windsurfer

Use the conservative. Sorry, but the HFTs will always be ahead of you on the ES. That's one reason why they pay their millions to the exchanges.

I traded a system with more than 90% wins. I sold GC call and put options 120 points OTM. I averaged $500/day with it. It averaged this 60 days in a row. Then, the day of the European debt crisis, this happened overnight: "Gold prices exploded Wednesday-posting the biggest one-day gain ever in dollar terms-as fears of more credit market turmoil unnerved investors and triggered a flood of safe-haven buying. Gold for December delivery rose $90.40." I lost $40k that morning. btw, I still trade something like this system (I've built in offsets), but don't advise that anyone else do it. Bottom line: Percent wins is a ridiculous test. You need to know the net profit, but also the drawdown.* Good luck! == * In my case, the drawdown was bearable, although on that day, it was double the maximum my testing had indicated could happen. (which leads to another learning).

Here is one reason why HFT has made scalping harder: Note that scalpers use limit orders (except on stops). Here are 2 situations: 1. assume a scalper has a bid in at 1434 waiting for a retracement. His bid will be sitting behind a large number of HFT orders. If 1434 is a price of strong support, all the HFT orders must be hit before his order is. If he does get hit, and puts in his sell at 1435, his order again will be behind all the HFT orders, again making it less likely that he will get hit than before the "HFT era." 2. assume, instead, that the market is moving down and 1434 is no longer a place of support. (The algos will determine this in a very small fraction of a second). As soon as the first market sell at 1434 is made, all the HFT bid orders will disappear, and the scalper will be immediately filled in a declining market. Result: Fills are worse now than in the pre-HFT era. Therefore: the more important getting good fills is, the less likely success with the trading method has become. For swing trading small orders, the difference is very small. For scalping ticks, it is quite significant.

Greg, I appreciated the clarity of your explanation, especially because of your examples. Please comment on intra-day?

I agree with Yertle. I also trade the CL and CL options along with a number of other products, generally using the same system. If you don't have enough $ to trade the CL, you shouldn't trade the QM. If you don't know the product's characteristics (e.g. inventory report), you shouldn't trade the QM. If you can't afford large adverse moves on news and rumors, you shouldn't trade the QM. If you don't know how to hedge your positions, such as with options, you shouldn't trade the QM. The CL is not a game for novices :helloooo:

BlueHorseShoe wrote: Several of you have obviously worked on the floors of exchanges scalping various instruments. It would be great if someone could give a more detailed account of what scalping used to entail in the pits - when markets became more electronic, what were the signs you noticed as a scalper? There is a 77 minute documentary called Floored that gives a good idea: FLOORED | Babelgum

Might M wrote: I am not sure how a HFT can have an advantage attempting to scalp when the bid is stacked in the 4 figures on each side of an instrument like ES and the hft still has to get at the end of the queue with his orders no matter how fast he enters it. I recommend you read "Dark Pools." Here is an example: The HFT is always ahead of you on the queue. It withdraws if it is going against you. Say you are on the bid. The HFT will be ahead of you- always. The book explains how. If it "sees" that there are a lot of bids behind it, it will probably take the trade. If it "sees" that the bid won't hold, it pulls its bid before it gets hit, you get hit, and the price continues down. It operates at a speed of 600 nanoseconds, and has algorithms it spend millions on developing. My scalper friends used to make a very good living. Now, they are making nothing. see: Amazon.com: Dark Pools: High-Speed Traders, A.I. Bandits, and the Threat to the Global Financial System (9780307887177): Scott Patterson: Books

The order, entered on May 29, 2012, requires the defendants jointly and severally to pay a $461,100 civil monetary penalty and restitution of $232,200. The order also imposes permanent trading and registration bans against the defendants and prohibits them from violating the Commodity Exchange Act and CFTC regulations, as charged. Federal Court in Illinois Orders Defendants Richard C. Regan and Pro Trading Course, LLC to Pay More than $600,000 in Restitution and Civil Monetary Penalties to Settle CFTC Anti-Fraud Action

Joseph ("then why are you here?") Conners thinks we should not be here if we're not going to publish our strategies. my answer: there is a lot of good advice here about the steps to take, time involved, the products to look at, etc that can be helpful. But if you don't want to put in the time to develop your own methods, you just want to someone to give you their system, maybe you should look for a different way of making money. TANSTAAFL

I agree with you, Koyasan. Thank you for your comment. Your final words (below) echo my experience. Most of what you say applies 100% to me (except my "product" is not the AUD/USD). There is no way I would disclose my system. It is how I make my living. I would suggest to readers that, like you did, they look to a futures product, but a commodity (e.g. GC) or a currency (e.g. AUD/YEN), not a stock index. btw, I did briefly trade on the floor. It was profitable, but nothing I learned there applies to electronic trading.

Bob, You can't be talking about Silver- a $100 stop is only 2 cents! My responses in this thread have been about scalping- that is the topic here. FWIW, I have found that breakout systems on the indicies are losing trades on 5 minute charts. (This my my personal view- others may dissent). One b-o system I just ran on the last 100 days for the ES lost $45 per trade. In comparison, a simple (modified) scalping system on the same ES chart showed a profit (before commissions and slippage) of $70 per trade. (Personally, I dislike the ES, but that is a different topic). My recommendation to index traders is to take a look at scalping, rather than trading breakouts. == Note: re b-o systems on non-index products, I just ran one on the SI with an $1800 stop, and it averaged $900 per trade, but with only 30% winners. I'm not sure I could trade that way, but I'll monitor it for future trades.

the toughest question for me is what to do on breakouts- fade them, or go with them. or does it depend? if it depends, what are your "100% technical" rules for deciding?

To follow up on my promise to discuss scalping SI: To bring others up to date, I was not doing true scalping. I waited for a trend to be established (e.g. up) and waited for a reversal (e.g. a dip) and then went with the trend (e.g. bought 2 contracts). My scalp was for 4 cents with 2 contracts. I averaged 3 trades per day. The SI is volatile. Auto-trading is too dangerous, because if there is an error in getting the stop executed, it can cost you $5,000 quickly. (The SI is $5,000 per $1.00 change in the price of silver, and I scalped 2 lots at a time). Scalping it for $400 per trade was profitable, and I had over 85% winners, but getting stopped out was brutal- an average of $1400. My loss in one trade was $2400 in a fast market. And I once had 3 losers in a row! How does this apply to those who thinking scalping is easy? Give an awful lot of attention to your stops. Focus not on how much you will make, but on how much you could lose. And make sure you are flat whenever you know that news that could move the market may be upcoming.

I agree, Siuya. The Stridsman book was helpful for me when I was first trying to build TS systems. I found the title misleading- it should have been "How to build and evaluate systems" rather than "systems that work." Thanks for the reminder! (I think it is time to re-read it).

Nice sarcasm, Dude. It is frustrating reading so many books that just repeat the same old BS. But some do change behavior. For example. I read Cordier and Gross's 2005 book with the misleading title of The Complete Guide to Option Selling. The title is misleading because is not "complete"- it only deals with commodities and I had no interest in them when I bought it. And it is too focused on trying to get customers for the author's company. (Of course, that's why they wrote it). But after I read it, I starting researching commodities, then tried some of the type of trades they discuss. And now- the majority of my income is derived from commodity option trades. I definitely do NOT recommend this book for others- you need a lot of capital and patience, an understanding of option pricing and good software (I use OptionVue).. But, that book is the kind of example I was looking for when I started the thread- a book that changed your trading.

The book review section is not being used. There are all sorts of books on trading, but most contain just general advice and rarely show a backtested system that I have then successfully implemented. I have read over 100 books, but have only found about 5 books that have done this- mostly in the options trading area. My question is: What books have you read that gave you a system or method that you then implemented and are still using to make $? Bruce

Thanks, I'm going to look into it. Do you know anyone who has? I use IB and trade about 50 contracts a day.

I am reminded that I said I would publish my scalping results. Remember, I am not a scalp trader, but I was curious whether I could write a successful auto-trading scalp system. My results were just for my interest, and were based on my view of how to scalp ("define a trend. If up trend, buy on dips and sell on small defined gains, with a stop. If down trend, do the reverse."). I auto-traded these on C2 until it came time to renew the fees for the first 2. I am still using C2 for the 3rd test to see if can be profitable long term. I hope these will be of interest to someone on this site. 1. ES Scalper results: Trades 318 # Profitable 152 (47.8%) # months tracked 11 Profitable months 3 (27.3%) Avg trade duration 1.3 hours Annual return (compounded) 19.7% Average win $431 Average loss $374 Profit factor 1.1:1 With 318 trades and a before fees profit of only $3,335, this was barely breakeven with a $10 RT cost. I do not see it (with the coding I gave it) as tradeable. 2. Crude Oil Scalper This lost $ 3. Silver Scalper This looks promising and I will continue the test another 3 months. Bruce

Just an update: my scalp system on Crude continues to be insufficiently profitable to justify the number of trades. The Russell system shows promise, making about $80 per trade, but suffers occasional bad days- yesterday it lost $800 on 2 trades. I'll report again in a month.

Last time I was on TL, I was spurred by this scalping thread by Daedalus to think about a system to scalp. I programmed something in TS to try to determine the short term trend and then if it was up buy the dips with a small target (e.g. 3 and 4 points) with a similar stop. (And do the reverse if a downtrend). Since this test resulted in a ton of signals and I did not want to have them divert me from my regular trades, I just ran them on TS, and had them report them on C2. First I tried it on the ES and on Gold. Neither were profitable after taking into account trading costs, and the ES was a loser. Then I switched the Gold to the Russell (RussellScalper) and the ES to Crude (CrudeOilScalper). These are doing okay, but I doubt they will prove worth the trouble in the long run. I do want to thank Daedalus for stimulating me in the thread. It also forced me to work through all sorts of problems trying to get the C2 and TS interface to work. Windsurfer

I haven't seen this point before, so I'll mention it a see if anyone finds it interesting. I traded for a while with a number of former pit traders. They all make their living by scalping, although each has a different strategy. They all have a basic strategy of taking a trend (e.g. bullish) and scalping in only 1 direction (e.g. on dips). They are of 3 types- changing the trend direction during the day; taking a trend direction for the day and only trading in that direction; and 2 traders who only trade on the short side. Surprisingly to me, the short only scalpers are the most successful. They usually lose on bullish days, although often they are even profitable then from shorting on overbought ticks, but they have always profitable and some even great days when the market falls.

I looked at this forum because I was interested in the question of whether Candlesticks work. What I have concluded from the (much appreciated) discussion so far is that candlesticks by themselves are not of value, but they may be "in context". I take this to mean, in combination with other facts. I'd be interested in this being quantified. For example, "a doji in a short term downtrend and long term uptrend will result in a reversal x% of the time, but if both trends are in the same direction, it will result in a continuation y% of the time." (Of course, this statement needs quantification as well- including a definition of trends and time periods). But I'm just giving it as an example of a possible context. This is the direction in which I personally would like the discussion to proceed. Guruji, how will you be proceeding? (I'm also interested in what your study of the doji following 5 down days showed, although I expect this event is so rare that it is not tradeable)

2 observations about late day trading: 1. If you look at the last hour, you will find that trend continuation has been profitable almost every year except 2009 (when trend reversal was profitable, especially when the trend that day had been down). 2. If you look at the last 30 minutes, you will find that it is the 30 minute period of the trading day most likely for a long position to show a gain.

Thank you, guruji. You seem to be criticized for what you did not do (e.g. testing in "context"). However, I appreciate what you did do- test dojis and 3 other patterns in isolation. I recall another study many years ago that came to the same conclusion- that candlesticks in isolation give no trading advantage. This is very useful information. Thank you for sharing.

I watched one of JC's daily updates recently and see he has added "multisystems"- a Universal Multisystem and a Value Chart Multisystem. They each trade about 200 contracts a day, so the slippage and commissions would be significant. Even so, it looked as if the Value Chart was profitable. Can anyone comment on their impressions?