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jperl

Trading with Market Statistics IX. Scalping

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If you have followed and understood all the "Trading with Market Statistics" threads, from the very basic VWAP trades in [thread=2008]Part III,[/thread] and the SD trades in[thread=2130] PartV[/thread] to the more advanced trade types involving breakouts in [thread=2232]Part VII[/thread] and counter trend trades in[thread=2285] Part VIII,[/thread] 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.

ER2ScalpAug24.swf

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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,

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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.

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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

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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).

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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?

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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.

 

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.

 

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.

 

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.

 

 

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.

 

 

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)

 

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.

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

 

 

 

The Interactive Brokers front end is from http://www.zerolinetrader.com.

Use a player like Nick suggested for easier replay of the videos.

 

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?

 

Yes, it should be useful for stock daily data. I look at a 1 year chart with the PVP and VWAP on it for the various futures I trade.

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I took a stab at fixing the program bugs that stopped my tick chart from displaying correctly, and during the evening I replayed intraday charts using both tick charts and chart with 5 min candles. What I observe is that one can use the tick charts to trade the pre-open and open (first 30 to 45 minutes), watching the market develop and taking a few quick scalps. You can then "switch over" to the longer term chart (2-5 minute candles in my case) and not feel as though you "missed" the open..Just a thought.

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I took a stab at fixing the program bugs that stopped my tick chart from displaying correctly, and during the evening I replayed intraday charts using both tick charts and chart with 5 min candles. What I observe is that one can use the tick charts to trade the pre-open and open (first 30 to 45 minutes), watching the market develop and taking a few quick scalps. You can then "switch over" to the longer term chart (2-5 minute candles in my case) and not feel as though you "missed" the open..Just a thought.

Yes Steve, that's one way to trade the open. I usually use a 15 second chart on the open and watch to see if there is a NEWBIE entry for a quicky.

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Yes and I think we can take this a little further than just the open. It seems that one can use the shorter term chart to trade those "in between" times when the skew is does not show direction (skew = 0). Or when a sudden shift of the skew occurs, looking at the shorter term chart (for me it is either a 1 minute chart or 200ticks) lets you re-orient yourself and prepare for a possible reversal. We had a good example just now on the ES contract where the skew shifted, I changed over to the 1 minute chart and took the long entry around 1448 looking for a scalp profit at the 1 SD (about 1449). In fact the move continued on up to 1452 (a previous "HUP").

 

Previous "HUP" areas seem to act like magnets or pivots and in this case price has stopped there at least momentarilly.

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Yes and I think we can take this a little further than just the open. It seems that one can use the shorter term chart to trade those "in between" times when the skew is does not show direction (skew = 0). Or when a sudden shift of the skew occurs, looking at the shorter term chart (for me it is either a 1 minute chart or 200ticks) lets you re-orient yourself and prepare for a possible reversal. We had a good example just now on the ES contract where the skew shifted, I changed over to the 1 minute chart and took the long entry around 1448 looking for a scalp profit at the 1 SD (about 1449). In fact the move continued on up to 1452 (a previous "HUP").

 

Previous "HUP" areas seem to act like magnets or pivots and in this case price has stopped there at least momentarilly.

 

Good show Steve. Keep up the good trading.

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Thanks Jerry, your generous work here makes it possible for me to improve. So what I would like to do is give a little bit back..One technique I use profitably is to look at a 60 min chart of the previous day's action, noting where the wide range bars exist. Wherever I see a "wide range bar" I calculate the midpoint and put a horizontal line through it. These lines serve as "test points". That is to say, I look for today's price to test these lines and also they serve as profit targets helping me to stay in a trade longer.

 

The attached chart shows one example of a trade using the midpoints of the previous day's wide range bars. There were several such trades possible today. This seems to work well for both futures and equities. The general concept is that the midpoint of wide range bars serves as both support and resistance.

snapshot-81.png.4769be595e112248db430db29e8516d4.png

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Hi Jerry,

 

I guess you are still considering how to present HUP's....gives you a well earned weekend off I guess! Still I missed my 'trading with market statistics' fix.

 

In the meantime one thing that I am still considering is when to take breakout trades and when to take counter trend trades. (of course when in doubt stay out is also an option too).

 

I know BO trades should be from the bands wrapping round the PvP. Counter trends when PvP & VWAP are 'close'. There are situations where both look like valid possibilities? actually I was hoping maybe a few more examples might help if HUP's are a way off. (scalp charts are perhaps good for this as things happen 'quickly'). Forgive me being presumptuous.

 

Also it seems to me that there is case to be made for a trade you have not mentioned (yet at least). This is a counter trend trade when price is a 'long long way' from the VWAP (and possibly the PvP). For example if price is outside the 3SD and moves back in. Risky again because an 'overbought' market (not a concept I necessarily buy into) can remain 'overbought' for a very long time. Guess we can open a scalp chart and find a trend trade (that is counter trend to the 2 minute of the day).

 

Cheers.

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Hi Jerry,

 

I guess you are still considering how to present HUP's....gives you a well earned weekend off I guess! Still I missed my 'trading with market statistics' fix.

I don't know when I will get to discussing HUP in detail. Next week I will be away for most of the week, and the the week after I'm heading off to China for 3 weeks. So you won't hear from me for quite a while.

 

 

 

I know BO trades should be from the bands wrapping round the PvP. Counter trends when PvP & VWAP are 'close'. There are situations where both look like valid possibilities? actually I was hoping maybe a few more examples might help if HUP's are a way off. (scalp charts are perhaps good for this as things happen 'quickly'). Forgive me being presumptuous.

The break out trades occur when price action is near the PVP Nick. If you have the situation where the PVP is also near the VWAP at the same time, you do nothing. Just sit and watch.

 

Also it seems to me that there is case to be made for a trade you have not mentioned (yet at least). This is a counter trend trade when price is a 'long long way' from the VWAP (and possibly the PvP). For example if price is outside the 3SD and moves back in.

Yes, that is correct. In fact Cooter mentioned this one early on. I usually don't do anything when the market reaches the third standard deviation. It's a tough call.

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dont know if this is the right place to do it since this thread is about scalping, but I have a question about Shapiro,

 

1) does the price bar have to make a "floater" above the SD band before the pb bar qualifies as a Shapiro bar? Or does 1 bar just have to close > the SD band and the next bar that reverses under the SD band is the Shapiro bar even without an earlier "floater" above the band?

 

Using Buy as example

 

2) what if there are successive bars that sit right on the SD band with Close < Open but the HIGHs keep getting LOWer. Do you use the last bar HIGH and keep moving the entry price LOWer or is the 1st bar that crossed the SD line used as the HIGH/entry price?

 

Thanks

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but I have a question about Shapiro,

 

1) does the price bar have to make a "floater" above the SD band before the pb bar qualifies as a Shapiro bar? Or does 1 bar just have to close > the SD band and the next bar that reverses under the SD band is the Shapiro bar even without an earlier "floater" above the band?

 

Using Buy as example

 

2) what if there are successive bars that sit right on the SD band with Close < Open but the HIGHs keep getting LOWer. Do you use the last bar HIGH and keep moving the entry price LOWer or is the 1st bar that crossed the SD line used as the HIGH/entry price?

 

Thanks

 

Otto--the Shapiro Effect doesn't say anything about which bars to use. But here is what I do:

Long

The last down bar that touches the SD is your test bar. Doesn't matter where or how it touches.

Entry bar: The first up bar with any price higher than the high of the test bar, pull the trigger

 

The simplest situation would be 1 down bar touches SD. Next bar has a price higher than the high of that down bar.

More complex situations would be several down bars touching SD. Next up bar does not have a price higher than the last down bar high. But the one after that does. Pull the trigger on that second up bar.

 

It is also possible that your entry bar which looks like it is going to be an up bar and you pull the trigger long, eventually turns out to be another down bar. Tough luck.

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Jerry,

 

 

When you set up a new volume distribution time frame, using your example of 15 minutes, do you also reset the VWAP to the new time or do you let the VWAP continue fron the previous time frame.

 

Thanks

 

Tradepro

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Jerry,

 

 

When you set up a new volume distribution time frame, using your example of 15 minutes, do you also reset the VWAP to the new time or do you let the VWAP continue fron the previous time frame.

 

Thanks

 

Tradepro

 

The VWAP is for the time shown. So if you are displaying 15 minutes of data, then the VWAP is computed starting 15 minutes ago.

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Hi Jerry,

 

I just want to let you know that this is a great thread that you started you have opened up my eyes with regards to the statistics side of trading.

 

Do you use the same strategy for larger time frames like on the one hour, daily, weekly charts?

 

Simon

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Hi Jerry,

 

I just want to let you know that this is a great thread that you started you have opened up my eyes with regards to the statistics side of trading.

 

Do you use the same strategy for larger time frames like on the one hour, daily, weekly charts?

 

Simon

 

Yes Simon, you can use Market Statistics for analyzing the data for any time frame that you like. You will note of course that for longer time frames the standard deviations get larger so that your risk (as well as reward) increases.

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    • 3 Ways To Invest In The Merge Summary: The big upgrade to Ethereum — a.k.a. “The Merge” — is planned to be a once-in-a-lifetime switch from Proof of Work to Proof of Stake, making Ethereum more energy-efficient and potentially much more valuable. Three ways to invest now: buy ETH, stake ETH, or invest in the top staking companies. Windows 95 was a huge deal. It’s hard to believe now, but the launch of Windows 95 was a global phenomenon. Journalists from around the world descended on Microsoft’s Redmond headquarters for a massive event, hosted by the comedian Jay Leno. To celebrate the new Start button in the lower left corner, Microsoft paid millions of dollars to license “Start It Up” by the Rolling Stones. Sales of the operating system immediately broke records. Windows 95 was a radical departure for Microsoft.It was the first Windows to streamline the graphical user interface for the masses: even your grandpa could find the Start button. It was the first 32-bit operating system, which meant every app needed to be rewritten to take advantage of its new architecture. It was a huge step forward. And it was a massive success. At computer stores (most people still bought software in stores), lines stretched down the block. It sold 40 million copies in its first year, quadrupling sales of all previous Windows versions combined. Microsoft’s stock price soared, quickly doubling in value and starting a magnificent 25-year run:The Merge as an Inflection Point Technology often has these “inflection points.” Because Windows was the operating system installed on most computers (Apple was in its death throes at the time, and only weirdos used Macs), Windows 95 radically changed the world. Ethereum’s upcoming upgrade — “The Merge” — is a similarly huge event, but it won’t be celebrated with traditional marketing campaigns. There will be no big-name comedian at the launch event (there may not even be a launch event). But The Merge will be every bit as transformative as Windows 95 because The Merge will upgrade the operating system of crypto. Here are 3 ways to invest early.Investing Opportunity #1: Buy and Hold ETH There are plenty of Layer 1 blockchain platforms, but Ethereum is the largest by far, holding 2/3 of the overall market: That huge slice is Ethereum. In blockchain, the principle of “network effects” is enormous: the more people using a tech platform, the more valuable it becomes. Ethereum has network effects galore: more users, more developers, and more apps than any other L1 blockchain. If Ethereum keeps innovating — as Microsoft did with Windows 95 — they’ll further that lead, creating a significant competitive moat. The Merge is an enormous innovation because it will cut Ethereum’s energy usage by 99.95%. (You read that right.) All the arguments about crypto using too much electricity will go up in a puff of smoke … except for the energy-hungry bitcoin, which may start looking like a worse investment than Ethereum.The new Ethereum may also become deflationary. That’s a good thing for investors, as it means that instead of continually enlarging the pie and diluting your ownership stake, the pie may start shrinking – making your stake more valuable. The easiest investing opportunity is to simply buy and hold ETH. You can already see the correlation between The Merge getting closer and the price of ETH going up as investors start to wake up from their crypto winter hibernation: ETH price over the last month, as The Merge looks more and more likely In my view, The Flippening — where Ethereum eventually overtakes bitcoin in total market cap — is likely. Ethereum is innovating at a furious pace; bitcoin is not.Investing Opportunity #2: Stake ETH When you stake ETH, you earn rewards, generally in the form of more ETH (like earning interest), and sometimes in another token as well. (See our workshop on How to Stake ETH for more.) There are a few staking options.Solo staking. If you’re tech-savvy with at least 32 ETH (about $50,000 today), you can run a validator node (instructions here): basically, souped-up PCs running special validator software. These machines “run” the new Proof-of-Stake Ethereum network in the same way that mining machines “run” the bitcoin network.Staking as a service. If you’ve got the ETH but don’t want to manage your own node, you can deposit it with a staking service, which will run the validators on your behalf, and split the reward. (List of Ethereum staking services here; please DYOR.)Pooled staking. For most of us, the cheaper and easier option is to stake your Ethereum with services like Lido or Rocket Pool. These let you stake smaller amounts of ETH, which they “pool” together to run their own validators. Users share in the rewards. Lido is the more user-friendly option by far, allowing you to stake any amount in an easy Web3 interface (try it out here). Lido has grown so popular that a new problem has emerged: the service may end up staking up over 50% of Ethereum, which would give it control over the network. (Mo money, mo problems.)Rocket Pool offers a similar service, but it also lets you run “minipools” with just 16 ETH, plus additional collateral (instructions here). It’s a cheaper option than running a full node, but it still requires an IT background and a lot of spare time. Centralized exchange staking. The easiest option is to simply stake your ETH using exchanges like Binance. You won’t get as many rewards, but it’s probably the safest and easiest option, as the big exchanges want to keep their investors safe: they have a lot at stake.Investing Opportunity #3: Invest in LDO and/or RPL directly Both Lido and Rocket Pool have their own native tokens (LDO and RPL, respectively), which are used as additional rewards. Our investing thesis is always that buying a token is like buying stock in the underlying “company.” Rather than staking ETH with Lido and gradually accruing LDO rewards, in other words, you can simply buy LDO now if you believe the value of the Lido “company” will increase over time. Think about it this way: you see a transformative new technology hitting the market, but it’s still too geeky for the mainstream. A company finds a way to make it more user-friendly, and they rapidly gobble up a third of the entire market, with people worried that it might go even bigger. This is exactly what is happening with Lido. But who or what is Lido? It’s a Decentralized Autonomous Organization, which means you can see what’s happening in the “company” in real-time via their message board. For example, here’s a proposed budget that would grow the team to 80+ employees. Today, however, the team is small: they have just six core devs, located primarily in Russia and Eastern Europe. But they’re backed by a number of big investors, including some OGs in the crypto space. And they’re growing like a weed. Rocket Pool, on the other hand, is trying desperately to keep up with Lido. Compared with Lido’s smooth Web3 interface, trying to set up a Rocket Pool minipool is like trying to build a quantum computer in your bathtub. If Rocket Pool wants to beat Lido, they have to focus on one thing: making the product user-friendly. That’s it. Product, product, product.In my view, both LDO and RPL are high-risk, potentially high-reward investments. The hope is that you’re investing early in the next big thing, and their fortunes will rise with the launch of The Merge.Mo reward, mo risk If you want to take advantage of the sweet rewards of The Merge, never invest more than you’re willing to lose, because there are still significant risks, such as: The Merge is not guaranteed to happen. It is looking increasingly likely, but it has been delayed several times already. If you stake ETH now, you may not be able to get it out until The Merge does happen. If you invest in LDO or RPL, those services may not stand the stress test of The Merge – or they may be eclipsed by even better staking services.That said, I think these are some of the most exciting times in crypto — this generation’s equivalent of the Windows 95 launch. This is why we’re issuing our first-ever BUY ALERT for both ETH and LDO. Start it up. Source: https://learn2.trade/3-ways-to-invest-in-the-merge 
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