What kind of techniques do heavy scalpers use?

Quote from steenbab:

All that having been said, I'd like to caution about becoming *too* focused on high frequency data, such as DOM. Even the best scalpers, such as the one I wrote about, have a very small edge that they replicate with frequency. If you take away their favorable commissions at member firms, that edge goes away. IMO, it is not reasonable to expect that a trader paying retail commissions could trade with such frequency. The house is just taking too much vig to make that feasible.

So what I like to do is aggregate the data regarding how large traders are trading (at bid vs. offer) to get a longer-term (but still intraday) picture of how the market is trading. When you see a shift in sentiment among the large traders (more hitting of bids or lifting of offers), a short-term trend is often brewing.

Hope this is helpful. Thanks for the excellent forum.

Brett [/B]
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That's exactly why I became interested in scalpers like hero of your article. To better understand what such players do and apply this knowledge to my own intraday swing trading.

Doing what they do is definately not for me, I am not very fast in all aspects of my life. :)
 
Hi Abel,

The specific studies I've made have simply looked at every single trade in the ES futures market in a given day and how these are distributed with respect to their size. What we find is that large trades (certainly those of 50 contracts or more) represent a small percentage of total trades executed during the day, but a significant portion of the total day's volume.

Other studies I've conducted have been simple correlations between the current period's volume and the size of its high-low price range, with time frames ranging from 1 min to 1 day and 1 week. Volume correlates very highly with volatility. The reason for this is that large traders contribute a disproportiate share of total volume and, by their actions, create market moves.

I've also looked at serial correlation in volatility/volume: high volume/volatility periods tend to be followed by further high volume/volatility and vice versa.

I don't really have charts and setups with these relationships. Rather, I use volume data to tell me when large market participants are more active than usual, and I use the distribution of their volume (at the bid vs. offer) to tell me which way they're leaning. I also look at the current period's volume relative to the average volume for that time of day and use that to help me estimate upcoming volatility. Very helpful in placing stops and price targets.

I'll see if I can put something in visual form for a future blog posting. Thanks for the idea--

Brett
 
Quote from CFerret:

After reading the following article:

http://traderfeed.blogspot.com/2007/04/marc-greenspoon-visit-with-world-class.html

I got curious, how do guys like him trade 50-100 or even more RT's a day?

I mean their setups should be really simple and not require much analysis and at the same time have an edge (or they wouldn't trade like that, right?).

So my question is to people who are aware or maybe use such techniques: what's it like? Is such high frequency scalping mostly charts based, DOM based, T&S based or what?

I've read several threads about index future scalping using DOM, but didn't see examples of real setups that appear every couple of minutes.

Of course I don't ask anyone to disclose their edge, but maybe someone can show examples of setups (maybe older ones, which don't have much of an edge anymore) which are used for such heavy scalping just to know what this kind of trading is like?

Best wishes
Janis
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CFerret,

You and I corresponded thru several PM's....almost a year ago. Contact me again....and I will give you a Free look at how I Scalp....in Real Time. You said you understand English better when typed....rather than voice....so we can talk thru Skype chat. I believe I gave you my Skype name....check thru the PM's....if you cannot find it....PM me again.

I cannot give you a lot of time in my room....but you will be able to see how fast I trade....and see whether I win or lose. Scalping this way is not for everyone....but a trader can do well....providing they are Disciplined....and Follow some Rules for Entering and Exiting the trade.

I would recommend getting a NinjaTrader Simulator....practicing on a 1 or 2 tick Scalp. A couple of things about NinjaTrader Simulator....you usually get 2 tick Slippage....yet....when trading with Real Money....you usually get 1 tick....or no slippage at all. Also....on the Ninja Sim....you are put in the Queue....you Do Not automatically go to the front of the line....or get the best price. It is all about Timing the trade.

Yes....set-ups should be simple. If you Over Analyze....when Scalping Fast....you are almost guaranteed to Lose. You need to React to what you see on the Chart and/or the Dome.

I believe you read my original thread....Scalping_My Way with ACV. The first two posts were about the ACV and T & S. I have stopped using T & S....as a separate window....as I can see the Sales....on the Dome....at either the Inside Bid or Inside Ask. I am more interested in the Sales than the Time. I already know the Time.

You mentioned “real setups that appear every couple of minutes”. The way I Scalp....Real Set-ups occur in Seconds. Sometimes you can have 2 or more Set-ups....in less than One Minute.

In several of my post....in different threads....I have shown examples of Set-ups.

Good trading to you.

VSTscalper
 
Quote from steenbab:

Hi,

Since I wrote the initial article, maybe I can contribute a bit of perspective while still maintaining the proprietary information and strategies employed by the very short-term traders I've worked with.

Volume is key. That includes shifts of volume in DOM for some traders, but also includes trades in size that are actually executed and *where* they're predominantly executed: at the bid or at the offer.

In a study of ES volume a while back, I found that the 3% of largest trades accounted for more than 50% of total volume and that total volume was very well correlated with market volatility. Knowing what those large traders are doing is key to determining both trend direction and likelihood of moves continuing vs. reversing.

Brett
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Brett,

I agree with the comment on Volume....and with your study.

A trader needs to be careful when using the ACV_Dome....as there are Limit orders Added and Pulled....all the time....from the Bid_Ask levels.

I watched the Dome for quite awile....before I ever used the infomation I was seeing. The part I couldn't understand at first....was....Why would the Price go down....when the Bid was larger than the Ask....and visa versa. After awhile....I decided....it didn't matter....just use the information. Many traders get hung up on the Why....just like I did....but in the end....if it works....then the Why....doesn't really matter to me.

VSTscalper
 
Next week....April 12th....3:30 Central time....after the market closes....I will be doing a Webinar for a Broker out of Chicago. The subject will be Scalping.

If anyone is interested in attending....just PM me....I will tell you where to Register. This Webinar is Free.

Maybe this will provide an insight on Fast Scalping....at least how I do it. Due to time limitations....I can't go into much detail....but at least....you will get an idea of how it is done. There will be Questions and Answers after I finish with the presentation.

While I Scalp....on a high frequency....other Scalpers may Scalp....at a much Slower pace. I consider Scalping in Seconds....while others think in Minutes. Whatever feels comfortable for the individual trader....then that is what he_she should do.

While I prefer Scalping....I also do Trend trades....if I am convinced it is worthwhile. If the Trend....is Smooth....good ACV numbers....I will Ride the Trend. If the Trend is Choppy....I will just stay in Scalping mode. The key is knowing when to Trend trade and when to Scalp. A trader needs to Adjust to whatever the Market offers.

VSTscalper
 
Excellent point, VSTscalper. A great deal of the orders you see in the book never actually becomes transacted as actual volume. That pulling of bids and offers from the book makes it difficult to rely solely on a DOM display for trade ideas. It's what actually transacts--and where those transactions occur vis a vis the bid-ask matrix--that tells you the cards that others are holding at the table, so to speak. With an increasing automated, algorithmic trade close to the market, the opportunities for most traders IMO are not in true scalping. It's tough to control losses to a tick or two when the big programs can sweep several ticks at a time, and the commission overhead on such frequent trading really builds up. I personally would be hesitant to recommend that form of trading to a new trader at this point in time. Just a few years ago, I might have felt differently. It's gotten awfully crowded in that fight for the next couple of ticks!

Brett
 
Quote from steenbab:

Excellent point, VSTscalper. A great deal of the orders you see in the book never actually becomes transacted as actual volume. That pulling of bids and offers from the book makes it difficult to rely solely on a DOM display for trade ideas. It's what actually transacts--and where those transactions occur vis a vis the bid-ask matrix--that tells you the cards that others are holding at the table, so to speak. With an increasing automated, algorithmic trade close to the market, the opportunities for most traders IMO are not in true scalping. It's tough to control losses to a tick or two when the big programs can sweep several ticks at a time, and the commission overhead on such frequent trading really builds up. I personally would be hesitant to recommend that form of trading to a new trader at this point in time. Just a few years ago, I might have felt differently. It's gotten awfully crowded in that fight for the next couple of ticks!

Brett
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You need to take a look at some videos of the four games played on the DOM.

Also the other side of the coin that you are looking at is what is important..

Third there is a terrific telegraphing set of indicators that tell you how and when to look at the other side of that coin.

Lo and Repin drew some fine conclusions as to why therapy is suggested for traders that are in the loop you describe.

For high velocity traders, on the other hand, they use the first appearances of the tinges of your lopp as a prima facia that they need to promptly get back to what is a valid trading construct psychologically speaking.

That is going to be some outing on the 12th. I wonder if Denise Shull will be there......
 
Hi Jack,

Great suggestion re: studying the "games" played on the DOM screen. There are patterns worth noting for high frequency traders, but that trade has gotten increasingly challenging due to the way the computers (trading their algorithms) enter orders.

One clarification. I conducted some of the research with Andrew Lo and Dmitry Repin at MIT and do not believe that they recommend therapy for dealing with the emotional challenges of trading faced by newbies. Indeed, there are sound psychological reasons for questioning the value of verbal therapies for aiding rapid, automatized performance skills. If you examine most similar performance domains, from the training of fighter pilots to the development of SWAT teams and Olympic athletes, you'll find that structured performance exercises--not "therapy"--are typically employed to reduce stress, build familiarity, and enhance performance.

I'm a psychologist as well as a trader; I respect the many areas in which therapy can help traders. Enhancing high speed performance, on balance, is not one of them.

Here, BTW, is one of the MIT papers:

http://web.mit.edu/alo/www/Papers/lorepsteen4.pdf

Thanks for the stimulating post--

Brett
 
thanks for posting actual research, dr.

there is simply too many old wives tales, psycho babble and unsubstaniated claims when it comes to trading psychology/

my question is, can the same conclusions reached by andrew lo, et al be applied to casino gamblers--- and if so/if not WHY?

regards,
surf
 
Hi Market Surfer,

It's a great question, and I suspect the answer has a lot to do with the nature of the casino activity: how much skill vs. luck is involved. Poker is perhaps the closest gambling activity to trading. There, you have a combination of the objective and the subjective: the odds being in/not in your favor and also the discretionary judgment re: when to go/not go with the odds. What Lo and Repin found was that emotion is central to that discretionary judgment (see also the "somatic marker" research of Damasio), particularly for newer vs. more experienced traders. My own (very limited!) experience in this area is that the ability to sustain concentration/attention/frontal activation during stressful performance situations is common to expert performers not only in trading, but in those other fields such as poker and military Special Forces. That ability to sustain concentration "under fire" can be taught as part of training regimens, but I don't think it will result from traditional therapies. Biofeedback in realistic simulation contexts might be more promising.

Brett
 
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