The Ultimate DAX Scalping Discussion Thread!
- Thread starter Scientist
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I should say I always use limit orders to enter but sometimes I put the limit one tick away from the current price. Why?
Because I want to get that extra tick.
It can make the difference bewteen a winning and a losing trade.
The problem with this is that I sometimes miss the trade - and sometimes lose out big profits. It is possibly better to always meet the market if one is going for bigger moves but sometimes I am after 2 ticks only.
Also it is very psychological = I feel like I got a bargain doing what I do. The negative side of this is that the market has just filled you in the wrong direction . So is it a wrong way to play the game? Maybe. I look at this problem everyday.
Yes, exactly. of course sometimes it works out well and you make that extra tick.
Sometimes 2 ticks is what is available - if it looks like it will be a high probabilty 2 ticks then I take it. As I said earlier I don't have stops per se. but I get out of a trade as fast a I can if it looks to be going wrong. I am weak on this point and still let some big losses occur.
Disclaimer: I am not a profitable trader (yet) .
Well Baruch, if you knew that the move was gonna continue down, then why didn't you enter at market? Because you didn't know!
You see, that is the problem with trading. You simply can't know. You can't think in terms of "if", and "could have" and "should have", because trading doesn't work this way. The only way trading works is in terms of probability.
Now, what is probability? Probability of a particular setup/move aside, let's examine the probability of you being profitable: This requires you to have larger winners than losers with a 50% hit rate, or maybe allow for equal size or even larger losses than wins if your hit rate is 70-90% or so, as can be the case with scalping as in depth inefficiency trading.
But: As soon as you enter anything at market, you a) Don't know where you'll get filled and b) Can be pretty sure you'll lose quite a bit of an edge, namely you'll now have to a) Use a smaller target and b) Use a larger stop. Both of which seriously screws up your ratios. Do you know where I'm coming from?
I tell you, this becomes more and more critical the shorter-term you trade. The last thing you want is screw up your ratios! If your ratios are screwed, you cannot win (not even with an 80% hit rate!).
What you need to do is find a method that determines a level you call "generous" in terms of price excursion (such as overbought/oversold), and sell or buy at that level, with a limit order, to get a price that allows for a very small stop, because you know when you're wrong very early. There are many many times in DAX even, where I'll use a 2-3T (1-1.5pt) stop on a trade (NOT kidding!), because I know when it ticks up/down anymore than those 2T, my original thought was wrong, and I can exit. If I have such a low stop, how much profit do I have to make on winners? Not too much, many winners I'll take at 3T, some at 6-8T, I usually don't go much beyond 4pts. My small stops / small 'wrong' tolerance allows for that.
Small stops allow for many small losers. Big stops only allow for few losers, and they require big big winners. Even if I was an ace trader, I wouldn't try it. I'd rather be an amateur trader with fewer trades but great ratios.
Honestly now: How could you even know about your ratios if you're entering at market? Your fill will be uncertain.
Bottom line? Don't worry about "missing a good trade"! You can't know in advance if it's gonna be a "good trade", so how can you think you're gonna miss out unless you're fooling yourself into believing "you know"? That's the big trap most traders fall for!
Consequence? You consistently (literally!) give your money to traders with better ratio management, resulting in making them more consistent while yourself 'paying' for their holidays.
So, sure your limit order entry doesn't always get filled - So what? You only get 3 trades a day because your limits are so 'hard to reach'? So what! As long as you stay within favorable probabilities, it doesn't matter! 3 good trades a day is better than 30 mediocre ones. I know this sounds paradox coming from a scalper, but I recommend you first get some seriously good ratios happening for yourself, and as they increase, you can look into more opportunities. You simply can't start off doing 50 or 100 or 150 trades a day in the beginning - You first need to 101% understand the importance of R:R ratios and hit rate and their relationship, otherwise you 100% cannot trade (win).
95% of 'traders' think they can predict the market. They will always lose. The best thing is to assume with every trade you enter straight away that it's a loser. Don't even consider being "right". There is no chance in the world that you can be "right" other than by coincidence. There may only be a higher probability of one thing happening over another, couple that with a good R:R ratio, you cannot lose. Any other way, and you will - by necessity - lose. Remember, this is trading. It's not a winning game. It's a losing game from the very start.
Now, I will summarize my waffle about ratios here and get to a point: Your research:
Look at your charts, pick one market, 1 session (i.e. DAX first 2 hours), focus on it, analyze the chart by hand - several days, weeks. Put in limit orders for entries, and figure out what limits you're likely to get, and what exits you're likely to get, all of which you have to establish probabilities for. If you think you can trade the market purely "by feel", you're just fooling yourself. Sure, you can do that if you're watching the market for 3 years straight. But essentially, the "fast way" is to statistically quantify the excursions that your particular market does. Here are some guidelines:
What are the average retracements? In both Ticks and %, please. Average swings? Average bar width? Average volume? All this in Ticks and % relative. Don't just look at it. Mark it with lines on the chart, by hand. Do weeks of it, on 1, 5, 15 minute charts. I do this every day! Mark all your potential entries and exits - You will very quickly get a feel for what's oversold and overbought, what is "cheap", or "easy", and what is "dangerous", or "not worth it". Much of trading is about avoiding mistakes. If you avoid as many mistakes as you can learn about, you really increase your chances. And while you're doing this (hand-testing) exercise, you can open Excel on another monitor and type in every trade on your chart for the last 2 weeks - on the fly! Then crunch it! What's the results? What's your hit rate? Average winnner? Average loser? Can you tweak entries or exits a bit? Retest!
Keep doing this. I know it's hard work, but nothing comes from nothing. You can't succeed at trading without putting due diligence in, like in any job. It's a tough world, but it's the way it is. But if you accept this and put the work in, you can tear the candy from the baby's mouth, so to speak.
This, above, is IMHO the "complete manual to success". If you get the hand-testing and the ratios right, I see no reason even how you could fail.
As you get to understand all this, it will become second nature to you. And once this (edge trading) is second nature to you, you can move on to SCT, where you go beyond mere ratios, and do all kinds of things that may previously have seemed pretty strange to you, such as 'adding to losers', 'cost base averaging', 'wash trades', etc etc, the way Jack (Grob109) or Chris (AMT4SWA) do. But for now, you first need to understand edges and probability, or you'll go broke trying SCT. Edge trading is not about going with the market flow, like SCT. It's simply about exploiting market inefficiencies, and shaving small profit margins off those. But it's the base of understanding trading in the first place. If you don't understand them, you have them against you, and if you have them against you, you lose. Amen.
All this said, how can you consider market over limit orders? Myself, I use over 90% limit orders for entry. In fact, I would rather chase the bid/ask for 2 or 3 ticks with a limit order, than enter at market! You can at times enter market on ES, but using market orders on DAX is IMHO plain folly. But that's just MHO, I really don't listen to other traders (unless they're seriously good) and you needn't either, it's up to you. By the way, the opposite applies for exits: If I need to get out on DAX fast, I generally get out at market. Don't even consider stop-limits or nonsense like that, or you'll get slapped with a large trout sooner or later.
Warmest Regards,
Scientist
I explained this in the big post to Baruch. How can you "be weak" at the point of cutting losses, unless you're afraid to "be wrong"? As a root of this, how can you be afraid to "be wrong" unless you consciously or subconsciously believe you are or can be right, which is of course nonsense???
Destroy these beliefs. Unless you do, you will consistently lose money to those who understand this.
Here's a quote from Phantom of the Pits:
Rule #1 in Futures or Stock Trading: - Assume you are wrong until proven correct
This first rule of trading should become second nature in all of your trades. Once you have adapted this thinking into your trades, you will be ready for Rule Number Two.
In a losing game such as trading, we shall start against the majority and assume we are wrong until proven correct! Positions established must be reduced and removed until or unless the market proves the position correct!
Rule Number One serves to protect the trader from the unexpected. When a market does the unexpected, many traders on the familiar, or popular side of the market, can be shocked by a big move to the suprize side of the market. Many traders fail to understand what to do; and the many who do understand, fail to carry out the requirement.
Most traders will put on a trade, and estimate how much they can take out of the market. These trades are designed to lose, and, unfortunately, the majority of these traders don't know their losses were by their own hand.
Success is 90% Preparation - and neglecting Rule Number One is the same as neglecting to plan for bad luck. The risk of loss in Futures Trading is far higher than the risk of crashing in a plane, far higher than the risks you take in driving under the influence... and the risk of loss in Futures Trading in greater than the risks associated with smoking.
Being prepared for bad luck is a requirement in Futures Trading.
Rule Number Two - Press your winners correctly without exception
You chase a 1/2 point by using a limit order - and miss a 30 point move. Is that good trading?
When the Dax moves very fast, you just don't get a position, when you use limit orders.
Market orders? Well, do you get terrible fills? I don't think so. Most of the time the spread is 1 point.
When the Dax moves very fast, you just don't get a position, when you use limit orders.
Market orders? Well, do you get terrible fills? I don't think so. Most of the time the spread is 1 point.
No, you're right Baruch. Next time the DAX is making a 30-point move, enter immediately at market, and make sure you ride it for all of the 30 points.
No, because people don't want to pay your price. Which means you can't get in. Too bad. You just can't chase. More often than not, you will have a fast rebound after a fast move - If you enter that rebound, you can still get most of the move - Most probably at a better price than if you had chased - Plus: You don't get stopped out by the rebound (which occurs shortly after that fast move). The classic rebound comes most of the time - To punish those that chased the market to get in by eating their stops - and when the stops are gone, it will head on in the old direction.
That's what retracements are there for; To shake out the impatient and greedy people.
Join the punishers - not the punished.
Yes, other than when it isn't...
By the way - You may very often get a 1-pt spread when you trade a single contract, because there's always "a fool waiting to serve you" - But if you're trading more - forget it. Or how do you think you're gonna sell 8 contracts if there's 2 cars in the level below you, 3 cars below that, 1 car below that, and then maybe another two below that? You're immediately taking out 4 or 5 levels just to enter, more even for more contracts, so there you go. You think that's too thin to be true? Not once it's moving fast, and particularly not on DAX!
Never chase the market. Let it come to you, then strike.