The "Scalp" Strategy

[jeremyjohnolson 19]

1 hour ago, peterB said:

chance that you as a beginner will come up with something new and revolutionary and also working is just very close to 0 so if you want to spend your free time efficiently i recomend you to focus on proven strategies and after you are more experienced try some new tricks and ideas. otherwise you will end up as a losing inventor

But isn't trading a lot about figuring out what works for you as an individual?  So basically every time a new trader is learning then he/she is in essence a little bit of a pioneer because they have to figure it out for themselves.  I mean, I hear people say all the time that you cannot just copy someone else, you have to find what works for you.  Anyway, before we get too off track on this tangent, I just want to be clear, I do not entire disagree with your point of view.  In fact I probably agree with you a whole lot more than I disagree with you.  The only thing that just doesn't sit well with me is just being told that I cannot come up with any good ideas.  I doubt my scalping in the direction of a proven strategy idea is even original idea anyway.  It's really just more of a way of scaling out of a trade if you think about it.  At any rate, we can argue and debate all day long I am just going to try it though because I have heard no arguments from you or anyone else that would convince me it is not at least worth trying out.  I will let you know how it goes. 

Edited January 5, 2021 by jeremyjohnolson

[Martin D 27]

12 hours ago, jeremyjohnolson said:

But isn't trading a lot about figuring out what works for you as an individual?  So basically every time a new trader is learning then he/she is in essence a little bit of a pioneer because they have to figure it out for themselves.  I mean, I hear people say all the time that you cannot just copy someone else, you have to find what works for you.  

 

Yes it's generally meant which of the existing strategies or variations of those. I can't think of anything that sounds closer than high frequency trading (high volume, small moves, quick. Only difference is frequency) which I'm not aware of any individuals doing or at least individuals without a bot (2010 flash crash)

It's very difficult for us to give you good reasons because other than the fact it's a large size to get a mini move in your existing strategy direction we don't really have the information to break it down and pinpoint X,Y, Z as a potential problem and so all people can really say is, don't know of other successful traders doing it so probably a bad idea without actually processing what it looks like and whether it could work. I know how you feel, if I'm confident I'm right then until I see the data that proves my thesis incorrect then it'll just bug me no matter what other people say and I think that's probably the case with you here.

Because we don't really have any detail on what you're planning just some questions that came to my head immediately that I'd ask yourself before you spend a lot of time testing:

- What R are you going to get from this strategy, 1R requires 50% before commissions and 0.2R 84% before commission just to break even. Those are vastly different trades, with 1R I'd give it a shot in Sim as many partial there anyway so if you're seeing that 90% of the time then that's much more sustainable than 0.2R, personally I wouldn't even waste my time trying 0.2R on an ORB extension strategy with someone else money.

- What size are you going to take to make this worth it and what type of stock? What if you get stuck in a news halt or volatility halt in a low float, will it blow up your account? Is there enough liquidity in the stocks you're trading to do what you're planning e.g. Andrew can only really trade certain stocks because of his size. Does the size mean slippage is going to become an issue because you're only looking for a tiny move? Is it a scalable strategy even if it's viable with your current size? What is commissions going to do to your strategy, if you're looking for $0.05-$0.10 moves with a low R could be issue as it could eat 10% of your profit on a strategy that doesn't have that flexibility (e.g. 0.2R needing 84% before commissions). What is your basis for taking the partial if you're not doing it at a resistance point and that you're not going to do it too early/late, R?

- What is wrong with your existing strategy that's making this a strategy you want to look at? As someone new, if tried and tested strategies aren't working for you whilst working for others my first question would be why rather than looking to develop a new one? For example chasing entries, lack of patience to wait for a good entry, low volume, lack of price battle resolution, entering into a logical resistance point (prior resistance, pivot points, half/whole dollars etc), stock selection etc. Is this new strategy going to negate that issue because experienced traders are already getting 70-80% success rate with their relevant size so whats the pro of looking for a strategy with a small move?

It's easier to stick roughly to what other people are doing because day traders are looking for similar things and so it can become a self fulfilling prophecy at times. 

As Peter said it's not to discourage, the market is tough enough for a new trader without trying to reinvent the wheel. As you said it's probably not completely unique so if it's legit then why not try to find a successful trader who does something similar and take learnings from them rather than putting in the many 1000's of hours hard yards that have gone into the strategies that traders here use. I'm always looking to improve so would be great if you have found something, best of luck if you decide you must travel that path.

 

[jeremyjohnolson 19]

Peter B and Martin D, thanks for the helpful advice.  It truly is much appreciated.  Martin, I totally agree with your point about only doing this with a highly liquid stock (no low float) for the very reasons you mentioned.  I had actually already had the same thoughts.

Also, I did not think of this idea because other strategies are not working for me.  I was just noticing that even when the strategies fail, I still move into the green if even for just a moment and that's what made me think of this because I could do it on all trades and get a good return on the first little movement about 90% of the time, I suspect, and if I have to take a relatively larger loss on that large chunk of shares only 10% of the time, well, then it might still be worth it.  I don't know.

Here are my stats so far on the 1, 5, & 15 min ORBs which are the only strategies I have been trying to learn and test out lately.  I started trading these, and journaling all my trades, on 10/26/2020.  Since then on the 1 min ORB I have had a 63% win rate over 48 trades with a profit factor of 1.69 (PF could be better, but still, not too bad, not losing) I take about 1 of these trades a day at the open.  On the 5 min ORB I have had a win rate of 70% with a profit factor of 2.19 over 47 positions, again, I usually take about 1 of these a day at the open.  Overall I haven't done as well with the 15 min ORB with a win rate of 49% and profit factor of only 0.93 over 37 positions.  But for the last 26 of those 37 I changed up the way I was looking at the 15 min ORB, I started giving it more room and taking a smaller position size, since then my profit factor has increased to 1.29 (still not great) and my win rate has been 58% over those 26 trades.

Also, if you are curious, I have only been trying this "scalp" trade for 2 trading days so far (I haven't traded this week yet because of getting COVID and personal things going on at home getting in the way).  Over 2 days, naturally due to the nature of this "strategy" (or maybe "method" would be a better word) I have taken a lot more trades than 1 a day, in fact over 2 days I took 37 positions.  Over those 37 I have had an 81% win rate and a 1.28 profit factor (remember, my profit target and stop are a lot tighter).  I think that even though I took 37 positions, since it was only over 2 days time, I still need more trades (more days) to be able to truly say it's stable and working.  I think I need to do this for weeks, probably months before I can start to make the assertion that it is working and before my win rate and profit factor start to stabilize into what they really are.  It's possible to just get lucky for a couple days.  Even a couple months isn't that much time, but it's better than a couple days.

I am going to try it because I do not have to stop doing the normal 1 & 5 min ORBs in order to try (at this point only in sim of course), I just have to add an extra interim step.  If it fails, then oh well, at least I will know.  But yes, definitely, something like this, taking a large position for a small move, would definitely have to be only done in a very liquid stock and not a small cap stock for sure.  I would only do it in a stock where the likelihood of it being halted or making really fast really big swings is very small, approaching zero likelihood.

Edited January 5, 2021 by jeremyjohnolson
update my stats to be accurate

[jeremyjohnolson 19]

3 minutes ago, peterB said:

mind sharing some of the 80% sucess rate scalp trades here so people know more exactly what you are talking about?

Yeah, I updated my post.  I went back and  looked at Chartlog after posting that to see what they really were.  80% is actually too high for the 1, 5, & 15min ORB.  I have only been doing scalps like this and tracking for 2 days, so not really enough to have stable stats on the scalp idea yet.  I put what my actual stats are in an edit (see my post above).

Edited January 5, 2021 by jeremyjohnolson

[jeremyjohnolson 19]

Here is one I took on BA.  I put this under "Scalp" instead of 15m ORB because a normal 15 min ORB I would not have taken as large a position and my stop would have probably been around $220.

[jeremyjohnolson 19]

Here's another one I took on BA on the same day.  These are 1 min candles. It was reversing from a 5 min ORB break up and coming down.  I don't know if "trending" is correct or not since it was so short a time, but that's what I called it.

[jeremyjohnolson 19]

Here's one on BABA.  It was called out in the room and it was already very extended.  So that's why I got in for just a small scalp at the top of the move not expecting it to go much more.  I would say this one was chasing and probably not a good trade even though it did work out for me this time.  If you look at the 1 min candle chart you can see I did at least get in on a small pull back.

 

 

[jeremyjohnolson 19]

Here is a losing trade where I tried to get part of the move of a 5 min ORB (breakdown) but got stopped out.  Again, the reason I am calling this a scalp and not a 5 min ORB is because normally I would have taken a smaller position and my stop would have been closer to VWAP (the blue line).  Maybe this should just be classified as a 5 min ORB though.

 

[Martin D 27]

19 hours ago, jeremyjohnolson said:

Overall I haven't done as well with the 15 min ORB with a win rate of 49% and profit factor of only 0.93 over 37 positions.  But for the last 26 of those 37 I changed up the way I was looking at the 15 min ORB, I started giving it more room and taking a smaller position size, since then my profit factor has increased to 1.29 (still not great) and my win rate has been 58% over those 26 trades.

 

Ok so I might be a little clearer now I think. So if you're saying this is mainly a compensation for the low success rate of the 15 min ORB then I would question that as a strategy. 1 & 5 are part of my trade book but 15 min ORB's aren't, the way I trade and my interpretation of how Andrew/Brian etc trade is that by this point of the day we're looking for ABCD's for break of the high of the day on the 1 minute or other such strategies.

If we break that down:

- In the event we have a runner that has a tonne of momentum and is just climbing continually constantly breaking high of the day, mini pull back or consolidation then higher then it would look like a 15 min ORB is working and someone might trade it as a 15 minute ORB if they're getting in late but chances are it's risky because it's fairly extended by that point. If I'm in that from early (1 or 5 ORB for example) then I'm not necessarily partialling on a break of HOD because it's constantly breaking them and so unless it's at a resistance point I might just be letting it go as will a lot of other traders.

- In the event traders are looking at it as an ABCD on the 1 minute or 5 minute chart for a break of high of the day then as soon as it breaks we're all taking heavy partials because that was our main move that we were looking for, where as as soon as it breaks is effectively your entry. I suspect this initial pop through that was our main move and that we're heavily partialing on is what you're seeing as going in your direction briefly. Unless I think the stock is really strong then I'm probably getting down to <25% position on that initial pop through HOD that would be your entry. 

If this is the case then on many stocks that might have the criteria of 15 min ORB you're entering into a lot of exits, some have the strength to keep going but a lot that break HOD then end of fading back to VWAP etc.

If you think my assessment is correct then I'd suggest watching Andrew and listen to Brian trade that part of the day, it might change your perspective on why that's happening and while you don't necessarily need to trade it like them it's essential to know what other people are looking at to improve your own trade book.

[jeremyjohnolson 19]

Thanks Martin.  I was humbled by the market today and reminded that I am glad I am still in sim.  I think I will just go back to the basics for now.  I am still doing well with the 1 & 5 min ORBs, I will just keep focusing on those for now and forget this "scalp" idea.  The more I think about it, if I am honest with myself, I think the "scalp" idea was more of a way to add something to my trade book that would give me permission to basically do whatever the heck I want lol and it didn't work out so well today!

[cjsimon07 16]

First, every trader is unique, so if this works for you then I say go for it. However, I think you are potentially opening yourself up to big potential losses. My guess is after several sample sets you will have more winners than losers, but your average win will be much smaller than your average loss. You will most likely take a lot of trades and not make a lot of money (at least not enough to justify the time invested). Hopefully I'm wrong, but that would be my guess based on my own trading experience. 

Second, I would recommend you take a good hard look at your playbook first. I think I understand where you are coming from though. I have often thought about a similar strategy to what you are describing, especially with my BHOD strategy. On slower up moves toward the HOD (not punching up) I still get the break, but they don't always move a lot higher, and if they do, they do slowly. Sometimes they break, move back down, then move higher. My plan is to take a 2r size at the break with my normal stop. Take half off the trade when the price stalls after the initial break and move my stop up to break even on the trade (no risk of loss and no gain if it falls) or my entry (to lock in profit). Then play it like my normal BHOD. I may still play with this in sim, but for now it's not my focus for one reason. My problem is in my playbook and/or execution of it. 

Once I started trading live most of my trades were around break even (+/- less than 1r). I was making a little money and my win rate was super high (80%+), but I was stopping out of most of my trades within 5 minutes. A lot of trades I stopped out in less than a minute. After listening to Peter talk about how he would make more money by letting his winners run, but it would drop his win rate I decided I needed to work on letting my trades play out. I lowered my risk and tried to do just that. And it worked. My win rate dropped, but my average win increased. This also brought up a bunch of other trade management issues I was unaware I had. I have been correcting those issues over the past few months. Now that I'm doing a better job managing my trades I have noticed something else. I'm getting a lot of 1 partial then stop at break even trades. I'm in the process of going through all my data again, but what I'm gathering is I need to work on my playbook. 

My setups are ok, but I think they are too broad. I like to take trades, so I tend to see setups even when they aren't the best. Or they have some, but not all of my criteria. I've eliminated quite a few plays from my playbook that just were not working for me for one reason or another. Now I have 5 plays in my playbook which is about half what I had before. If I only take those plays when they are good setups and I follow my trade management rules I make money.   

Sorry that was a long post and has more to do with my trading than your question, but I hope that helps you. I guess my main point is take a look at your playbook before you try a riskier strategy. Maybe there's something in your setups or management that is causing the results you are getting. If you do try this live be very careful with how much risk you take. Don't blow up your account trying to add a couple bucks to your trades. 

[JS 10]

9 hours ago, cjsimon07 said:

First, every trader is unique, so if this works for you then I say go for it. However, I think you are potentially opening yourself up to big potential losses. My guess is after several sample sets you will have more winners than losers, but your average win will be much smaller than your average loss. You will most likely take a lot of trades and not make a lot of money (at least not enough to justify the time invested). Hopefully I'm wrong, but that would be my guess based on my own trading experience. 

Second, I would recommend you take a good hard look at your playbook first. I think I understand where you are coming from though. I have often thought about a similar strategy to what you are describing, especially with my BHOD strategy. On slower up moves toward the HOD (not punching up) I still get the break, but they don't always move a lot higher, and if they do, they do slowly. Sometimes they break, move back down, then move higher. My plan is to take a 2r size at the break with my normal stop. Take half off the trade when the price stalls after the initial break and move my stop up to break even on the trade (no risk of loss and no gain if it falls) or my entry (to lock in profit). Then play it like my normal BHOD. I may still play with this in sim, but for now it's not my focus for one reason. My problem is in my playbook and/or execution of it. 

Once I started trading live most of my trades were around break even (+/- less than 1r). I was making a little money and my win rate was super high (80%+), but I was stopping out of most of my trades within 5 minutes. A lot of trades I stopped out in less than a minute. After listening to Peter talk about how he would make more money by letting his winners run, but it would drop his win rate I decided I needed to work on letting my trades play out. I lowered my risk and tried to do just that. And it worked. My win rate dropped, but my average win increased. This also brought up a bunch of other trade management issues I was unaware I had. I have been correcting those issues over the past few months. Now that I'm doing a better job managing my trades I have noticed something else. I'm getting a lot of 1 partial then stop at break even trades. I'm in the process of going through all my data again, but what I'm gathering is I need to work on my playbook. 

My setups are ok, but I think they are too broad. I like to take trades, so I tend to see setups even when they aren't the best. Or they have some, but not all of my criteria. I've eliminated quite a few plays from my playbook that just were not working for me for one reason or another. Now I have 5 plays in my playbook which is about half what I had before. If I only take those plays when they are good setups and I follow my trade management rules I make money.   

Sorry that was a long post and has more to do with my trading than your question, but I hope that helps you. I guess my main point is take a look at your playbook before you try a riskier strategy. Maybe there's something in your setups or management that is causing the results you are getting. If you do try this live be very careful with how much risk you take. Don't blow up your account trying to add a couple bucks to your trades. 

Thanks for the insight! May I ask what your avg R for winning trades and overall avg R are in the bolded part? What about after the adjustment was made? Thanks!

I agree that every trader is unique. Just look at our moderators, avg R for John or Norm is below 1 R and for the style to make money, one would need a bigger account size and take more risk per trade. I am sure Aiman and Thor will be over 1 and they must have use less capital to achieve the same goal. 

Edited January 11, 2021 by Jiheng Sang

[cjsimon07 16]

On 1/11/2021 at 7:19 AM, Jiheng Sang said:

Thanks for the insight! May I ask what your avg R for winning trades and overall avg R are in the bolded part? What about after the adjustment was made? Thanks!

I agree that every trader is unique. Just look at our moderators, avg R for John or Norm is below 1 R and for the style to make money, one would need a bigger account size and take more risk per trade. I am sure Aiman and Thor will be over 1 and they must have use less capital to achieve the same goal. 

I couldn't tell you exactly what my average R was because one of the problems I had was not using the same risk per trade. My risk was anywhere between $20-50 per trade, but most of my trades closed + or - $20 or less. I can tell you in June my average loss was around $68 and my average win was around $25. Working on things like never letting the price go past my stop and letting my trades play out helped bring those averages to about $29 average win and $25 average loss in August. 

I spent the fall working on my playbook and focused more on grading my trades like this:

GT= Good trade. Good setup and followed my trade management plan

B/E= trade was +/- less than 1r based on the risk on that trade

F/S= full 1r loss

B/M= bad management. I broke more than one of my trade management rules

B/D= bad decision. Impulsive entry, bad setup, over trading...

I grade each trade after I take it. This helps me manage myself during the trading day. My goal each week is to have less than 10% of my trades be B/D and less than 20% be B/M. Over time I'd like to get that even lower, but those goals are realistic based on my past few months of trading. Now I'm using fixed risk and my focus is on only taking my best setups and not chasing if I miss one or see it late. I'm taking fewer trades, but I think this will help me get better data on my playbook and help me to refine it further. 

[Christopher 129]

I think your strategy makes perfect sense from a technical/number crunching perspective. However, I think most traders that have been doing this for a while would agree with me when I say that trading is much more about psychology than analytics. If you traded this way live and you took a trade with heavy size that goes your way, there is going to be a very strong impulse to hold (because of the fear/greed of missing out on large profit) . If it goes against you, there is also going to be a very strong impulse to hold (because of the fear of realizing a heavy loss). I think a strategy like this may work for a computer trading algorithm, but the psychology required for this is well beyond a beginner / intermediate live trader. 

So to put it bluntly, I think this approach is an excellent way to blow up an account.

-Chris 

 

 

 

[jeremyjohnolson 19]

1 hour ago, Christopher said:

I think your strategy makes perfect sense from a technical/number crunching perspective. However, I think most traders that have been doing this for a while would agree with me when I say that trading is much more about psychology than analytics. If you traded this way live and you took a trade with heavy size that goes your way, there is going to be a very strong impulse to hold (because of the fear/greed of missing out on large profit) . If it goes against you, there is also going to be a very strong impulse to hold (because of the fear of realizing a heavy loss). I think a strategy like this may work for a computer trading algorithm, but the psychology required for this is well beyond a beginner / intermediate live trader. 

So to put it bluntly, I think this approach is an excellent way to blow up an account.

-Chris 

 

 

 

I agree that the biggest challenge standing in the way of success in trading is my own psychology.  Like I have said previously, I still consider myself a novice, but even I have been doing this long enough to be able to say I know from personal experience that you are 100% correct in saying that trading is much more about psychology than analytics.