Scalper's Forum

[trader111]

Scalping is a trading style specializing in taking profits on small price changes. It is very serious for a scalper to have a loosing day. If they have a loosing week they give up for the rest of month. A scalper’s equity curve lives in one day what a swing trader’s curve may live in half a year. So it’s about making money very consistently. This forum shall be dedicated to learning and honing skills in scalping.

Long back I started as a swing trader, and I used to think scalping as ‘scavenging’ ... lol. I have dedicated almost a year’s time twoward’s the end on my second day trading year. Yes, If you are a day trader, better hone your scalping skills. Learning to scalp has immensely helped me in day trading. We shall discuss these things gradually.

There is a slide presentation of about 50 slides I accidentally found on the internet. It brings out many truths and shatters some myths about intraday trading. Download from here:
http://www. 4shared /file/51182290/3c0eb86d/Day_Trading_ppt.html
(copy-paste link but remove spaces before hitting enter)

Some people may think about realastically how much money can be made out of scalping. After all, speculation, indicators and all the %return stuff sound nice. Practically:
1. Most of the great ones don't want to be public figures because they are most effective when they are operating silently. They don't need the ego stroke either.
2. Scalpers are not glamorous. How much can you write or publish on a scalper? I don't think their activities would generate much sales for the publisher.
In the market:
honesty Is power,
simplicity Is energy,
and innocence Is ability.

The main premises of scalping are:

1. Lessened exposure limits risk - A brief exposure to the market diminishes the probability of running into an adverse event.
2. Smaller moves are easier to ride - A bigger imbalance of supply and demand is needed to warrant bigger price changes.
3. It is easier for a contract to make a 50 paisa move than it is to make a 5 rupee move.
4. Smaller moves are more frequent than larger ones - Even during relatively dull markets there are many small movements that a scalper can exploit.
(copied this from investopedia)

[trader111]

To get started we shall use the market model of informed versus uninformed trades throughout this thread. To get an idea read here: http://www.traderji.com/technical-an...tml#post177462
Market Microstructure and VWAP analysis are'nt much within the reach of individuals because of lack of availability of quality data (http://www.traderji.com/end-day/2034...book-data.html). Neverthless keeping eyes on the developments in these fields will help us find answers to many important questions. I am presenting them in scratch form in simple english.

Market Microstructure
This field is concerned with how traders who can benefit from participating in the market, actually behaves in a given market environment, and how this behaviour leads to actual transactions. A part of it deals with how informed traders interact with so called uninformed traders.
1. What exactly is the type of trading activity that informed traders use to disguise their intentions?
2. How does changes in bid-ask spread and liquidity determines the amount of informed traders in the flow?
3. How fast the information revealed in the the activity of informed traders looses relevance?
4. How to identify (and quantify) the herding of uninformed traders?
5. How to identify (and quantify) the amount of noise traders into play?

Wikipedia link: http://en.wikipedia.org/wiki/Market_microstructure
Serious reading: Trading and Exchanges: Market Microstructure for Practitioners

Volume Weighted Average Price (VWAP)
In a range bound market,
1. How much volumes are involved near range top versus range bottom?
2. How much volumes are involved in upmove v/s down moves?
In a trending market,
1. How much volumes are involved at each pivot high/ pivot low?
2. How much volumes are involved in different phases of a trend?
VWAP in general helps to stick with the informed traders (I mean for a retail scalper against the sell-side of an hedge fund).

Wikipedia link: http://en.wikipedia.org/wiki/VWAP

[trader111]

Essentials For Beginners

Prequesites: Scalping requires a lot of patience and stamina, combined with absolute focus. Initally you may have as much as 6 loosing scalps in a row, and that would be very frustratig. One needs to stay on like a machine... adapting and executing without a grimace. Such intense focus is required that you will have to keep your mobile phone switched off; and if trading from home, ask family members to stay away from your room. Of course you may take planned breaks for lunch etc., but what I mean, be intensely focused when sitting on your desk.
You must have seen in Cricket Fielders with a reaction time of one third of a second. Such fast reaction time is required in scalping also. That cannot be achieved in a day, but we shall see a methodology to gradually train ourselves. There will not be any paper trading, even straight from first trade. Better trade with one share(minimum size). Paper trading actually strains our endeavour to build a fast reaction time.
As tools one requires a real time quote machine. Any lag will put you at extreme disadvantage (http://www.traderji.com/software/221...otes-odin.html). Choose a broker carefully... one which is immediately available if you have stuck orders.

Many beginners stay away from trying to learn scalping just because of the small profits that you have to workout for each and every trade. Professionals go in altogether different way by cosidering the risk to reward ratio.

So it's worthy to stay away from scalping, and try other forms of trading, if you can't afford the said psychological mind frame.

There is no such thing as a bad trader.
There is only a informed or a uninformed trader.

A scalper trades more number of shares in a day than an average person trades in entire life. Getting 75% + profitable trades is'nt something to boast about, it's a neccessity to stay in the game! (http://www.traderji.com/day-trading-...tml#post183057). This makes clear how leverage (margin trading) can be a very powerful tool for a scalper. It is'nt a big deal to double a 1 lakh Rs. account in six months for a scalper.

To summarize, I am not going to give you a 'formula' to double your money in a jiffy. This was to make a clear picture, and also why scalping should not be looked down as scavenging.

[trader111]

Getting Started!

Choosing an Exchange: Criteria should be commissions and order execution facilitation. Few I can comment upon are BSE, NSE, MCX, NCDEX, LSE, NYSE, NASDAQ, and AMEX. Out of theese NASDAQ comes first and BSE comes last. In domestic exchanges I have an idea u get good commission bargains for MCX. Also good liquidity. For NSE 6 paisa to cover for a 100 re. stock for a scalp I don't think is a big deal. Not at all for some trading intraday like Tape and using it as a secondary strategy. Also worthy for someone who wants to learn it before moving to get a direct bargain with a broker or getting sub-brokership.

Choose a broker always with care because it may happen that u r in with big size and ur system crashes... u should have a reliable exit route.

Choosing a Ticker: I have tried to show how stocks can be more profitable than NF and how gold can be less profitable than zinc or jeera.

Before trying to scalp always remember that there is no difference in slippage and bad trade. For longer time frames when profit margin is larger there can be excuse for slippage... but strictly none for scalpers.

Transaction Costs:
Many beginners believe that brokerage is the most important part of transaction cost, and also that it is deciding factor in profitability for scalpers. Retail pro scalpers understand that it can be the least important factor.

Explicit Transaction costs: comprise the brokerage fees that traders pay to trade, payments to the exchange, commissions paid by traders to brokers, stamp duties, registration fees, and capital gains taxes. Aside from some fixed costs explicit trading costs are usually proportional to the size of the trade involved.

Implicit Transaction costs: are intangible costs that traders pay when they trade. These include the price impact of trades, also called the impact cost, and the bid-ask spread. While costs rise with the size of trades, they’re non-proportional to operating size. They rise for less liquid tickers.

Missed Opportunities costs: These include all exogenous factors to the system. For eg., out of emotions a trader may not be able to act right for a second, and end up executing at higher price. Another eg. is there may be sudden latency in your connectivity and quotes are lagging.

Four Factors Most Important

1. Risk Factor (RF): This is the worst case slippage a ticker can give you. This depends from the ticker's trading activity from past few hours. From a 1 minute chart it is easy to get an idea of RF by observing the average length of large-range bars. Always keep in mind the lesser volumes in a ticker means larger RF.

2. FLOW: Even on the 1 minute time frame, Saint's method for identifying flow hold good. We require to look for lower pivot highs for a downtrend eg. BHEL chart. Always remember that a range bound ticker is good for scalpers. A congestion zone may be the toughest scenario to trade.

3. REFRESHER: I have picked the word from NASDAQ scalpers from whom I initially learned. A 'Refresher' is an agressive and heavy buyer/seller in the order book. If it comes on the offer size, he won't put up his real size at once... but you know his presence even when offer is taken of and he jumps in again. A Refresher predetermines a price where he wants to sell his stock... that is why he won't let the stock move up. If the stock does not has enough buying pressure he will turn into a momentum seller. The most important part here is that if u see a selling Refresher you sell as well. IF the refresher gets done... all of his stock is taken off... you should exit as fast as u can. I have explained for selling refresher but vice versa holds for buying Refresher.

You can see the Refresher on chart as well but it is better to train oneself to see it in the order book. This may require more than a month but it is important bcos remember that a chart will be slow for high volatile stocks.

If you wish to scalp NF or sensex heavy weights than the Refresher thing does not matter for you.

4. Levels: For levels again you can refer to Saint's methods for support/ressistance. They are pretty powerful. We will just give a new name to them : buying and selling levels. This matters more for scalpers as we will later see through live charts.

[trader111]

The Strategy:

I am sharing here a method by which I learned scalping. I have discussed it with many pro scalpers and it works well for most people.


1. Trade with 1 share at a time or the minimum size until you seemingly become profitable. Don't think about paper trading, even when starting, trade with real money.

2. The moment you take a position assume that you are wrong, unless the market proves you right. This means the moment you buy, your sell window must be popped up with the size and price you want to exit. If the stock moves towards the exit you simply press sell button. If however, the stock moves towards your target price exit by placing the offer. I have illustrated for buying but vice versa for going short.

3. Practice exiting trades at no-loss: using a 1-2*RF target. Always remember you should not take a position when you can't expect that movement. For that you need two stops: 1/3*RF soft stop (mental stop) and a one RF hard stop. Never allow the market hit your hard stop. Exit by moving your target toward your hard stop, not by moving your hard stop towards your target. With time, all of this must become a reflex. You won’t always be able to keep your losses down to soft stop, but only on rare occasions should you find yourself letting the market hit your hard stop. (”Rarely” means only about once every 50-100 trades after you get the hang of it.)
Even though your entries won’t be good enough in the beginning to make a profit trading these tight soft stops, your entries will gradually improve until you turn the corner and become profitable.
Learn exits and entries separately. Don’t let the one influence the other.
Taking losses this way takes dedication and discipline, so stick with it. It’s the key to confident trading. If you never take large losses (and rarely medium size ones), the fear of loss pretty much goes away, and your confidence grows. Especially after your entries improve enough to support a “scalping” type exit strategy.

4. Every trade in all market conditions begins as a scalp. Let me clarify this: if you’re in a choppy market and you’re looking to get small gains, like a point or so, manage your initial hard and soft stops exactly the same way you would in a quick trend or any other type of market. That means keeping losses as close to 1/3*RF as possible, taking lots of break even trades and exiting every time the market doesn’t give you instant gratification (within a minute or so).
No matter what the market is doing, you must demand that it moves in your favor right after you enter, otherwise you get out as close to break even as possible. This means you’ll be closing a lot of trades near break-even within the first minute. This is the foundation of learning to trade for consistent gains.

5. Don’t worry about the commissions on no-loss trades. If you do, you’ll hold on to losing positions, begging them to turn around for you. This is called *hoping.* In this business, this type of *hoping* is the kiss of death. Your money-making trades must move your way in the first minute or less. When trades don’t act right in the first minute, most of them will hit your hard stops.
So don’t get hung up on the fact that your broker loves you. Who cares if he/she makes a living?
Your concern is limiting losses. I care more about this than anything else in trading. (Well-timed entries make my tight soft stops possible, so they’re almost as important as the exits.)

6. Practice your entries until your timing is so good that you can reasonably expect the market to go your way immediately, before it goes more than 2 ticks against you. This is not easy at first, but if you stick with it, you’ll get it.

7. Rarely, if ever, chase the price for your entries. Wait for a pullback to get onboard a trend.
Chasing is among the most serious sins newbies make. It’s interesting to note that most (not all) professional traders I’ve met are Bears and prefer short positions over longs. Risk/reward mechanics differ in long versus short. Learn to turn the difference to your advantage.

8. Never let a gain turn into a loss. This will mean getting out of most trades a little (or a lot) too soon. You just have to live with it. Swing for home runs (greed) will ruin your trading. Do not search for a mechanical formula , (such as, “move your stop to break even after you get 3 ticks gain”) that will work. You have to develop a feel for how the market is acting at the moment, and use your feel to reduce your target or advance your hard stop. This comes with experience.

[sanx]

Will be watching this thread , you guys could add , tools and aids along will be appreciated . Nice initiative .

[prabhjeetrana]

Looks like we have to practice some cowboy stunts for the reflexes required in scalping.

Would be still watching how trader111 takes this thread forward

[uasish]

Looking Forward to Learn.

[NILKANTH KORANNE]

Originally Posted by trader111

[plz ignore]
shall fill in later so that all info is availabe on one page.

Dear "trader111"
eagarly waiting details on this subject.

[skarpio]

Originally Posted by trader111

[...] This makes clear how leverage (margin trading) can be a very powerful tool for a scalper. It is'nt a big deal to double a 1 lakh Rs. account in six months for a scalper.

I daytrade. Uninformed. Still trying to learn. So, I read and try to do my maths. I figured out sometime back that I can make more money, reliably, trading Call options (yeah, naked options and all, I know, I know) for say IFCI than I typically would with IFCI in cash. I had my own reasons:
[1] my broker charges me an arm and a leg
[2] trading is not yet my primary occupation; I have a day job which I quite like, and which makes it impossible for me to stay tuned to the screen for the entire duration, so need to get out without much reaction time.
[3] I also figured out that if you factor in position addition when a range is observable, you can make it really big. But then these were mostly back of the envelope calculations, so looking forward to learn more.

Of course, didn't know the pro's are in big time into this Thank you!

[If you or anyone feels I am spamming this thread, send me a pm, I'll take this post-off.]