Archive for April, 2010

Why Use the Scalping Style Trading

My average trade doesn’t last more than 15 minutes, and by then I have usually exited, hopefully with a profit. This style trading is a version of scalping. I thought I’d talk a little today about why I utilize this style of trading. For the record, I don’t hold any trades overnight, and when I go to bed all my money is in cash.

Predicting the market is a dicey business, at best. You need only look at the record of economists, mutual fund managers, and hedge fund managers to realize that long-term prediction of the market is not particularly accurate. There are many reasons for this, because of the large number of variables that effect the price of a given stock or index. Of course, some variables can be accounted for; like economic trends, cyclical developments, but there is a huge number of non-controllable variables that go into asset pricing. Uncontrollable variables like natural disasters, wars, and a host of unusual economic occurrences. My point is a simple one, long-term prediction of the market is not something you can readily rely upon.

So I don’t.

Short-term market prediction is a bit easier, especially when using some specialized oscillators, moving averages, and price action, and rate of change indicators. It is far easier to look ahead five minutes than it is five months. I also believe that there is a level of randomness in the market which makes long-term prediction even more difficult. The market is a fickle creature.

So I’m a scalper.

My goal is to carve out small gains in short-term trends and exit with a profit. Generally speaking, I do not try to trade against the trend, nor do I try to predict market tops or bottoms. Further, I use my indicators to ascertain when the market is engaged in normal backing and filling operations, commonly referred to as market noise. Some people trade market noise effectively, I don’t. I am primarily interested in market breakouts in breakdowns.

I seek to minimize risk.

By choosing to trade only in short-term trends, and is minimizing my losses through reasonably tight stop loss measures I am able to control drawdowns and any devastating trades. I am not averse to letting a trade run on the profit side, but refuse to move my stop loss down under any conditions. I never add contracts to a losing trade either. Once I’m in a winning trade and up two points (assuming I am trading the ES contract), I will move my stop loss up to a two tick gain and allow the trade to run. I never let a winning trade become a losing trade.

Another nice benefit of scalping is lack of emotional involvement in my trading. I never try to predict what the market is going to do, I simply react to it is doing. So I am not in the game of predicting market moves, I simply seek to take what the market offers.

As you can see, risk management is a goal of mine. I use strict money management techniques and then never risk more than 5-7% of my futures account balance on a single trade. I am into trading for the long run, which is nearly 25 years now,

I am just finishing up an affordable course on my scalping style, and think that it is a quality product that would benefit many traders. I wrote the core specifically for beginning traders, and intermediate traders who are not having the kind of results they expected when they began trading. In the near future, I will announce the opening of this offering.