Scalping only 1 or 2 ticks?

S

shortorlong

Has anyone tried scalping only 1 or 2 ticks? I'm sure many have as it's not such a clever idea and seems like a natural place for a novice like myself to look at first for a mechanical system. So surely more experienced people have looked at it. Were there clear reasons to abandon such a small target? Say, 2 tick take profit, 5 tick stop/loss?

With more than one contract, the commisions are neglibile, and the futures indecies seem to have a way of bouncing 2-3 ticks per 1-minute candle.

Do you think this is worth looking at? Why not?


What kind of indicators would you likely use if you were to try this style?
 
I think this is a typical newbie thought. I had the same a while back. "Man, getting 20, 8, even 5 pips is so hard. So I'm gonna try 1-2 ! This will be much easier".

But it's not.

The smaller your profit targer the more will the spread have impact on your trading. 1 pip spread is 50% of your 2 pip TP!

That does not mean it's impossible. But just because you have a small TP does not mean it's going to be easier. You will need an even better edge to avoid losses.

Learn some more about probabilities and the (negative) impact of spread.
 
As the previous post noted, this is actually much harder than trying to capture bigger moves -- and certainly much harder to keep your losers small relative to your winners.

In effect, you're trying to pick exactly when and where the market is going to bounce, which it will sometimes do for only a couple of seconds. Indicators are pretty unlikely to accomplish this for you. Playing support and resistance points and reading the order book and tape would be a better way to approach this. Unless you're some kind of savant with reading order flow and price action, you're very likely to fail at this until you have many, many hours of screen time watching and learning the subtle clues.

Giving back 0.5 tick for commissions on an average winner of 2 ticks (net average winner=1.5 ticks) and a net average loss of 5 ticks, you would need a win rate around 77 percent to break even (this isn't counting whatever you spend for software, real-time data, etc. on a monthly basis). So you need better than 80 percent to walk away with any money in your pocket. What do you think your odds are?
 
2 profit vs 5 ticks loss ratio? this is a losing strategy for sure.

try 2 to 2....or better 3 ticks profit vs 2 ticks loss.



QUOTE]Quote from shortorlong:

Has anyone tried scalping only 1 or 2 ticks? I'm sure many have as it's not such a clever idea and seems like a natural place for a novice like myself to look at first for a mechanical system. So surely more experienced people have looked at it. Were there clear reasons to abandon such a small target? Say, 2 tick take profit, 5 tick stop/loss?

With more than one contract, the commisions are neglibile, and the futures indecies seem to have a way of bouncing 2-3 ticks per 1-minute candle.

Do you think this is worth looking at? Why not?


What kind of indicators would you likely use if you were to try this style? [/QUOTE]
 
I have a few things to say here:

As far as I know, commissions are per contract in all the index futures, so you don't really save much or anything by trading several contracts at a time.

Scalping for a couple or three ticks at a time is probably more difficult, but also more profitable than most other strategies.

Let's say you have a target of 2 ticks and a 5 tick stop. With slippage, you may be looking at an average of 7 ticks, depending on your size and which market you are in. In this scenario, if more than 90% of your trades are winners, you're good. I'm not sure this is going to be possible. The key to profitability in this case will come from getting out quickly if a position starts to turn against you, before your stop is even hit.
 
It's a losing strategy especially for a contract like the er2. You can lose a point (10 ticks) in an instance with volume surges.

You'll feel like you're fighting an uphill battle when you make a couple of 2-3 tick profits then get hit by several 5 points stop losses.

In addition, you'll start mumbling to yourself why you didn't hold longer when the winners take off for 2 points.
 
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