"scalping" stock selection questions

[javaboy]

Hello boys and girls.

Before you flame this as a stupid question, understand Ive done my homework: searched on ET, read books, used yahoos and sharpcharts stock screens, yaddayaddayadda, and most importantly, have executed several hundred trades in my seach.

So far, Ive proven to myself that I can get in and out of trades fairly reasonably quickly, Im satisfied w/ trding only 100 share lots for now, I do not allow bad ones to go too much against me, I keep aware of larger mkt trends, I could be content watch just 1, 2 or 3 stocks, and learn them well, and so on. And if a stock goes in my favor from the get-go, I am willing to let it ride a bit, but honestly, that hasnt happened for me yet.

I guess I am saying that I already have a lot of the pieces in place....

That sed, I am looking for stock screening criteria that could lend to CONSISTENT scalping on nyse. I know "the market is squirrally, 1 bad trade wipes out 4 good ones, the specialist is out to get you, its a dead market," etc., but quick trades, "scalping," fits my personality and I like the nyse v. the naz.

So finally, heres the question: Any suggestions for criteria in looking for specific stocks that "behave" well for scalping?

Ive already tried 1) low beta, high price (moderate average true range), 1 M shares/day and usually follow the spoos and 2) really low beta, 500k-1m sh/day, low atr stocks (like watching paint dry, which I am willing to do if it leads to consistency but it hasnt yet).

I am now thinking screening based on: slightly lower liquidity stocks, say 3000-500k sh/day w/ a beta around 1 and also finding some way of determining that the stock is a low priority for the specialist.

The last goal would include looking on marketrac.nyse.com to look at the volume traded at the post in relation to all the other stocks, and maybe combining that w/ a search for specific specialist firms to investigate that the same specialist probably trades one or two high volume stocks along with the one I am considering.

The theory is: 1) w/ 3-500k shrs/day there is enough volume for liquidity, making getting in and out of the stock not impossible, but not so much volume that all the heavyweights and the specialist are slamming it, 2) beta = 1 means smaller chance of huge price swings but enough going on to keep me interested and 3) if specialist involved w/ one or two other bigger volume stocks, then maybe I could take advantage of a lag time between moves in the larger mkt and the stock Im trading.

Before you think my search is fueled by smoking too much crack, I gotta believe that a lot of stocks have certain "personalities" that can be counted on; I mean in the '90s heavy hitters where doing the csco, rbms, jnpr's of the world--those traders saw common characteristics that made them tradeable. And until about a year ago, I know groups of traders that were doing mu and txn cuz they could count on those stocks acting consistently.

And as a secondary question, what do you other scalpers watch for in the broader mkts before you put on a trade (Im watching big spoos, eminis, trin, tick, but havent yet found consistent rules for using them)?

Thanks for your help.

Jboy

 

[wackojacko]

look for volatility and liquidity- if you are scalping you want stocks with a larger average daily range. stocks with a gazillion shares outstanding and low prices dont move around as much as the above $50 stocks. higher price stocks result in more trading fees though, so consider that in your approach.

 

[rwk]

I do scalping, and I have found volatility to be the most important factor. I think NYSE stocks are harder to scalp, because you are competing with the specialist. Your profits come out of his pocket.

 

[Mecro]

Quote from javaboy:

Hello boys and girls.

Before you flame this as a stupid question, understand Ive done my homework: searched on ET, read books, used yahoos and sharpcharts stock screens, yaddayaddayadda, and most importantly, have executed several hundred trades in my seach.

So far, Ive proven to myself that I can get in and out of trades fairly reasonably quickly, Im satisfied w/ trding only 100 share lots for now, I do not allow bad ones to go too much against me, I keep aware of larger mkt trends, I could be content watch just 1, 2 or 3 stocks, and learn them well, and so on. And if a stock goes in my favor from the get-go, I am willing to let it ride a bit, but honestly, that hasnt happened for me yet.

I guess I am saying that I already have a lot of the pieces in place....

That sed, I am looking for stock screening criteria that could lend to CONSISTENT scalping on nyse. I know "the market is squirrally, 1 bad trade wipes out 4 good ones, the specialist is out to get you, its a dead market," etc., but quick trades, "scalping," fits my personality and I like the nyse v. the naz.

So finally, heres the question: Any suggestions for criteria in looking for specific stocks that "behave" well for scalping?

Ive already tried 1) low beta, high price (moderate average true range), 1 M shares/day and usually follow the spoos and 2) really low beta, 500k-1m sh/day, low atr stocks (like watching paint dry, which I am willing to do if it leads to consistency but it hasnt yet).

I am now thinking screening based on: slightly lower liquidity stocks, say 3000-500k sh/day w/ a beta around 1 and also finding some way of determining that the stock is a low priority for the specialist.

The last goal would include looking on marketrac.nyse.com to look at the volume traded at the post in relation to all the other stocks, and maybe combining that w/ a search for specific specialist firms to investigate that the same specialist probably trades one or two high volume stocks along with the one I am considering.

The theory is: 1) w/ 3-500k shrs/day there is enough volume for liquidity, making getting in and out of the stock not impossible, but not so much volume that all the heavyweights and the specialist are slamming it, 2) beta = 1 means smaller chance of huge price swings but enough going on to keep me interested and 3) if specialist involved w/ one or two other bigger volume stocks, then maybe I could take advantage of a lag time between moves in the larger mkt and the stock Im trading.

Before you think my search is fueled by smoking too much crack, I gotta believe that a lot of stocks have certain "personalities" that can be counted on; I mean in the '90s heavy hitters where doing the csco, rbms, jnpr's of the world--those traders saw common characteristics that made them tradeable. And until about a year ago, I know groups of traders that were doing mu and txn cuz they could count on those stocks acting consistently.

And as a secondary question, what do you other scalpers watch for in the broader mkts before you put on a trade (Im watching big spoos, eminis, trin, tick, but havent yet found consistent rules for using them)?

Thanks for your help.

Jboy

The "safe" strategy we were taught was:

stocks around 20-30 bucks.

about 1m shares a day.

smooth chart and small prints.

But scalping encourages churning and in my eyes is a failing strategy especially in this market. Slippage will destroy you as you size up and 100 share scalping will get you nowhere unless your profit goals are 100-200 bucks a day. Scalping is probably best for extremely liquid stocks (hmm Nasdaq), stocks that tend to keep nice ranges (hmm Nasdaq) and stocks that actually make moves day in and day out (hmm Nasdaq). So NYSE scalping is actually an oxymoron because in order to make scalping count you need to do size but if you do size, the slippage increases exponentially and you are just asking to get screwed. Only the prop firms truly benefit from scalpers.

I think if you want to scalp NYSE, go for more liquid stocks like GM, KO, IBM which can easily handle 1000 shares without the specialist going after it. The more liquid and popular stocks have less specialist manipulation because there are so many big players in them.
You will have losses and you will get screwed. The point is to keep those losses small and that is impossible when a NYSE stock that does 1M average daily volume pulls his buyer/seller, lets the scalpers' orders pile up and spreads 20-30 cents on you. Happens very often.
Your wins will rarely be big, 10 cents is average. If the market changes and gets some serious volatility back, then scalping will be quite profitable. But right now it is almost like being a rebate trader except without the rebates. Mooks trade size for 3-5 cents completely strangling moves and the already weak volatility.

The pure scalper barely looks or cares about anything in the market besides the bid and offers, commissions & speed. Sharp S&P futures moves are important and thats about it. In my eyes, it is not even real trading. I did it and I saw very little potential in the style comparing to real trading strategies. However, quite a few scalpers start evolving the style into a hybrid of real trading. For example, one excellent trader that gave me some advice has a method of looking for critical price points on various stocks where there will be action if the price hits. At that point he knows he can quickly catch some moves and flip serious size since it becomes very liquid and volatile in a fixed range. I started tapereading a few stocks from scalping them and then started to catch larger trend moves. Unfortunately, my style does not work right now in this crappy environment and I have to revert back to scalping for pennies just to get the green streak going again.