If you’ve watched any of my YouTube content you’ll know I am a scalper. Usually the treasuries, sometimes equities. Swing trading has no appeal to myself. You will often hear though that scalping is dead. No one can make good long term results scalping. Nay I say, nay.
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HFT’s – The Main Claim Against Scalping
The internet is great at giving people mis information. You may well rea that scalping is no longer possible. The typical reason for this is usually stated as the proliferation of High Frequency Traders (HFT) who supposedly make scalping impossible. Their fast paced algos just can not be beat.
The reality is that algos and HFT’s have not killed scalping at all. It’s been years since HFT’s entered the scene and scalping is still very viable. They probably have hurt the situation but not killed scalping at all. If anything, I would possibly argue they scared off lassiez-faire scalpers
Many traders who claim to use scalping or flow trading are trying to jump on board where they see the bigger traders. See a big block limit order, try to scalp. The problem is many HFT also examine the larger trades and try to jump in on the action. You can see why HFT can take edge away from manual scalpers like myself. A HFT will be quicker than manual traders and with much lower commissions. They can take more stabs and not worry about commissions eating in to profit.
Some Scalpers Aren’t Actually Scalpers
Some traders who claim to be scalpers or flow traders actually use technical levels or other price levels which for whatever reason they believe to hold some predictive powers. Sorry, that isn’t scalping. Like at all. That is pure technical analysis. Just because you take short term trades does not make you a scalper. In my opinion the profitability for this type of trading is closer to 50/50, too close to 50/50 in fact again because commissions will eat you alive. So I’m not surprised that short term technical traders will blame HFT’s for their lack of ability to make profits.
The HFT’s Are Your Friend?
Okay maybe not your friend. But they aren’t instant death to scalping. Depending on the product you trade, it can be pretty obvious what the HFT’s are doing. On any given day watching the treasuries, lets use the 30 Year Bond (ZB) as an example, I will see a flurry of limit orders added and removed at prices surrounding the current price level. These aren’t point and click traders moving hundreds of contracts. They are simply HFT’s, computers, trying to get the jump on the action. When it doesn’t immediately move how they expect, orders pulled.
Watching this though, you can get a sense of what the HFT’s are doing and where they are expecting action to go. Or where they are trying to push the market. You can easily spot spoof HFT orders. When a big abnormal bid pops up to try and push the market higher, then disappears in a second, that isn’t the CFT here, it’s an algo. So when that big order reappears acting as “support” to the bid, it’s not real. Know this and act accordingly.
So What Is Scalping?
What I would call real scalping involves picking off small opportunities, getting good entries, taking a few ticks, and moving onto the next trade. You won’t see a technical analysis indicator, a chart, a signal at all on my desktop.
It is also important to understand why we are trading, who we are trading against and where we get edge. I also advocate specializing in either one instrument, or at least one class of instruments. Trading the treasuries is night and day to trading equities. You have to embrace the skills needed. These are the foundations for the scalping techniques and must be the foundations for any short term traders.
Conclusion
So real scalping isn’t dead but the imitations may well be.
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Risk Disclosure:
Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.
Hypothetical Performance Disclosure:
Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.
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