Trading with Market Statistics IX. Scalping

[jperl]

If you have followed and understood all the "Trading with Market Statistics" threads, from the very basic VWAP trades in Part III, and the SD trades in PartV to the more advanced trade types involving breakouts in Part VII and counter trend trades in Part VIII, then you are ready to apply your new found knowledge to the fast and furious world of scalping
Scalp trading has many definitions depending on whose doing the scalping. The usual definition is trading for ticks rather than points. But this is a purely heuristic definition. My definition is more quantitative and is based on when I start my volume distribution computation as follows:

a)If I start my volume distribution computations at the opening bell and continue until the closing bell, then that's a normal non-scalping trading day

b)If I start my volume distribution at any time after the opening bell, and watch it for short periods of time, then I'm scalping.


You know what a) means from the previous eight threads. What does b) mean?

Until now, I have talked about the volume distribution when it starts from the opening bell, and runs until the closing bell, that is regular trading hours.

However, there is no reason why you could not start the volume distribution computation at any other time during the day, let it run for say 15 minutes or so, trade off of it, and then restart it again. That's what b) means, and that's what I call scalping.

By doing this you are essentially looking at the market statistic over a short time frame and asking the same questions with the same responses as given in the last eight threads. The net result will be, you will be taking many more trades and trading smaller standard deviations. This is what is meant by "trading for ticks rather than points".

Scalping requires entries, exits, scale ins, scale outs, reversals and closes with one mouse click, otherwise you will miss the opportunity. To do this, you have to use a DOM (Depth of Market) or something equivalent as part of your trading platform.

Watch the video and see how I do scalp trades using the DOM.

ER2ScalpTrades

Addendum: I was going to present a thread on the use of Hold Up Prices (HUP) which I've mentioned many times in these threads. I've decided not to do it now because it's quite complicated and I haven't yet found a simple way to present it. So I am going to delay that presentation until another time.

[BlowFish]

Just a quick tangential question - Have you ever researched 'rolling' distributions for scalping? (I plan to try this at some stage).

By rolling I mean using a fixed N period for your indicators. So for example you could use just the last hours data. When a new 2 min bar paints you drop the oldest bar and factor in the newest.

Cheers,

[jperl]

	Quote:	BlowFish
	Just a quick tangential question - Have you ever researched 'rolling' distributions for scalping? (I plan to try this at some stage). By rolling I mean using a fixed N period for your indicators. So for example you could use just the last hours data. When a new 2 min bar paints you drop the oldest bar and factor in the newest. Cheers,

Yes, in fact I did try that, but discovered that it didn't add anything to understanding the price action.

[maildigger]

I watched the movie ... where do you place your stops on that kind of scalps ?

[jperl]

	Quote:	maildigger
	I watched the movie ... where do you place your stops on that kind of scalps ?

I don't maildigger. If I have to reverse the trade, I'll do that instead and increase position size

[BlowFish]

Hi Jerry,

I have a couple of questions about trade management but wanted to give them a bit more thought. Seeing as Maildigger mentioned stops I thought I'd chip in anyway. I'll think as I go along

Back in the newbie days when things where nice and simple the way I understood it was you would enter at the VWAP with a stop at the PVP? (or was it a couple of ticks the other side perhaps?).

You then introduced us to SD's With options of taking a trade there. At this time the stop would still be the PVP with the option of adding to your position at the VWAP. In fact a Whole section was devoted to risk tolerance. Again if I understand this correctly we decide what the maximum amount is we are ever to risk (based on account size) and then use market statistics (VWAP,SD) to enter and the PVP for a stop?

All well and good to this point however when you introduced breakout trades and counter trend trades I think a couple of different styles of trade management where also introduced. With BO's you would move the stop to BE as soon as possible? As an aside because BO's break and go you would consider entering these aggresively without waiting for the Shapiro effect? Also the way I understand it you would only do this at a BO of the SD band. A BO through the VWAP would be managed normally?

With countertrend trades (symmetric distribution) you offer a couple of choices for stops - add 1 at the SD2 for a return to SD. -or- Stop and reverse if your trade moves against you for a journey to SD2 (I guess you are switching from counter trend to BO)?

Does this sound correct? Things are certainly a bit more complex than when newbie started out!

One other thing you mentioned briefly (can't remember where) I seem to recall you mentioning those with low risk tolerance could put the stop behind the Shapiro bar? Maybe I dreamt that. I also recall you saying you where 'conservative'. I wonder how you reconcile that with wide action points (I hesitate to use the word stops) particularly those introduced for 'newbie'? Especially in light of the paragraph that follows :-

Another thing about the Shapiro effect - if the tigger bar (the bar that touches the band) is of a wide range, we can end up giving away a lot of potential profit and adding to our risk (as your stop must be further). For example for a short at the VWAP if the bar comes from halfway between the SD1 & VWAP we give up half the potential profit and our stop is correspondingly further away while we wait for the low of this bar to be broken. Do you pass those trades or maybe not use Shapiro, or maybe drop down a timeframe for a more precise entry?

Cheers,
Nick.

P.S. great scalping video (closet scalper here).

[darthtrader]

Jerry, what is the name of your DOM software again?I missed it twice now when you said it, that looks really nice.

Also, do you do anything as far as keeping this information on a yearly chart for stocks if you wanted to buy a stock for a roth or what not? Do the same concepts apply if your looking at daily data?

[BlowFish]

I think its ZeroLine trader Darth. Ive heard lots of good things about it. I use Bracket Trader which works well for me. Don't have the energy to try a new setup just now.

[jperl]

	Quote:	BlowFish
	Back in the newbie days when things where nice and simple the way I understood it was you would enter at the VWAP with a stop at the PVP? (or was it a couple of ticks the other side perhaps?).

Yes. Simple trade simple stop. Only 1 complication. Profit target was arbitrary.

	Quote:	BlowFish
	You then introduced us to SD's With options of taking a trade there. At this time the stop would still be the PVP with the option of adding to your position at the VWAP. In fact a Whole section was devoted to risk tolerance. Again if I understand this correctly we decide what the maximum amount is we are ever to risk (based on account size) and then use market statistics (VWAP,SD) to enter and the PVP for a stop?

Correct. Still reasonably straight forward. I probably should have introduced the Shapiro Effect at this time to help eliminate bad entries.

	Quote:	BlowFish
	All well and good to this point however when you introduced breakout trades and counter trend trades I think a couple of different styles of trade management where also introduced. With BO's you would move the stop to BE as soon as possible? As an aside because BO's break and go you would consider entering these aggresively without waiting for the Shapiro effect? Also the way I understand it you would only do this at a BO of the SD band. A BO through the VWAP would be managed normally?

Yes this is essentially correct. Break outs are difficult to trade under any circumstances. It's still possible to use the Shapiro Effect if you get a retrace. If not, tough luck.

	Quote:	BlowFish
	With countertrend trades (symmetric distribution) you offer a couple of choices for stops - add 1 at the SD2 for a return to SD. -or- Stop and reverse if your trade moves against you for a journey to SD2 (I guess you are switching from counter trend to BO) Does this sound correct? Things are certainly a bit more complex than when newbie started out!?

Correct again. As you are seeing, the trade threads get more and more complicated and more difficult to manage. This does not mean you have to expose yourself to these more difficult trade setups, but you should be aware they exist.

	Quote:	BlowFish
	One other thing you mentioned briefly (can't remember where) I seem to recall you mentioning those with low risk tolerance could put the stop behind the Shapiro bar? Maybe I dreamt that.

I did say that, for those who feel queasy about risk tolerance trading.

	Quote:	BlowFish
	I also recall you saying you where 'conservative'. I wonder how you reconcile that with wide action points (I hesitate to use the word stops) particularly those introduced for 'newbie'? Especially in light of the paragraph that follows :-

Not sure what you mean by wide action points. If you are referring to days when the SD is very large, don't trade those days if the SD is near your risk tolerance. (We have had a bunch of those lately)

	Quote:	BlowFish
	Another thing about the Shapiro effect - if the tigger bar (the bar that touches the band) is of a wide range, we can end up giving away a lot of potential profit and adding to our risk (as your stop must be further). For example for a short at the VWAP if the bar comes from halfway between the SD1 & VWAP we give up half the potential profit and our stop is correspondingly further away while we wait for the low of this bar to be broken. Do you pass those trades or maybe not use Shapiro, or maybe drop down a timeframe for a more precise entry?

The Shapiro effect is a two edged sword. You don't get something for nothing here. If you use it, as you point out, you will decrease your profit potential and increase your risk. And yes, you can drop down a time frame to find a better entry point.

Sounds like you've got the statistics down pat, NICK. Now all you have to do is trade it and see how it works out for you.