Jump to content
jeremyjohnolson

The "Scalp" Strategy

Recommended Posts

Posted (edited)

honestly, I am new and I am open to anything but I need to know that I know what I am doing. I still want to keep working on existing BBT strategies. 

If my stats say I can scalp with profit and my BP is not an issue, I am willing to try it. However, it does have a lot of inefficiency by its own. 

 

Edited by Jiheng Sang

Share this post


Link to post
Share on other sites

Thank you everyone for your input, it’s been very helpful. I just want to make a couple comments for now.  First, this idea I had of scalping is not my only strategy that I have been working on, it’s just one new one I am trying out but it is in conjunction with my other strategies in my play book.  In other words, I would not randomly or arbitrarily just jump into any old stock that is ranging or trending, but I would do it based on other indicators which make me believe it will go one direction or another. I guess the big difference is instead of taking a smaller position and waiting for a big move, I take a big position and wait for a small move to increase win rate.  My plan is to nest this scalp strategy with my other more conventional strategies so that I take a big position for a short pop in my direction then leave a more normal sized position for the larger move. I have only tried it a couple days so far and it has worked out quite nicely (in sim).  I took about 30 trades and had an 82% win rate, but only over two days time, so definitely need more time to see if it’s really working. Also, I got a bit confused on the whole bar example because I do think that overall you come out ahead if you risk say $1 to make $0.80 if your win rate is 80% (just using random numbers to illustrate a point) because you will win more than you lose. So at the end of the day when you add up 80 winners of $0.80 each you get $64.00 less 20 losers of $1.00 each, or $20 in total, you net $44 profit.  So yes, mathematically you can win by having a RR less than 1 as long as the win rate is high enough to make up the difference.  Is it the way I want to trade all the time, probably not.  Of course I would rather get large moves and make bank with fewer trades. That’s why this scalp strategy would just be one more arrow in my quiver and not my only one. Anyway, just wanted to chime in with those couple thoughts for now.

Share this post


Link to post
Share on other sites

look at it this way. if you have a strategy which gives you 2R on average, is that strategy better o worse than the strategy you described? unless you have some other reason like time pressure there is no logical reason to go with a lower success strategy. why would you put your buying power into that if it takes you 80 trades (or 80times risk 1R) to make 44 dollars if you already know that you have a better strategy where you can risk 10 times more because your edge is better there?

i am not saying you should or could not trade what you want but you should have reasonable reasons

regarding the 1bar example - if you have 5  1min candles creating a range, it will most probably look like a 5min doji bar. so i think that this scalp you are talking about is probably interpretable as a different strategy if you zoom it out for higher time frame chart you just do not perceive it that way yet

Share this post


Link to post
Share on other sites
3 hours ago, peterB said:

if you have a strategy which gives you 2R on average, is that strategy better o worse than the strategy you described?

It could be better or it could be worse, you did not give enough information for me to answer your question because it also depends on what the win rate is.  The “R” is only one variable in the equation. I mean if you take it to the extreme and say for arguments sake that the win rate is only 10% for the 2R trade, then that would be an overall losing strategy regardless of the fact that you have 2R on winning to losing trades because you only win on average 10 out of 100 trades.  Maybe you win $2 and lose $1, but if you only win 10 times and lose 90 out of 100 trades you have a net loss of $70 on average over time (scale up and add a few zeros onto the end of those numbers if you wish but the math is still the same).  So win rate and risk to reward rate both must be taken into account when trying to determine if a strategy is a winning or losing strategy.   Also, I was just putting numbers to my example to illustrate a point, I am not saying you would have to take 80 trades before it becomes profitable.  It’s already profitable, on average, after your first trade (on average).  Lastly, I hear what you are saying about that there might be better set ups, better strategies, but if the quick scalp works 80% of the time, why not do it?  What is stopping me from doing both the “superior” 2R (or better) trade strategies and the quick scalp at the same time by taking a large position at first then taking it off to recognize quick profits and holding a relatively smaller position for the bigger move, sizing my position based on good risk management based on where a good technical stop loss level should be placed? 

Share this post


Link to post
Share on other sites

Scalping exists as a type of trading rather than a strategy i.e. Andrew and therefore scalping in itself is viable.

I would be defined as more of a scalper and while I don't focus on R per se, by nature it is good trade management to focus on a good entry so that risk is low and reward is high. I didn't see an R figure in your original post but if you're talking about 0.5 R you're talking about 66.6% success before commissions and you then add in the increased commissions for the increased size you'll probably be talking upwards of 70% success rate in order to break even (I assume you've calculated what this would be based on your own circumstances),  if you ask me that's asking for trouble and if you nail your strategies then it shouldn't be needed as good traders are generally in the 70-80% accuracy mark anyway so a risky 80-90% doesn't make sense. 

However, if you run a significant enough sample and it's clear cut then it doesn't really matter what anyone else thinks if it works for you. If I looked at how I would do that, I would be looking for upwards of 1000 trades with a noticeable margin of error before I would take notice of it being anything other than a lucky streak and go live. While I do see what you're talking about in my own trading sometimes I'm not sure I see it 90% of the time that I would want to make those kind of trades viable. I would rather work on my trading than testing that kind of volume unless you have the skill set to program a bot.

Just to run an example through of my thinking behind the above, what kind of R would you be looking at? If you were looking for 0.5R, what if it goes 0.3R and then starts to pull back, do you take the 0.3R and run due to your increased size/risk or hold out like a normal trade? Once you get this close then it becomes really tight in the R/success % and each 0.1 drop in R has a larger % impact to required success. In a 0.3R example you'd be somewhere around or even above the 80% mark to break even with commissions. If we work that through on a $0.2 risk because you've got a good entry, your 0.5R is $0.1 and your 0.3R is $0.06, that kind of difference is very difficult to control in my view. Therefore with a high dependency on a very high success rate and a high impact of R on the required success % then I would want a very high sample size to test that.

If you increase that to say 1R then there are successful traders out there who don't mind taking a trade like that if they have a high degree of confidence, that's normally recommended for experienced traders though.

Share this post


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

It could be better or it could be worse, you did not give enough information for me to answer your question because it also depends on what the win rate is.  The “R” is only one variable in the equation. I mean if you take it to the extreme and say for arguments sake that the win rate is only 10% for the 2R trade, then that would be an overall losing strategy regardless of the fact that you have 2R on winning to losing trades because you only win on average 10 out of 100 trades.  Maybe you win $2 and lose $1, but if you only win 10 times and lose 90 out of 100 trades you have a net loss of $70 on average over time (scale up and add a few zeros onto the end of those numbers if you wish but the math is still the same).  So win rate and risk to reward rate both must be taken into account when trying to determine if a strategy is a winning or losing strategy.   Also, I was just putting numbers to my example to illustrate a point, I am not saying you would have to take 80 trades before it becomes profitable.  It’s already profitable, on average, after your first trade (on average).  Lastly, I hear what you are saying about that there might be better set ups, better strategies, but if the quick scalp works 80% of the time, why not do it?  What is stopping me from doing both the “superior” 2R (or better) trade strategies and the quick scalp at the same time by taking a large position at first then taking it off to recognize quick profits and holding a relatively smaller position for the bigger move, sizing my position based on good risk management based on where a good technical stop loss level should be placed? 

I think a perfect example would be one of our moderator John's HOD strategy. Below is a screen shot from his 2nd presentation. His is averaging 0.29R/trader at 89% of win rate. he can still accumulate more than 20R/ month. I would be more than happy to consistently get 20R per month even I pay more commission. The key is here is consistency. I would say if more green trades helps you psychology, it is then the right strategy for you.

edit: I am not trying to say that John is scalping, just to show that it might be okay to have less than 1:1 R/R trades.

image.thumb.png.bb6a3e3ed24832710c1fdb9b40c16ce2.png

Edited by Jiheng Sang

Share this post


Link to post
Share on other sites
Posted (edited)
1 hour ago, Martin D said:

Scalping exists as a type of trading rather than a strategy i.e. Andrew and therefore scalping in itself is viable.

I agree with your statement.  However, the reason I am including it as a strategy is because there is more to it than just simply a scalp.  Maybe I should call it something else to be more descriptive, like "scalp in direction of established strategy" or maybe to be shorter just "strategy scalp".  I don't know.  Maybe it's a crazy idea lol.  I could be going down a wrong road.  That's why I posted here, so honestly, I welcome criticism of my idea.  I want to know if it's a bad idea or not.

I will take all constructive criticism seriously and keep an open mind, but I will also try it out for myself (in sim to begin with).  I believe my best shot of succeeding is to listen to others, but also to test and prove things out for myself at the same time.  What works for one person will not necessarily work for another since we each think and act differently.  So we have to listen to others with experience, but I believe we also have to take what they say with a little bit of a grain of salt because they are not you, they do not know you personally and how you think and how you trade.

Also, I read in a few posts back something to the effect that everything that could be thought of regarding trading has already been thought of and not to try to come up with anything new because it won't work.  While on one hand I get what I think he is trying to say and I do think there is an element of truth to it, on the other hand I also see this as very "in the box" type thinking.  So the element of truth to that sentiment, in my opinion, is that most "out of the box" thinking types of ideas, probably 99% of them, do in deed fail because there is a reason that "in the box" types of ideas are in the box to begin with, because they are tried and true and proven to work.  However, that is no reason to simply as a rule discard all outside the box ideas since to do so would be an end to all new innovation.  There is no possible way I would ever believe that ALL possible trading ideas have already been thought of and we might as well stop trying to explore new ideas.  So yes, I will continue to explore new ideas, and yes, 99% of them will probably fail and prove to be bad ideas, but that is the only way to find that 1% of new ideas that nobody ever thought of before.  Or just a new way of looking at an old idea and a new way of implementing it in a way nobody ever thought of before (or at least that I know of).

Edited by jeremyjohnolson

Share this post


Link to post
Share on other sites

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

Share this post


Link to post
Share on other sites
Posted (edited)
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 by jeremyjohnolson

Share this post


Link to post
Share on other sites

yes please do let us know. do not get me wrong. i am not discouraging you from doing your own thing. i am just advising you to use your time wisely. it is like going into a gym taking some weights and starting doing something you have in your mind instead of doing some actual effective excercises plan listed right in front of you on the wall.

  • Like 1
  • Thanks 1

Share this post


Link to post
Share on other sites
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.

 

  • Like 1

Share this post


Link to post
Share on other sites
Posted (edited)

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 by jeremyjohnolson
update my stats to be accurate

Share this post


Link to post
Share on other sites

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

Share this post


Link to post
Share on other sites
Posted (edited)
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 by jeremyjohnolson

Share this post


Link to post
Share on other sites

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.

image.thumb.png.aeabfeca33d085bfa7dd8b00835b6b58.png

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.