Posts tagged ‘scalping’

What is the Market Going to do Today?

By , 3 December, 2010, No Comment

I am invariably asked this question as I begin each day in the trading room.  Will the market go up?  Will the market go down?  There is a gap up…does that mean the market is going to fill the gap immediately or maybe wait until later in the day?  I almost always disappoint the individual asking the question by answering, “I really don’t know.”

Even worse, I really do not know.

Predicting which direction the market will move can be one of the most embarrassing propositions for any trader to undertake.  Of course, you have at least a 50% chance of being right, which is some consolation. Generally speaking, though, I don’t have the slightest idea which way the market will move, and many find this disturbing.  As a trader, many think you ought to have some general idea as to which direction will move.  But I am a scalper, and I don’t concern myself with predicting which way the market will move.

I am looking to catch areas of momentum and ride that momentum until it subsides.  Instead of knowing which way the market is going to move, I am simply hitchhiking a ride as the market moves in one direction or the other. I am quite comfortable reacting to the market as oppose to predicting what the market might do.

Scalpers use a number of techniques to identify areas of potential momentum.  First and foremost, most useful information is contained in the actual price action in the market.  Oddly enough, price movement is often ignored in favor of a variety of oscillators, rate of change indicators and a number of exotic charting systems.  I am not interested in many of the popular predictive systems like Elliot Wave analysis, Gann Lines, or systems of a similar ilk, but I want to make sure I point out that my opinion does not imply these systems do not work.  My point is a simple one, these systems do not work for me and I do not use them.

No, I am far more interesting in support and resistance, trend lines and momentum.  I have an important maxim: Trade primarily with the trend. I allow myself one countertrend trade per day, and that is usually one too many; but there are many very enticing set ups that occur countertrend and learning to lay off these trades is a challenging job.  Most traders find that countertrend trading is an unprofitable method in which to trade.  Further, the empirical scientific evidence bears out one indisputable fact; trading against the trend is far less profitable than trading with the trend.  For a scalper, trading with the trend the majority of the time is imperative.

I also employ, in varying degrees, forms of Fibonacci analysis.  I have never been convinced that the underlying principle of Fibonacci is valid; that is, the market moves in natural cycles that can be predicted using the Fibonacci sequence.  One thing I know for sure is that enough people trade using Fibonacci analysis that the system works.  Whether Fibonacci works because so many people use it or it is intrinsically valid is of little consequence to me; I don’t care why it works, I only care that it does work and therefore employ some tenets of the system in my trading.

In summary, I am a scalper and I am interested in momentum in the direction of the trend.  I don’t use predictive trading systems; I rely upon price action, support and resistance, trend lines, and some limited use of Fibonacci analysis.  I keep it simple and try not to overload my methodology with extraneous charts and unnecessary information.  Scalping is not for everyone, but it is a very effective method in which to trade.

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How to Scalp the ES Emini: A Day Traders Delight

By , 12 January, 2010, No Comment

There are a variety of day trading styles that traders employ, some with great success, others with less than satisfactory results.  My style of day trading, scalping, is a direct reflection of my personality, experience and emotional disposition. ES Emini day traders who scalp typically stay in trades for five minutes or less, or longer, if need be.

My views on the way the market functions precludes me from making long term commitments to a given market direction.   Market prognostication is an inexact science, at best, and most economists and day traders have a miserable track record of predicting the future direction of market movement.  So, I don’t even try.  I suspect I would be as poor at predicting futures market direction as the experts.

As a adherent to portions of chaos theory, I believe there is a level of randomness to the market, which makes it less than predictable in the long term.  I do believe that certain means can be employed, and probabilities analyzed, that will allow a day trader to get an idea of what the market may do in the next ten minutes, though.  Chaos theory is about small patterns, called fractals, that exist in a far larger random pattern.  I take advantage of those smaller patterns and try to pull two or three points (on both the long or short side of a position), and then exit with my small prize.  Of course, if I find myself in a continuing trend, I may push my profit limits higher to take advantage of the trend.   By and large, though, I am looking for two or three points.

A casual glance at any intraday chart will show an undulating wave pattern that is the basis for scalping.  I try to identify the starting point of a wave and exit the trade when the little spurt of momentum stops.  Of course, there are days when the market trends in one direction, not often, and on those days I may take a position and hold until my comfort level erodes and I am ready to take a profit.

When you are in a winning day trade, you never lose money by exiting the trade.  Sure, maybe the trade angled upwards another two points and you did not participate in that price action, but I am still content with my three points.

Never let a winning trade become a losing trade.  Take that to the bank because it is a common mistake by a legion of traders.

On the ES Emini contact I set my stops fairly tight, usually a 12 tick bracket and never adjust my stop lower to accommodate a lousy trade.  If I am wrong, I am wrong.  My goal is to find another trade that is profitable.

I don’t hold trades overnight, and I don’t set up trades and walk away.  The scalping style requires constant attention to the day trade at hand, and this requirement makes it an unpopular choice for traders who don’t care to spend a lot of time at the computer.  You will be spending time watching charts looking for trades, and once you are in a trade it is important to monitor the trade.

In baseball terms, scalpers are singles hitters.  Nothing more.   We may hit an occasional home run, but the is the exception, not the rule.  The goal of a scalper is to extra small chunks 5-8 times a day from the market.

ES Emini: Pivot and Fed Announcements, Commentary.

By , 8 November, 2009, No Comment
ESZ9
For 11/09/2009
How To Use
Symbol R1 R2 Pivot S1 S2
ESZ9 1072.67 1079.08 1063.08 1056.67 1047.08

Fed and Agency Announcements

Monday’s Pivot info is above.
Not a whole lot relevant of day trading info on Monday, with the exception of some bill and note auctions.  All sorts of chatter on the ES Emini day trading chat boards, the doom and gloom crowd is out in force, and with good reason, though there is an infinite realm of political and economic possibilities.  I can’t say I fully understand the market of late, and I am thankful I am a scalper so I don’t have to try to pick the market direction.  I have not the slightest idea which way we are headed.
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