Scalping

M

macal425

Are there any pure scalpers out there (nasdaq)? If so, I would be interested in hearing your methods/strategy.
Do you use mental stops?
What kind of risk/reward do you look for?
Do you trade all day or just during certain time frames?
Do you use any TA, or do you just use Level II.
How has decimilzation affected your trading?
Etc....

I have been expermenting with different trading styles while learning and demo trading. Scalping for 1/4 to 1/2 a point with a strict 1/8 point maximum stop seems to suit my personality and style, however it is difficult to know how succesful this would be just using a demo program. I use level II, stochastics (stocks and noodles) and gut feelings. I will go both long and short, just trying to go with the flow of the stock and jump in and out like a surfer trying to catch a wave. I have been demo trading AMAT for about 3 months now and so far have been very successful during the first hour of trading. I know that this won't be that great of an indication of how I will actually do when I go live full time in approximately one month, therefor I am looking for any tips or things to look out for in the real world.
Any advise would be appreciated.
I don't mean to sound rude but I would only like to hear from those traders who are successful scalpers, not traders who think it is impossible to scalp successfully.
 
I was a pure scalper from June 2000 to Feb 2001. During that time I only traded JNPR using the same techniques that you mentioned. For those 8 months I was very successful, until JNPR started trading at such low levels. Then, to make matters worse everything was decimalized.

Since those two things happened near the same time it is difficult to determine which has a greater affect in making trading tougher. I think it is probably 50/50.

The most obvious change to me was the way that INCA moved the stock. Nowadays INCA has more power than ever imo on these types of stocks. If you are on the wrong side you can easily get taken on a .50 cent ride just because all of the ecn traders panick and buy/sell way outside the current spread. When trading 2000-3000 shares that .50 cents can hurt. This became pretty frustrating to me so I have started trading different methods, and luckily am able to continue making close to the same daily averages.

I think over time as things calm down I will be able to go back to trading that way, but we'll just have to wait and see.

To answer your questions I will have to refer back to how it WAS:

Do you use mental stops?

I usually never let JNPR get further than .50 cents, or $1000 at most. Most of my stops were actually determined by futures action. Since my entries were solely based on fut's moves, if they reversed then I was out. The .50c/$1000 stop was if JNPR traded against the fut's. I would say my average stop was somewehere around a quarter.

What kind of risk/reward do you look for?

It's too hard to determine a ratio for this type of trading. I was, and still am, around 70% profitable on a daily basis.

Do you trade all day or just during certain time frames?

I never trade the first 30 mins. I found it nearly impossible to trade that 30 mins using my methods. They simply weren't as effective.

Do you use any TA, or do you just use Level II?

Level II is mostly for determining entries and exits when trading such liquid stocks. There isn't a single MM that has enough power to control something like JNPR, and as mm's get more savvy to ecn's they just hide their intentions anyways. I use TA on ndoos instead of the stock itself. I find TA in the futures markets to be more reliable.

 
I was wandering what the scalpers were doing with decimalization. I was shocked on how tight the spreads were at first.

Well anyway, just out of curiosity how are you scalpers doing? Seems like you may have to make some adjustments to your game?
 
I have also been slowed down by decimalizaton, but there is still plenty of money to be made. I have had to change my emphasis on some indicators and become more patient. I have traded MSFT 95% of the time since Nov, before that, I was trading CSCO and INTC. I have found that I don't have to worry about INCA as much since decimalization. 10-20 thousand share of INCA used to usually slow it down or turn it, now it chops right through it alot of the time. I am really watching the prints on Island now because they seem to be showing where it is going somewhat. I don't trade faster stocks like, JNPR, CIEN, VRTS, etc. because I am not fast enough yet for these stocks. I have come along way since I started scalping, but in our office we have great traders who really clean house in those stocks, and when they are getting out of them, you need to be out of the way or you are getting out a 1/2 buck away. I recommend starting out with a big cap and trading it for about a year or so until you get your speed down and better knowledge of the way stocks move.
As far as mental stops, if it is turning on me, I get the hell out and look to go the other way, and I try to let them run as much as possible. I never let a stock go over ten cents against me unless I just can't get out. Why let a stock go against you when you can reverse and ride the opposite wave for profits. That is the way I was trained and it works. As far as risk/reward, I make money on a 3-4 cent move depending on what ECNs are used, so I will get into anything that I think is going to go atleast 4-5 cents. Most scalpers in our office have about a 50/50 percentage of winners to losers each day. It is all about cutting any loser as soon as possible and letting the winners run. Scalping is a kick in the pants, but it takes time to learn. I got down about $6000 before I turned around and made any money, so you have to be patient and just keep going everyday and getting practice. It took me 4.5 months from starting to getting profitable. Last year when the market started tanking we traded all day for weeks on end, but since last June, I have traded all day only a handful of times. Mid day is just to thin and slow for scalping the way I was trained. I usually only trade the first and last 2 hours of the day, with the first hour being my most profitable 80% of the time. I use no TA, I strictly trade from the futures.
If you want to be a successful scalper, you need to trade with other successful scalpers so they can rub off on you, at a broker where you have direct access to many ecns and the best technology available. You also need to be able to bullet your stock. I recommend either Andover or Hold Brothers. Good luck.
 
Ray,
The scalpers I know are all doing fine. If it wasn't for the fed cut, I would have had a slower than average month, but that is because I had a slow time adjusting to decimals the first week they were changed. Thanks goodness for the fed cut and a news department that gets you the news before it hits the floor of the Merc. Everyone is haveing to adapt their styles a bit, but that is nothing new. Scalping is somewhat of an always adapting process depending on what the market is providing to play with.
 
SP,

I could not trade for 3-4 cents (but that's just me:-), but if your target is 4-5c and you are paying 1.5c commission with 50/50 trade success rate..there is not much room to work, is it? how many trades do you make? ( I am just curious)

Paul
 
speedracer

You write:
>>>I recommend either Andover or Hold Brothers. Good luck.<<<

is there an URL for andover?

TIA

eli
 
I would like to respond to all three prior posts in one.

Elie, http://www.andovertrading.com They use the Hammer software or Hammertrade, which is excellent software for speed with all the hotkeys you could want.

Der N., Yes, I think Hold brothers is a good trading firm. They now use Graybox, which has been developed in house for Hold Brothers proprietary and customer traders. Graybox is on par with the Hammer.

Both firms, Hold and Andover, have good software and rates. The rates get even better when you trade high volume.

PKJR, I think you misunderstood me, I don't only try for 4-5 cents a trade, but I will make money on those trades so it is easier to trade alot. With total avg.costs (comm., ecns, and SEC fees) of under 1.5 cents a share, it is easy to do the math and see how scalping can be profitable. With an average cost of under $15 per 1000, making 3 cents will break you even and 4-5 cents will put money in your pocket. doing that around 100 times a day adds up. just averaging 20 cents a share with cost at 15cents on 200,000 shares a day will make you $1000.
It might sound like alot of work for some of you for only $1000, but I really enjoy scalping and the game it is. And once you get better, you start hitting the mid 20 cents a share avg and then the 30cents a share avg and then you start making good cash.
To answer your question, I am up to trading around 175,000 -200,000 shares a day. Some days more, some less, but right under 4 million shares on the month. I know that is not huge for scalping, but I am gradually trading more month to month.
 
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