Scalping: An effective and highly profitable trading strategy

In this video we introduce an effective and highly profitable trading strategy – scalping. A trader from our firm shares winning trades made by scalping that you can learn to grow your trading account.

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in this video we introduced an effective
and highly profitable trading strategy
scalping hi I’m Mike bellafiore
co-founder of SMB Capital a we’re
proprietary trading firm located in
midtown Manhattan and I’m also the
author of the trading classic one good
trade and the PlayBook in this video a
trader from our firm shares winning
trades made by scalping that you can
learn to grow your trading account
so this is gonna be like my set an
introductory video to scalping for some
of the newer guys in here you know
you’re probably well aware of all this
stuff I’ve probably talked about with
you guys before you’ve heard it but
let’s dive into it
so what does the scalp so Scouts a very
short term intraday trade that looks to
capitalize on quick movements in a
stock’s price you know we’re not
building into positions we’re looking to
quickly capture some type of volatility
expansion you know quick move this is
going to require an ability to
physically read the tape and make quick
decisions based on momentum moves I’ve
read the tape in quotes there because
we’re gonna do a lot more of that in the
second video but at the end of the day
reading the bids and offers and the
speed at which the bids and offers
change and this is usually performed in
stocks that have rapidly changing prices
and like I said a decent level of
intraday volatility in layman’s terms
it’s really just buying and selling
stock with a very tight risk to capture
a quick move in the direction of your
trade I’d like to give some context on
this if that’s okay sure
so one of the very best intraday traders
that I know who makes consistently five
hundred six hundred thousand dollars a
month every month guess what he does for
a living
he only scalps he scouts with sighs he
only scalps one of the myths is that you
can’t make a lot of money
scalping all right that’s not true and I
know another trader in the Midwest who
works at a Tier one firm and his trading
I wouldn’t say is only scalping but he
very much reads the Box trades with
sides gets in when the box is it with
them gets out when the the level two is
showing it’s time to get out very very
big trader I pray that there are a
couple of guys in this room who become
as big and as good
any of those guys so don’t let anyone
tell you that scalping is not a
legitimate way to make money as you’ve
seen with Tesla over the last couple of
days you literally could have just
scalped and made over a hundred thousand
dollars just just trading in and out of
that not even with particularly big size
I know one trader who actually did make
over $100,000 who never really got more
than 2,000 shares scalping Tesla in and
out and the other thing I’ll just sort
of say is just never let if you’re
making money in a particular strategy
it’s the time of the month where we do
our month reviews if you’re making money
in a particular strategy grab ahold of
that do more of it don’t let anyone tell
you that it’s not sophisticated enough
it’s not academic enough not sexy enough
if you make you money on it with it
that’s a big deal
put some fundamentals of scalping
together because it’s important to know
that the whole idea behind scalping is
that you’re looking to get these quick
moves you’re looking to have very tight
staffs and because you have very tight
stops you’re gonna end up having to size
up accordingly
you know because let’s say for the size
that we use if you have a hundred shares
or something and you’re looking to
capture thirty forty cents and you’re
looking to risk ten twenty cents you
know you want to be sized up so that
those quick scalps are actually
meaningful to your P&L; and and you know
in any type of way and because of that
you have to be super diligent with
actually taking those stops because a
scalp you should get in it should work
quickly and you should be out quickly if
it doesn’t work you need to hit out
quick you know that’s the whole
fundamental idea of you’re involved
looking for some type of momentum move
some type of drive in price away from
your entry that happens fast you should
know quickly whether or not you’re right
or wrong and you have to be diligent
with your process of taking those stops
like any type of straight trading
strategy it’s gonna have to have a
specific system and plan that fits for
your style and that’s gonna be something
that you’re gonna have to develop you
can’t just go in and you know start
slapping into a bunch of shares of stock
in and out in and out in and out all day
racking up fees unless you have a very
organized way of doing that that you
have stats
prove obviously if you’re just starting
out as a trader you’re not gonna have
those stats yet that’s why you could
start on the demo
you know you paper trade these ideas you
back test them in the software you you
build out scripts and things like that
to see whether or not these strategies
work and look to develop some type of
idea behind scalping so we’re gonna do
today is I’m gonna get into some charts
and show some examples of scalps that
I’ve taken and types of setups that I’m
looking for that I think I have actual
power behind them you see a lot of guys
that you can scalp in trend you know
looking for these little Wiggles and
things like that but again if you don’t
have a system for that you’re seeming to
be buying and selling blind you know
overthinking the tape it’s easy to see
things that aren’t actually there if you
want to learn three real world setups
that our traders use including the
simple setup that we teach all of our
new traders and the setup that turned
one of our traders into a seven-figure
big money earner check out the free
webinar that we’re currently running
just go ahead and click the link that
should be appearing right now at the top
right hand corner of your screen that’s
gonna open up this free registration
page in the new window so don’t worry
you’re not gonna lose this video you’re
gonna learn more in a couple of hours
from this trading workshop then from
years of online education so kind of
leading into that the most effective
scalping in my opinion is done around
key technical levels that will provide a
momentum move in either direction you
know long or short ideally you want to
be quickly in the money on the right
side of the drive and price away from
that technical level okay so here’s a
quick example of this this is actually
in Nvidia two days ago I personally did
take this trade and you know had a
little bit of breaking news behind it so
context is always gonna be key even if
you’re scalping you need to understand
what stocks doing you can’t just slap in
expecting a chart pattern to pan out the
strongest trades even on the smallest
timeframes are always gonna have the
wind at your back so in this example you
know I’m highlighting resistance levels
we’ll put in early in the session Nvidia
opens up develops this opening range
fails tags view app which is
artificially high because it was gapping
up with the market comes in and this 216
level starts to form pretty solid
and then we fail and you know we don’t
test that price again until much later
in the day get back above you app now we
start to build this nice consolidation
of a view app underneath those
resistance levels so if I wasn’t
scalping if I was looking to build into
a position in this which is what you
guys are kind of normally familiar with
you know I’m looking to buy these dips
against vu app you know get bigger as it
tightens up add a little bit more as it
goes through
that’s position trading you know you’re
trying to trade a thesis you have a
wider stop you’re being loose with it
you’re buying dips maybe you’re trimming
some off that’s not what we’re talking
about here we’re talking about here is
taking the quick momentum move being in
the money right away selling as soon as
momentum is over and I’m in the now to
the trade in one or two minutes those
are scallops so in this particular
instance news ends up hitting that in
video was going to launch like something
to do with their product line I didn’t
even have time to really hear the news
I saw the volume coming in I saw the
technical level to 16 quickly saw that
we had a compression had it been
watching the stock beforehand instantly
I’m I’m in the box I’m looking at the
bids in the offers I’m trying to figure
out okay if this gets above to 16 it’s
pretty likely gonna have some momentum
behind it as you see the volume kind of
come in it gets about 216 I bet you I
could era I’m sorry 246 I look like a 1
if it gets about 246 I can probably get
this for a point to 247 very quickly as
it will make new highs on this volume so
in that at idea breaks 246 I quickly hit
in momentum slows up above 247 247
50-ish starts to be a little bit of a
level on the tape and I hit out and
that’s it you know very quick one point
move I was in the trade for one two
three I sold on that third candle
three-minute trade move on to something
else you know in and out that’s the idea
of a scalping mentality you know dine
and dash take your money where you can
get it be in the money quick small
losses and take a big move important
point you guys are in most of the guys
in the room are in the sampling stage
you’re trying different types of trades
figuring out which ones are best for you
the next stage you’ll get into
is developing your PlayBook and then
after you developed your PlayBook and to
try and do what you can try and focus on
what chick be consistent I’m glad you
gave me the wrong answer that’s what
most people would think the next stage
is being consistent what is a strategy
that breeds very consistent traders
breeds very consistent results a
month-over-month scalping and so not
everybody at once scalping and so
because it’s it’s it’s a simple trade
that you know if you’re right quickly or
not you buy it it’s not working you get
out not for a lot of money you don’t
take a big loss you buy it it’s working
it’s in your favor your reward is is
higher than than your risk and so if you
wait for those big levels in stocks that
are in play you will be consistent with
your results which is important in that
stage of when you’re trying to get
consistency and then Jake after you are
consistent you can size up and focus on
that yes so you know going off of that
in this example I bought as it broke 246
this previous level if it reoffer dunder
246 and was back under you know Nvidia
can move so if it’s back under 245 80
right after breaking above 246 I’m
hitting out really quick you know like
I’m not interested in seeing whether or
not it’s gonna get above the level
they’re gonna support it if they’re
gonna keep going I’m not interested in
seeing if it pulls back to the breakout
point of the wedge maybe I’ll buy a
little more I’m looking for this to
drive through the price and separate
quickly I’m looking to see those offers
get lifted tape speeds up I’m looking to
see if this can get 40 50 60 cents right
away and NVIDIA you know you develop a
certain type of feel for certain
products I trade in video a lot so I
know that when Nvidia breaks a level
what it looks like when it works is that
it’s going to separate from price quick
and I’m going to be in the money and I’m
gonna be set as soon as momentum slows
it’s probably going to need some time to
consolidate so that’s why I’m
out quickly as soon as I see the tape
put in a candle like this offer start
stepping back in you know the green on
the time and sales this kind of slowing
down take it and I’m out nothing
forgetting the Jesus stop where market
order that you paid for it
I think that’s gonna depend on your
style too I think in this particular
instance if you throw bids and you’re
gonna miss it so oftentimes for scalps
it depends in this type of move
I always scalp with momentum because
ideally you want to be in you know in
favor quick and in that particular
instance I’m gonna pay up you know so
I’m just hitting offers I’m gonna take
it because if it works and I pay the
offer I’m gonna be in the money right
away and if I put bids and I might not
get filled and then I’m gonna have to
chase it for what 30 40 cents maybe I
never get filled you know that’s not
what you want no it’s not the idea pound
scalping at the end of the day whatever
I pay in fees for not adding liquidity
shouldn’t really matter because ideally
scalping you know tight risk really nice
reward and I risk maybe ten fifteen
cents on this made a point so those are
why you’re starting to get really nice
risk reward trades so that adding
liquidity isn’t necessarily as important
so you oftentimes will have to pay up
okay here’s another one so we just saw
kind of like a breaking news technical
level opening range breakout later in
the day so what we’re gonna have here is
an example of Apple breaking the low of
day that was put in the first hour and
having a quick moment to move to the
downside so obviously this one’s not
gonna be you know as volume driven as in
video was because I had a little
breaking news to it maybe add a little
bit more size to something like that but
on a purely technical level break like
this you know you’re looking to enter as
soon as the recent consolidation that
you’re in so you know Apple really weak
in the morning bounces up to view app
consolidates breaks down if I was
building position I’d like to make this
parallel so that you guys see how
there’s power behind the scalping setup
if I was building position ideally I
would have started shorting somewhere
around here you get a consolidation
right ahead of the lows you start
shorting a little more and then maybe
you add this momentum lot but
considering we’re talking about scalping
I’m not in the trade I only want to take
scalps that’s my strategy that’s how I
make money this scalping opportunity
would be we have this really nice
consolidation right above the Lowe’s
if this consolidation breaks and some
volume comes in can’t see if I’m pulling
this up volume comes in then you start
to see now if we break this low we
should separate away from price and
maybe I can get 50 60 70 cents so in
this instance as we were coming down we
broke this consolidation I hid
underneath 320 150 which is kind of the
low of the consolidation again you know
hitting the bids I’m willing to take
liquidity that’s fine I hit the bids
right away it’s at 321 I’m expecting
this low to get broken on volume you see
the increase in volume as soon as
momentum slows I’m out so it goes all
the way 320 also a whole number a little
bit of a psychological level maybe you
know we get a spike right down to that
level I’m taking it I think I got out
maybe five or six cents you know 3 2005
I usually put my bids if I’m scalping
like that I’m trying to get a quick wick
down usually put my bids you know 1 cent
ahead of a 5 you know 5 10 15 I’m
putting my bids in at 6 11 16 21 things
like that so you guaranteed to get
sprayed because institutions they like
to use those nice round number
areas for liquidity purposes so
sometimes it’s nice to front-run them a
little bit especially if you’re scalping
because I can’t handle taking that wick
back up I need to be out it’s a momentum
move I’m you know I’m scalping okay so
those were like really good examples of
technical level breaks where I’m looking
to get momentum now I want to talk a
little bit about trend following scalps
so oftentimes this can happen you know
let’s say you have a core position from
really good prices and you’re looking to
trade around that core generate some
cash flow great method to do that is to
scalp along with the trend again you
have to develop your own method for
doing this
you can’t just buy every pullback in
trend you know and expect it to bounce
you know you have to have some type of
method to do that people use different
things some people use trend lines
some people use short term RSI I
personally use moving averages I think I
think they
really they worked really well to
develop a specific system with you guys
have heard me probably ad nauseam talk
about that again it’s important that
whatever you develop is for you and
works for you again backtest develop
your system look at your stats so let’s
dive into some examples of trend
following with the MAS so on this chart
we have a ten period EMA I like to use
that for really short term trend
following so this is actually in Tesla I
think this was maybe like a week or two
though two weeks ago that’s crazy
considering what the price is now but
this is later on the day you know just a
little bit of context we developed some
type of a range earlier in the day you
know now we’re at highs on the day and
they put in this little bit of a price
of 580 on resistance so we’re pressing
pressing pressing pressing it breaks
above 580 good volume that’s a good
example of what we talked about before
key technical level breakout take that
for momentum you know it’s crazy and
Tesla you can take that and make two
points really fast nowadays with the
volume you can make five 10 points on
these scalps and Tesla it’s insane
that’s a perfect example of the
technical level breakout scalp but if I
want to trend follow this once I have an
idea that the stock is making new highs
on the day it’s thoroughly and within
trend as defined by my system it’s
holding above the nine nine or ten EMA
now I’m looking to buy pull backs into
that nine EMA to quickly dish out on
over extensions to kind of scalp around
so ideally what could happen here you
get a big drive away from 9:00 a.m. a
you pull in really light volume you look
down there at the volume is starting to
contract tags the nine EMA put on a
feeler scalp position pulls away you’re
getting to know another extension away
from the 90 MA and I dish that out
alright and now I’m building cash flow
look at this 582 right to 585 three
points and when I’m looking for maybe a
20 point trade I’m consistently taking
five to ten percent of that move and
adding on working even working on my
average probably so if you want to call
it that
adding cash flow trading around a core
or just purely scalping and this is what
I do to make money you know I’m not even
in this as core in and out in and out in
and out that’s perfectly reasonable
it’s exactly what Bella was talking
about you can be that traitor if you
want but you have to have a system that
works again big overextension pulls in
on light volume and then you get another
little thrust really quickly here at a
new highs as soon as you know if I was
gonna take this and it gives up the 90
ma what I like to do is have some type
of rule for where is my confidence level
if I’m trying to scalp this often times
for me it’ll be the next EMA so for me
the 21 EMA or if I’m scalping the 21 EMA
the 55 EMA again you have to build your
system out for yourself quick note
scalping works best for people that
think quickly so if you have an
experience if you have a background and
gaming if you have a background where
whatever reason you can do math really
quickly in your head and you notice that
about yourself if you are tasked with
coming up with a decision that requires
processing a lot of information quickly
and you’re just one of those people and
we all know people like this Spencer’s
like this it’s like you he listens for
like 10 minutes and then he’s just like
the answer is this those are the types
of people that should be thinking more
about scalping if you’re more of a
reflective person if it takes you here
that person who goes into a grocery
store to buy a loaf of bread and takes
you like five minutes to figure out
which loaf of bread to buy that’s me
then you’re probably gonna look for more
swing trades or more trades that really
set up and and go from there so you want
to just you know swang obviously scalps
nicely quick-thinking
background of that so think about that
before when you’re when you’re trading
these things you know you think pretty
strategy that you can employ probably
pretty easily yes I kind of talked about
a lot of this you know but you know just
to put in words some of the tips that I
use for trend-following scalps you know
got to have some type of system I like
to use short term EMAS I use a nine
period EMA on a 1-minute chart
definitely super possible method for
scalping along a strong trend you have a
way to define the trend you have a way
to enter an exit you have a way to
define your stops and you have a way to
define your exits any type of big
expanded candles away from the 90m a
dish it out if you miss the next part of
the move and you’re worried about that
then you’re not really understanding the
essential fundamentals of what scalping
is you know if you struggle with FOMO or
something like that or chasing things
you know maybe scalping isn’t the best
idea for you because you might need to
be able to sit through things and build
positions if you’re scalping you’re in
out you take your money you run you go
on and look for the next opportunity it
takes a little bit of patience you know
which is kind of counterintuitive
because you think you know them I’m
hitting in I’m hitting out I’m hitting
in I’m hitting out at the same time
you’re not doing that without a system
you’re being patient waiting for those
specific areas to trend follow or to
break a key technical level you’ve
scanners to develop those setups and
things like that you know what stocks
are in strong trends that’s how you can
really build out a strong scalping
system so here’s some other tips this is
just kind of specifically talking about
what I’m seeing in the tape when I’m
scalping so we’ll do another video where
I’ll actually show you guys the tape and
some examples of me making trades in
them the chart patterns are really the
principle of how to effectively find
areas where you can get drives in price
that you can capture very quickly with
scalps but you still have to be able to
read the tape so some of the things you
might be one of looking at is the
acceleration of the speed and how the
bids and offers are changing so this is
I brought this up in one of your
meetings how I saw some you guys had it
where it a grits all of the bids or the
offers at a specific price and then you
just stack them and I made a comment I
was like oh is that is that making it
easier or harder for you guys to read
the tape you know is that making it so
you can’t really value
speed is only really useful at key
technical levels were you seeing them
have massive size on at the bid or the
offer I personally have it set up where
it’s color-coded with a gradient so it’s
yellow and it fades to a lighter yellow
so the darkest yellow is where the price
currently is sharks for example is blue
and then goes to a lighter blue because
he has blue light glasses so you know
probably easier on his eyes and doing it
10 years you want to be able to see and
build a system out even on your visual
cues for how you’re seeing whether or
not the tape is speeding up because then
you start to build the intuition right
like scalping is definitely a systematic
thing and you need to have set rules
behind it but the end of the day like
Bell is saying it’s very quick
decision-making and again you’ll get
visual cues are a great way to help out
with that
you know I can tell when if I see a
flurry of green prints coming in on the
time and sales and I see the bids and
the offers really start to move quickly
right up to the key technical level
let’s say 99 cents buy a whole number
and all sudden I see the whole number
decrementing on the offer and I see a
bunch of green prints coming in that’s
when I hit it at 246 and NVIDIA and then
it gets above and now you know I’m
instantly on the money those visual cues
are gonna take time to develop I think
the default here so you have a bunch of
different colors for everything on the
bids and offers on the montage I always
thought it was impossible to tell what
was happening all these flurries of
colors coming at your eyes you know
that’s not necessarily the best way to
build some type of intuition on how the
tapes moving you know again as with all
things you have to develop that for
yourself maybe you like the color green
you know if you’re looking to scalp
maybe you want your montage to be green
I don’t care
develop some type of way to do that yeah
so I did quickly mention large-sized at
a technical level if you see down the
order book there’s a huge block size at
a whole number the specific things that
I like to do with big whole number moves
like that or in IPOs
so a lot of times recent IPOs will have
huge institutional participants who need
to support the stock or need it to go up
because they just allocated you know
tons of shares in those particular
instances sometimes you could see you
know 100
thousands of shares sitting on the bid
or the offer at a specific price those
are the types of moves where you want to
get involved in if anyone’s watching
Tesla yesterday as it came down to 850
or was it 750 anyone remember I think it
was 750 into the close so came into 750
stock on SSR 750 by 750 o1 and there’s
big size at 750 you know if Tesla’s a
high bit of stock you guys know what big
sizes and that you know a couple hundred
thousand shares sitting on one price i
buy the penny and a stock that is a
spread of like 25 to 50 cents most of
the time that’s a key technical level in
real time you can hit that for all you
want with no risk if it read the Erie
offers out you know you kick it but if
it breaks down from 750 now next thing
you know that’s you’re scalping
opportunity in the case of Tesla you
could have gotten 30 points on that
you could’ve short it all you wanted so
those specific things and visual cues
building out your system and seeing
technical levels on the tape we’ll dive
into a little bit more in the next video
but at the same time that all factors
back into where is the stock act
contextually so that you can make that
really quick play this is just a review
slide you know obviously covered all
this already scoffs of short term
momentum trade very tight stops want to
make these trades are on key technical
levels or in a stock that has a strong
trend got to have a system for trend
filing gotta have a system for defining
key technical levels reading the tape is
a vital skill and we’ll talk about that
next video okay so now it’s your turn is
scalping a strategy that you use in your
trading if so what are your favorite
times to scalp let us know by leaving a
comment below right now

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