Will this scalping strategy work?

ej420 · Feb 11, 2009

nugundam, what were you trading when you blew up.

IMO the scalping strategy described here, is not necessarily a recipe for disaster if position sizes are reasonable and a good money management scheme is used (martingale type buildup for example). It seems most appropriate to do it on indeces (SPY for example) where the extreme movements are somewhat bounded, and reversion to the mean is most pronounced. Currently there is enough volatility to make this work, imo.

nugundam · Feb 11, 2009

Quote from ej420:

nugundam, what were you trading when you blew up.

IMO the scalping strategy described here, is not necessarily a recipe for disaster if position sizes are reasonable and a good money management scheme is used (martingale type buildup for example). It seems most appropriate to do it on indeces (SPY for example) where the extreme movements are somewhat bounded, and reversion to the mean is most pronounced. Currently there is enough volatility to make this work, imo.

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Well, what i really meant was i lost about 2 months worth of profits in about 2 weeks. I got completely emotional in that i never expected moves of 10-20% on large caps on a daily basis and fell victim to my emotions. I almost gave up my trading career and felt extremely frustrated. I've since then made back my losses took me about 5 months (i had to trade much smaller to regain back my confidence in this strategy) now but realize the true concept that anything really can happen.

What Sep 08 taught me was that when a stock breaks new highs or lows you can never underestimate its magnitude. I saw large cap stocks move 3-10% in 5-10min upon breaking a new high or low, something unheard of in the years of my scalping strategy. The markets was so crazy it was irrational. How could one justify a 5% move in a large cap in the absence of any company specific news? In one sentence, i was too slow to adapt. Yet many people I knew were making their best months. They were trend trading and the best trends occurred during that time period. It was a very humbling experience.

ej420 · Feb 11, 2009

were you fully automated or manually trading a strategy? just curious.

Quote from nugundam:

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Well, what i really meant was i lost about 2 months worth of profits in about 2 weeks.....

nugundam · Feb 11, 2009

Quote from ej420:

were you fully automated or manually trading a strategy? just curious.

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Ok, you got me there. I'm still using a manual system (I suppose herein lies the problem). I'm not too much of a techie that would know how to even go about automating my strategy (ie Have 0 programing skills

. That being said, i still would not be able to articulate 100% exactly how I place my trades. Its based on a particular stock and how it reacts to the S&P futures or index in a particular day in a particular time frame. I also noticed using pivot points for quick scalps is very useful. Sometimes it will buck the trend temporarily, and sometimes it will have a direct correlation with the futures. I need to get a feel for what kind of day it is. That makes my trading ultra discretionary and dangerous. I can churn on average about 200 trades a day with vol. of 20-30k so it's not really rebate trading.

Sandybestdog · Feb 12, 2009

Quote from trendo:
What's your payout %? (You are anonymous and you haven't named the firm, so confidentiality shouldn't be an issue.) You take all the losses, but only get a portion of the profit. So far, I haven't seen your calculations reflect that.

I got a 70% payout and have to pay for the software. PM me if you want the firm name. I donât care about the payout is. Who cares if itâs 100%. Whatâs 100% of 0? All I cared about was the commissions. Unfortunately this strategy didnât work out. Iâll explain more in my next post.

Sandybestdog · Feb 12, 2009

Quote from nugundam:
Just wanted to say i've had the same idea and its been working for me consistently until i blew my account sep. 08 of last year. Check up on some of these links

http://www.elitetrader.com/vb/showthread.php?s=&postid=1555895#post1555895

http://www.elitetrader.com/vb/showthread.php?s=&postid=1815136#post1815136

http://tradermike.net/2004/05/trading_101_expectancy/

I read some of your posts and they literally are exactly how I was thinking. Itâs about a system. Itâs basically about throwing up a buy and sell order a few cents apart and hoping they both get filled. Try to get an extra penny or two from every trade and that really adds up. Rebates are a big part of it too. Like for instance, I started using a 4 cent stop. But what I would do is place a stop limit order. The stop price would be 5 cents and the limit would be 4. So not only would I get a penny out of it, but I would also get the rebate. Unfortunately this only worked about 50% of the time until it hit my hard stop at usually 7-8 cents.

I donât think last fall really affected my strategy too much. A 500 point down day is not nearly as crazy as it sounds. The Dow moves 500 points everyday. It just does it in 2 different directions as opposed to one, and a lot faster. I think where it hurts is the fact that its trending. I donât know exactly how you scalp, but it seems to me that for the most part scalping is a counter trend strategy. So during big moves, Iâd lose a lot. Then during the chop, Iâd make some money. In your case Iâm guessing you kept trying to buy the bottom and it just kept tanking. This will happen on an intraday basis as well.

Unfortunately my way of trading it, didnât work out. Iâll explain below.

Sandybestdog · Feb 15, 2009

Quote from ej420:
nugundam, what were you trading when you blew up.

IMO the scalping strategy described here, is not necessarily a recipe for disaster if position sizes are reasonable and a good money management scheme is used (martingale type buildup for example). It seems most appropriate to do it on indeces (SPY for example) where the extreme movements are somewhat bounded, and reversion to the mean is most pronounced. Currently there is enough volatility to make this work, imo.

Well Iâll just provide an update here. I consistently traded this strategy for about 2 months. I think I lost about $900 and paid about $700 in software, so that wiped out my deposit and I donât have any more money to put in. I will admit in my other trading endeavors I have never been profitable. I guess you could say that I broke all of the rules. Mostly I just let losses go on forever and cut my profits short. Also I got eaten up by commissions. That was actually most of the losses..

However with this account I was very disciplined. I rarely ever took more than a 10 cent loss. I always traded just 100 shares (95% of the time). Only one time did I ever get into trouble with a big loss that was stupid. Despite this I consistently lost.

My strategy went something like this. Qqqq is at 30. I place a buy at 29.90 and a short at 30.10. It goes up and fills me. I then put in a stop at 30.14 and limit at 30.06. My limit gets filled and I put in a buy at 29.95 and a sell at 30.15. It goes down and fills me at 95. I put in a 4 cent stop and limit. I get stopped out at 91. I put in a buy at 88. I get stopped out at 84. I put in a buy at 82. I get stopped out at 77. I put in a buy at 75 and get filled. I put in a stop at 71 and limit at 80. I get filled at 80. I put in a buy at 75 and get stopped out at 70. I put in a buy in a buy at 67 and get stopped out at 63. I put in a buy at 61. This time to make some back, I put in a stop at 50 and limit at. 70. I get filled at 70. I put in but at 65 and then the market runs away from and I donât get back in. I then wait for it to go up and start shorting it. Then the whole thing repeats itself on the upside.

I have tried this with at least 10 symbols including qqqq xlf uyg spy sso ewj iwm msft intc and rimm. I would say that it worked best on the higher priced stocks because they bounced around more. I usually routed to BATS and EDGA. I noticed that I got pretty good fills on msft and intc and would hardly ever get filled on xlf and ewj unless it traded through.

This strategy consistently lost, even with the 2 cent commissions and ecn rebates. Basically I am always in the market when itâs going against me and hardley in it on the way back. Again, I wasnât trying an indicator or chart patterns or anything to âpredict the future.â I have backtested that and havenât found anything that works consistently. What I was trying to do here was play an odds game. That if you buy the market on a downswing and sell it on an upswing and put a 4-10 cent stop and 4-10 cent limit, I would do slightly better than break even and also keep all the rebates. Unfortunately this didnât work out. I donât know if this strategy didnât work or if it was me implementing it that didnât . I was trying to automate a simple system like this, but wasnât able to get anything going until after the account went broke. Now that I have a simple scalping system to try out, I donât have any money. Iâll let you guys know if I ever try the automated approach. Thanks

intradaybill · Feb 15, 2009

Quote from Sandybestdog:

Well Iâll just provide an update here. I consistently traded this strategy for about 2 months. I think I lost about $900 and paid about $700 in software, so that wiped out my deposit and I donât have any more money to put in.

Can you explain how you day traded the Qs with a deposit of only $1,600. I'm just curious, I would like to do it too...

Sandybestdog · Feb 15, 2009

Quote from intradaybill:

Can you explain how you day traded the Qs with a deposit of only $1,600. I'm just curious, I would like to do it too...

My deposit was $2000. It's at a prop firm. They gave me such rediculously high buying power, I'm not even going to say how much it was. I usually only traded 100 shares at a time. The most margin I ever used was maybe 10k. There's no point in trading 1000 shares if you can't be profitable with 100. The commissions were per share, so size didn't matter.

intradaybill · Feb 16, 2009

Quote from Sandybestdog:

My deposit was $2000. It's at a prop firm. They gave me such rediculously high buying power, I'm not even going to say how much it was. I usually only traded 100 shares at a time. The most margin I ever used was maybe 10k. There's no point in trading 1000 shares if you can't be profitable with 100. The commissions were per share, so size didn't matter.

The principals of the prop firm probably took the opposite side of your trades and made your loss.

You should have known better...