Jump to content
jeremyjohnolson

The "Scalp" Strategy

Recommended Posts

I am thinking of adding a new strategy to my play book.  I tried it in sim today and it worked very well.  I will continue testing it out in sim for several sample sets of 20 each before I actually try it live to be sure it is working (or prove it doesn't).  Please leave any and all comments, shoot holes in it, or let me know if you think it's a good idea, or could use some tweaking, etc...

I have noticed that nearly all trades I take from my play book will be in the green at least at some point, even if only for a small moment, even the ones that never fully hit even my first profit target and eventually end up stopping me out completely.  So the idea I have is to take the same trade I would normally take from my play book, like the 1 min ORB or 5 min ORB for example, but then to take a much larger position size then would otherwise be justified based on good risk management and a normal technical stop loss level and then only hold the trade for a very small movement in my favor instead of holding out for the full move.

The idea is that a normal trade setup from my play book which has at least a 2:1 risk to reward (RR) might only have a 50-60% likelihood of success, because I am waiting for a relatively larger move.  Whereas, if I take a quick scalp, in the same direction of the trade from my play book, but only for a very small initial part of the move instead of holding out for the full 2:1 RR move, then I can take a much large share size and be able to justify a much less favorable R:R because I will be able to get a much higher win rate, like around 85-90% or better.  For example, I can let the trade go against me by $100 before it turns back around, and I take a quick $80-$90 profit when it pops up (or drops down if short) even if only for just a short little moment.  Even though this R:R is terrible, the win rate should be high enough to still make it an overall winning strategy.  Potentially I can make the same amount, or better, in a shorter time frame on a relatively small move due to the larger position being taken coupled with the higher win rate.

So to sum it up, I am calling this strategy the “Scalp” (I know, not very original) and these are the basics of it:

Take a big position for a small (but highly probable, 85-90% win rate) move.  Be less concerned about risk to reward (RR) and more with probability of success (win rate).

Must have reason for believing stock will move in a certain direction.  Examples of reasons can be:
- Based on a set up in my trade book
- Stock called out in the trading room
- Stock is ranging (buy long at bottom of range or short at top of range)
- Stock is trending (buy long at bottom of trending range or sell short at top of trending range)
- There is a large bid or ask (if large bid, sell short above the large bid.  If large ask, buy long below the large ask)

Edited by jeremyjohnolson

Share this post


Link to post
Share on other sites

Hi Jeremy, in my opinion your entry should be very precise and I found if you enter on the wicks this strategy is lucrative but also this style is dangerous. Perfecting price action, local structure and L2 are the most important for the success of this strategy.  I mean the better the entry the better the outcome. You must be able to stomach the stock to go against you for a short time and a larger drown-down as you are entering with bigger position size. Basically you are looking for a quick move with conviction, if not happening you bail. Also look for stocks with bigger ATR and they have to be in play and move quickly. Position sizing is something I found super critical and have to be carefully considered based on your account size and buying power. If you are adding on these plays, your risk increases and you can easily blow your account if you don't calculate in advance the maximum shares you can take.  Certainly there are money in these scalps but I am still digging to find out what works for me.

The range plays work and I play them on SPY as SPY is ranging often. 

Edited by Angela Kuzeva

Share this post


Link to post
Share on other sites
Posted (edited)

Hi Jeremy

I think certain risk reward ratio for a strategy only makes sense when taking win rate into consideration. I think your strategy works at a higher win rate. 

The video below explains it well I think.

however the difference between a higher R/R strategy and a lower one would be how capital is utilized. You might need a much bigger BP when playing lower R/R strategy to get the same profit. Commission percentage would be higher as well. So I think as long as that capital is not an issue, the strategy should work out well. 

Edited by Jiheng Sang

Share this post


Link to post
Share on other sites

A key to this will also be keeping stops really tight. You need almost instant resolution to remain in the trade, as is the case with scalps. Once a trade starts tickling around break even it becomes a coin flip and it's really not worth waiting around to see what happens. Holding a large size, the second you see your p/l dip into the red you'll need to cut the trade to protect against a sudden flush.

However, I do agree with you on the principle of banking profits! I'm just starting out still, trading small size (so like 50 share positions, aiming at $15 profit per trade). I've started to bank profits earlier, having seen so many trades push into the green only to fall back.

Share this post


Link to post
Share on other sites
On 12/28/2020 at 6:49 PM, jeremyjohnolson said:

I have noticed that nearly all trades I take from my play book will be in the green at least at some point, even if only for a small moment, even the ones that never fully hit even my first profit target and eventually end up stopping me out completely

this is, i believe wrong thinking as you are trying to play the 50/50 chance of the price action oscillation of movement either up or down. that is not how you shall trade and i believe you cannot do profit on that too, otherwise all the computers would trade this way. You need to look for a real pattern with real probability of win.

what you mentioned is just too weak data

- Stock called out in the trading room
market does not care, if it is called in the room you should expect moves rather than range

- Stock is ranging (buy long at bottom of range or short at top of range)
still can break down or up from the range, most of the ppl try to avoid to take a trade when the stock is in the range as the break up or break down chance is 50/50 so basically it would mean that you would take any random trade as the range can be zoomed out on higher time frames and yu will see it there


- Stock is trending (buy long at bottom of trending range or sell short at top of trending range)
there are more variables than these, and the problem is the range as it is not an exact definition but only a price action over specific time. what looks like to be a range on 30sec chart can be a single trending candle on 5min chart

- There is a large bid or ask (if large bid, sell short above the large bid.  If large ask, buy long below the large ask)
this is insane, if the bid is overcome it can continue in that direction. also impossible to evaluate after you stopped trading to see if your trade fulfilled this condition so this is not a good condition/reason to go against obvious trend.

 

anyway that is only my opinion and while being skeptical i am also curious to see your results after 100-200 trades taken. please share them

  • Like 1

Share this post


Link to post
Share on other sites
Posted (edited)
5 hours ago, peterB said:

this is, i believe wrong thinking as you are trying to play the 50/50 chance of the price action oscillation of movement either up or down. that is not how you shall trade and i believe you cannot do profit on that too, otherwise all the computers would trade this way. You need to look for a real pattern with real probability of win.

Hi Peter,

I would agree on this point if the selection of his setups is random. However one key difference for Jeremy is that the setup has to be in his playbook. For instance, instead of waiting for 2R before taking pa partial, he takes early partials to lock in profit. Probably not the best trade management but entry and stop loss qualification should remain the same. 

For my self, my performance has been consistent for the last 2 months but I always feel that I am scalping. That is why I want to work on my trade management. I am not good at statistics and have no reputable sources to back up my claim. However below is my cumulated R for the last 2 months. Average winning trade R is only 0.55 but my win rate is over 70% so I am ahead overall. These are around 240 trades for November and December. Would this work in the long run? I am not sure and that is why I want to keep working on all aspects of my trading. In addition, after reviewing my trades, there around 30% of all them are considered bad decisions ( positive results or not). 
 

I probably need to do some probability analysis such as regression analysis to see if anything is random but I am not there yet. 

A537EF4A-8AC2-4438-9744-EB8A5B838217.jpeg

Edited by Jiheng Sang

Share this post


Link to post
Share on other sites
Posted (edited)

your stats say it all. your strategy is not able to generate a 1R profit per trade. that means that you risk 1R and in average get 0.55R which is wrong.there will be market conditions when it will slope down. If you do not understand it here is an example/analogy.

you go to a bar to buy a beer. you pay for 1 beer and always get only 0.55 of beer instead and you walk away from the bar every day happy that you are not thirsty 70% of the time.

Your statistical success is only a deviation you can scratch as to generate 20R with 240 attempts is just peanuts- 0.08R per trade making your broker richer but not you.

Edited by peterB

Share this post


Link to post
Share on other sites
Posted (edited)
21 minutes ago, peterB said:

your stats say it all. your strategy is not able to generate a 1R profit per trade. that means that you risk 1R and in average get 0.55R which is wrong.there will be market conditions when it will slope down. If you do not understand it here is an example/analogy.

you go to a bar to buy a beer. you pay for 1 beer and always get only 0.55 of beer instead and you walk away from the bar every day happy that you are not thirsty 70% of the time.

Your statistical success is only a deviation you can scratch as to generate 20R with 240 attempts is just peanuts- 0.08R per trade making your broker richer but not you.

glad to hear your opinion. So what is the an acceptable overall R/ trade to make it statistical significant? is gain to pain ratio something we can use to measure?

It would also be great for consistent traders to share their average R and standard deviation of it.

Edited by Jiheng Sang

Share this post


Link to post
Share on other sites

well its irrational to risk 1 dollar to get only half a dollar. especially when you know that you will succeed only 70% of times and need 240 attempts to get 20 dollars.

Share this post


Link to post
Share on other sites

I was not trying to brag about my stats as I said that I am a new trader and have a lot to learn in all aspects of trading. 

However, I am not quite certain if it is irrational to risk $1 to get less than $1, providing probability of winning is in my favour. For instance, casino only needs a 1-2 % edge to be overall profitable. I could be wrong so please keep the discussion going. 

Share this post


Link to post
Share on other sites

whatever works for you. you are on the way of defining yourself as a trader so if that will prove to work for you and satisfy you, there is nothing wrong.

i am presenting only my opinions and doing 240 trades for 20R profits does not seem to me right and i think you should have some realistic expectations of having a 2R daily profits which normally you need only a 1 good trade so the same 20R you get in 2 weeks with 10 trades and save a lot on commissions and emotions

Share this post


Link to post
Share on other sites
2 minutes ago, peterB said:

whatever works for you. you are on the way of defining yourself as a trader so if that will prove to work for you and satisfy you, there is nothing wrong.

i am presenting only my opinions and doing 240 trades for 20R profits does not seem to me right and i think you should have some realistic expectations of having a 2R daily profits which normally you need only a 1 good trade so the same 20R you get in 2 weeks with 10 trades and save a lot on commissions and emotions

Thanks.

I am in no way satisfy with what I got now. Like I said, I consider more than 30% of the trades in "bad" category, regardless the results.

my current daily goal is 1-1.5 R and I am not even there yet. The last 2 months has been more stable after I made some adjusts on my trading. However, is the improvement due to my adjustments or market condition? I do not know. Guess I will just need to keep plowing through and time will tell. 

Share this post


Link to post
Share on other sites

yes that is the part of the problem. your strategy works for bad trades same as good trades just from its nature - the price action always moves up and down and eventually and also inevitably you will end up looking for the trades that just do more profits so you can spare a lot of time and money by tossing this strategy and use something that really works. honestly being a begginer i was also thinking that i will develop something new and great but the probability of that is just very near 0. the market is here for ages and everything is already invented. You cannot buy a scalpel and start doing new methods in brain surgery. You need to do what everybody (successful) does then build your personality around it. Not to try to find the golden holy grail. It just does not exist.

Share this post


Link to post
Share on other sites
Posted (edited)
8 minutes ago, peterB said:

yes that is the part of the problem. your strategy works for bad trades same as good trades just from its nature - the price action always moves up and down and eventually and also inevitably you will end up looking for the trades that just do more profits so you can spare a lot of time and money by tossing this strategy and use something that really works. honestly being a begginer i was also thinking that i will develop something new and great but the probability of that is just very near 0. the market is here for ages and everything is already invented. You cannot buy a scalpel and start doing new methods in brain surgery. You need to do what everybody (successful) does then build your personality around it. Not to try to find the golden holy grail. It just does not exist.

I did not invent anything. All my trades are based on existing strategies from BBT. As a beginner I do not believe you can create your own strategy. But because of the bad trade management, I feel that I am scalping all the time. Not saying that I am scalping on purpose. 

What I do want to know is that does Scalping really work? I hear and read that people do it and it is a specific type of trading style. 

 

Edited by Jiheng Sang

Share this post


Link to post
Share on other sites
Posted (edited)

and do you want to be scalping? you did many trades already. is this what you want or are you looking for more/something else? is your strategy giving you the expected and satisfactory results? what do you need to work on?

you can scalp with many strategies. but for small movements to get some big money you need bigger account and not everyone is comfortable opening a 100k position to get few hundreds of profits.

scalping is more like trade management not a strategy. get in quickly get out quickly becaus eyou believe it will move NOW. its full of stress

Edited by peterB

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.