make a difference between the different styles. because the loss level, profit target (or lack of), win ratio etc.. are different depending on the style.
a way to do that is to consider the % of the price you target for profit (0.02% or 0.2% that's an order of magnitude and more. that would be 1 cent or 10 cents for a 50$ stock.. the target can be 50 cents or more obviously. but that ain't scalping, it's momentum for sure.
tntneo
tnteo,
I tend to agree with you. I believe the "traditional" definitions of scalpers are those who 1)work the bid/ask spread 2) take "small profits".
I guess that definition varies from people to people, but that's the notions of scalpers for a long time. Now, there are people who thinks 5cent is a scalp. Others think it's a 10cents. And for some reason, given how shitty the market is anything above 15-20cents people assume it's not a scalp but a momentum trade or a longer hold. So, it all depends on your time scale and perspective.
To a position trader, even a 50cents to 1pt move is a "scalp" because his profit targets are most likely much larger than 1pt. So it's all "noise" to him.
But in the intraday environment, I like to classify as follows:
1) microscalpers/liquidity traders - 1-5cents
2) scalpers - 5-15-20cents
3) intraday trend/momentum trader - 15-20cents to 1 pt move
do people agree?? it's kinda sad to see firms and people talking about taking a 10cents profit as though it's golden.. That tells you have small the moves are nowadays..
But there are wide ranging stocks tha tmoves multi-points intraday(1-5pts), but people seem to see that is too risky..
trader99