Scalping

Jul 29th, 2008 | By | Category: General Comments, Mike Bellafiore's (Bella's) Blogs
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Scalping is an important trading technique for new traders to learn. Yesterday was a great example for why. But let me take a step back. Every so often we get a cocky young student who strides into my office and asks direct questions. The last young such kid started with, “do you just teach scalping?” A perfectly legitimate question. But it was the way he asked the question. He asked as if scalping was beneath him, a way of making money that was in some way inferior. Oh to be young again. And I said, “no, but we scalp when a trade calls for a scalp.”
Yesterday there was not a whole lot going on compared to last week. AMGN had some news, but that is a pretty tough day trading stock for most (Mr. Spencer explained why during our AM meeting). So a couple of our new traders stuck with secondary plays and followed up in HK. They watched the way HK moved with the XLE (charts below) and when the stock was a bit too high they scalped it and got short. And when the stock was a bit too low they scalped it and got long. Both had excellent trading days.


At the end of the month when those two new traders cash their rather impressive checks earned trading, the bank is not gonna ask how they made their money. The bank is not gonna say,” I am sorry but we cannot cash this check because you earned some of it scalping.” The bank is gonna cash their checks.
Scalping is a technique a new trader should learn. It’s easy. It’s a way to put some money into your pockets while you are learning. It’s a way to turn a slow day, like today, into a solid trading day. But most importantly you should be a well rounded trader. Scalping should not be your only technique, though I know some consistently profitable scalpers. It’s one of the many trading plays that we teach. But sometimes a trade calls for a scalp and you should have that play in your playbook.

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  • http://www.twitter.com/stevenplace Steve Place

    Great post. This sort of information is great for a cocky young student like me ;).

    I haven’t yet encountered a scalping strategy that uses price performance relative to the sector as a mean-reversion technique. Do you just eyeball the two charts on an overlay or do you combine the charts on a ratio (HK:XLE)?

    I’ve been watching HK for a couple days now. I’m waiting for it to break 35 to put in a new higher high and break the downtrend it’s been in since the 14th. Looking at the September 35 calls with a stop at 30.

  • http://www.twitter.com/stevenplace Steve Place

    Great post. This sort of information is great for a cocky young student like me ;).

    I haven’t yet encountered a scalping strategy that uses price performance relative to the sector as a mean-reversion technique. Do you just eyeball the two charts on an overlay or do you combine the charts on a ratio (HK:XLE)?

    I’ve been watching HK for a couple days now. I’m waiting for it to break 35 to put in a new higher high and break the downtrend it’s been in since the 14th. Looking at the September 35 calls with a stop at 30.

  • Bella

    That is certainly a start. But not as simple as that. Scalping is more a game of pattern recognition and discipline. And it takes some time to get good at it. Certainly use XLE as an indicator when you trade HK. This will help you find an edge for certain trades.