Scalping: An effective and highly profitable trading strategy (part 2)

In this video we continue with part II of our series to introduce an effective and highly profitable trading strategy – scalping. In this lesson for the trading community, we teach in step by step detail, with video of recorded entries and exits, 3 scalp trades in ROKU and BABA to help you grow your trading account.

View Video Transcript
in this video we continue with part two
of our highly popular series to
introduce an effective and highly
profitable trading strategy scalping hi
I’m Mike bellafiore co-founder of SMB
capital and we’re a 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 lesson for the trading community
we teach in step-by-step detail with
video of recorded entries and exits 3
scalp trades in Roku and Baba
to help you grow your trading account
[Music]
last week we did a introduction
introduction to scalping video and
really what we were doing in that video
showing you guys charts I was showing
you guys the specific setups that I like
to use in the high beta stocks I’m
showing you how you know trend following
with the mas showing you how to take
those momentum drives in price you know
and really how to execute the idea of
scalping the most important thing about
the previous video was how you know you
really need to still have that context
that can help you drive price when
you’re developing a trade idea you
always want to make sure there’s some
wind at your back
that’ll help some real volume come into
the stock and drive the price away from
a key technical level for example so
just to quickly review what we covered
in that video you know we established
that a scalp as a short term momentum
trade with a very tight stop we want to
make these trades ideally around a key
technical level provides a clear
movement of price when it’s broken or
held this works best in the high volume
periods of the day you know first hour
last hour this isn’t really kind of
strategy that you want to get locked
into in the middle of the day and
there’s not really any volume nothing
really driving price you know we can
scalp along a trend if we have a develop
system for doing so I mentioned in the
last video some people use RSI trend
lines I personally use exponential
moving averages we want to see volume in
the direction of our scalp that access
confirmation we want this to happen
quickly and if it doesn’t happen quickly
you know we get out of the position
reading the tape is a vital skill in
performing scalps and in this video
we’re actually going to go through and
and look at some some tape so quickly to
go over some of the tips you know things
that we’re going to be looking for in
the box we’re looking for acceleration
at the speed of which the tape is
changing bids and offers we’re looking
for a flurry of prints in the time and
sales window in the direction of our
trade we’re looking for a rapid movement
and price away from the area we’re
interested in and then you could also
make trades based off of large size at a
technical level there aren’t going to be
any examples of that in this video maybe
we’ll do that another time okay so you
know going off of that these are going
to be real trades that I took last week
I’m going to set up the
arts for show you how the trade worked
out how its set up and then we’ll dive
into the real-time tape okay so the
first trade actually two of the trades
are gonna be in Roku the daily charts
gonna set up the same way for both of
them
in recent days you know past month two
months three months this is the daily
rope who’s been kind of in this down
trending channel had an explosive day up
you know has earnings today after the
close so this week
they’re having some drives in price
setting it up for its earnings you know
we don’t know how they were gonna report
yet but we had this big explosive day
we’ll see a trade from that day and then
a second day gap and go here’s the
hourly chart and how that set up big
explosive day from the bottom of the
channel breaks out from the channel gap
and go another really strong day so the
first one we’re gonna do is a trend
follow scalp I wanted to start out with
this one because I feel like this is
kind of easier for traders when they’re
first starting out you know a lot of the
trades I make in scoffs or really quick
momentum drives in the morning and often
times as a new trader you can hit in
really quick and get spooked by how
quick the tape is moving and not really
be calm and let the trade work out for
you so this is gonna be a nice example
of you know I put and put a bid in I was
trading against the 55 EMA I like to use
that as my confidence level you know put
my bid in tags 255 EMA drives away from
price and I take it to new highs alright
so quick pause here just to go over some
things that you know people watching
might not really understand I talked
about my color gradient in the last
video so obviously bid-ask have it
layered down in colors I like the
brightest to be the current bid and ask
you know time and sales anything done on
the bid is gonna be in red anything done
on the offer is gonna be in green
anything between it’s gonna be pink and
obviously my chart here just has vu app
on it I don’t have the EMAs on this
chart I’ll kind of talk you through
where they are I use thinkorswim they’re
on a different screen so right away at
this point the 55 EMA is at 130 206 so
I’m throwing a bit in looking to get
filled around that area
once I get filled there you know my stop
is essentially if 132 drops
in any type of way you know if the way I
get a clothes underneath that 55 EMA I’m
gonna get out but at this point you know
put my bid in if I get filled I get
filled and then I’ll look to try and see
how it develops look to see if I can
take this to new highs so I got filled
for to tears right there you know this
isn’t going to be a really quick moving
tape right away
later in the day it’s about 1:30 it’s
not doing a ton of volume it just kind
of tag that area they’re not really
hitting the bids there’s not really any
selling it’s kind of just hanging out 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 why do I see a little bit
of movement away in price back up one
thirty to twenty you know now I’m you
know twenty thirty cents and the money
now I’m looking to get an idea in my
head if this happens quickly and we get
a big extension up from the 55 maybe
dish a little bit out see if we can hold
the nine in the 21 and then start to get
a little bit more sophisticated with how
I’m managing my position with the
overall idea that I think this is going
to go to 133 minimum
so I’m layering some offers up you know
taking some tears out again I’m gonna
hold a smaller core you know I just got
40 50 cents
additionally so I’m out generating cash
flow around the 9 and 21 EMA if it pulls
back in I’ll put some more size back on
and then keep in mind that I’m playing –
at least take my core of one tear up to
133 it’s a nice little reaction there 50
cents a little bit of size not really
anything I’m too interested in you know
it’s not like it’s been really developed
as that hard as a technical level yet
I’m more interested in the highs 75
cents perhaps
so I’m back down to just a core so at
this point you know it’s spending a
little bit of time here you can see a
lot of prints start coming in now it’s
skipping above 50 cents it’s into the
60s the high of the day is 77 cents so
now in my head I’m hitting quickly here
I added another tear you know we’re
breaking above the high that we just
made before we pulled into the 55 I’m up
to two tears again looking to see what
happens in 133 already you can see the
volume coming in here is very nice
highest volume we’ve seen since the
previous drive up I have in my head this
is definitely gonna probably extend this
move a little bit we’re making high of
day so now just for my own sake this is
getting a little bit of an extended
candle now I’ll dish some out ahead of
133 see if we can break
so oftentimes what you’ll see happen is
you’ll see a stock come up to a whole
number there’ll be a ton of size on the
offer there and it’ll need to retrace
sometimes it could be like a 50 60 cent
retracement maybe it retraces this whole
move and fails but considering we tagged
90 cents then pulled in a little bit you
know let the buyers reload in the low
80s
I took those offers out ahead of 90
cents now I’m thinking that we’re gonna
break it was kind of overthinking it you
know what are the odds we’d make a
13-cent new high or 23-inch cent new
high and fail from 133 markets strong
just doesn’t really make any sense so
instead I actually added another lot for
momentum as soon as I could kind of tell
that they’re about to break it so you
can see it’s stalling at 90 cents a lot
of green prints coming in you know no
red prints on the side they’re 96 cents
I add another lot you could see the size
at 133 but given the context of the move
I’m not really thinking that 133 is
gonna hold maybe it has like a 10 cent
pull in 15 cent pollen you know I’m not
trying to overthink it too much you know
I’m essentially long from quite a bit
away you know this is what you call
being in the driver’s seat
you know when stocks trending nicely and
and things are going well there’s not
really too much to think about here and
I have a momentum lot on I’m not kicking
the momentum lot on unless the high of
day drops this gets back underneath 70
cents just looks like buyers need to
reload real quick
so a little bit of a pull back to
underneath eighty three bids instantly
still not trying to overthink this too
much
making sure this 70 cent area is holding
bidding it back up you can see there’s
no volume on any of these Poland’s no so
I’m still not trying to overthink it too
hard now we’re back up into this 90 cent
area you know I want to see some good
bids I want to see the tape speed up see
it flurry into this move and see if we
can get a nice break about 133 you know
I’m still I’m still holding I’m up to
the maximum amount of Tears I don’t want
to be in for this trade at this point so
I’m putting some offers up above 133 you
know sometimes you flurry above the
whole number and then they trace it back
down considering I’m scalping at this
point I want to be pretty quick
you know another quick note to mention
while we wait for this to break see a
lot of guys scalping on like you know
two or three-minute time frames and
that’s possible too it needs to be
around a technical level just so we get
the nice break through 133 if you think
about I’ve only been in this trade for
10 minutes you know that’s is still a
scalp you know I’m not holding this all
day my average trade here is probably
gonna be less than 15 minutes so I think
I layer some offers up here get taken
for to tears there on the spike up to
130 320 you know layered them out all
the way up through the thrust now I’m
looking to see if you get another drive
forward took out a half a tear up there
now I just have a half a tear trailer on
sometimes you walk into you know a
little bit better betrayed than you
expected for the scalp for me I like to
leave on maybe a quarter or like a sixth
of my size basically what ends up being
like half a tear depending on how big I
got and just let that go especially if
the trends moving really nicely and then
just put a stop underneath the 55 EMA
and go and do other things any questions
about this one before I move on cool yes
you know these examples are gonna be
super self-explanatory you know you want
to buy bit you want to set your
set your bids in you know be really
diligent about your prices now this next
one is gonna be you know a great example
of what I like to call dip and rip so
we’ve gone over there’s so many times in
the morning meetings you know I’m
looking for a stock that has a
relatively tight pre market range you
know it’s just so happens to be the next
day in Roku so think about it the day
before very strong stock gapped up any
type of you know kind of spooky moving
them in the early morning to get anybody
bought in the pre-market out as soon as
that gets back into this pre market
range breaks the pre-market hi you know
I’m gonna hit in for momentum
so essentially what ends up happening is
see it dip gets back up breaks into this
area I hit in one lot then I hit in two
lots and I take those Lots up into for a
nice quick moment to move and then again
I just leave on a trailer that ends up
trending nicely for me later on so this
one would be a little quicker keep
everyone on their toes
so right away Roku has already done the
dip it’s gotten back above 136 and right
away I’m seeing it come in the
pre-market highs 13650 I’m already in
before then giving a kind of a second
here you know it’s really fast as soon
as it breaks above 13650 you know this
story it’s working you know I mean the
money I don’t really have to worry about
anything breaks 50 cents you know not
really any size they’re already 60 70
cents and the money so at this point I’m
in the driver seat you know puts in that
a quick initial high at one thirty seven
thirty not really thinking too hard
about it you know maybe I’ll take a
tear-off ahead of there just to kind of
lock some in then let a full tier kind
of trend a little bit further you know
this is happening in less than you know
a minute very quick trade that’s how
these will set up on the open so I’m
still in my two tiers it’s coming up
towards 138 you know I want to move this
quick like to dish some out around a
whole number so I’m putting some offers
up
so get filled on some up there still
holding a tear see if it can break that
one 3770 seeing some size come in at the
50 cent area you know not really
thinking too hard about that it’s so
easy to think you see things on the tape
but when you have momentum like that
like this thing just went what a dollar
and a half above the pre-market high
instantly you can see that candle right
there’s what two points so there’s a lot
of wind at my back here I’m not really
too worried about you know where my stop
is or do I have a trailer on like do I
leave some on I’m just letting the trade
work sitting back riding the momentum
until it stops
so at this point I’m down to one tear I
got some out ahead of 138 luring some
offers up for another half tear
nice little thrust up here you know
again I’m putting an offer out ahead of
139 really nice drive there
and ask the extra dough should happen
now in diamonds cells if you should
start thinking about the whole position
so what are you asking what do I need to
see in the time and sales that would get
me to hold everything I have I’m not
really gonna go off the time in sales
anymore the time in sales is what I’m
looking to see on the original break of
the technical level the time and sales
are a lot more important later on in the
day if I’m looking to see new momentum
come in so for that first example I’m
putting bids in you know I’m looking for
two for there to be a kind of curl and a
drive away in price that’s what I want
to see the time and sales speed up see
how much green there is there’s only one
two three four five red prints there
like that’s what I want to see in that
example but for this example considering
the price is what’s guiding me and the
speed of the tape you could see how the
bids and the offers are just scooting up
really fast it’s not staying anywhere
for too long at that point it’s probably
gonna be kind of impossible to read the
time in sales you know if we went back
really quickly you know and you look at
the time in sales here like I you know
I’m seeing a lot of green but I can’t
see what prices those are at you know
I’m also watching the tape you know I
just know you know out of my peripheral
vision that there’s a lot of green
getting printed and I’m not too
interested not too worried about this
move slowing down and I also have a feel
for the stock of a pretty good idea that
there’s gonna be strong momentum here
you know the tape is skipping prices all
over the place the spreads always
tightening up towards the offers so you
know I’m not really too worried about
what the time in sales is doing and I
have a plan so my plan is like around
every whole number I’ll take a half tear
off I know the ATR the stock I know what
to expect in this type of a move you
know it’s ripping up into I think
there’s not really resistance at this
time until maybe like 142 so I have in
the back of my head a price target that
I want to at least bring my trailer to
but as far as scalping goes for momentum
as soon as I see the tape start to slow
down around any type of offers or
something like that I have to be out
because in this particular instance you
know if you look at this stock here this
stock could pull all the way down to 130
650 and then bounce but that’s going to
be a new trade
for me I want to be out of most of my
size up there so if it pulls back into
13650 I can put on a new trade with a
new stop targeting a much higher price
later on but considering this happened
these are two minute candles actually
this is one minute candles one two three
four five it’s been five minutes and
I’ve already gotten you know almost five
points out of the trade you know I’m
good on that you know I don’t really
need to be a hero here there’s other
things moving you know I have an entire
rest of the day left I’m okay with
taking my chops there and maybe letting
it set up when he’s great right right
exactly exactly once you are in the
trade you’re just yep
yep going by my plan putting out offers
where I expect the price to to go to and
then you know not overthinking too much
of what happened what’s happening on the
tape at that point yeah so you know
that’s essentially the end of this trade
I get back down to a trailer lot like
you saw in the in the chart it spends a
lot of time hanging out up here you know
I ended up building into another
position here you know that’s I started
position trading off of the feeler so
you know you always got to have two
different plans my scalping plan is for
momentum I’m gonna take big size I’m
gonna be out of it quick
and then depending on whether or not it
holds up maybe it Flags maybe it makes
some type of wedge up here then I could
start a new trade put on more size have
tighter risk and it’s not so much of a I
need to react quickly okay so the last
trade is gonna be kind of a similar idea
and that I’m looking for momentum early
but what happens here is Baba had you
know this is the hourly on Baba
was kind of pulling in a little bit on
the hourly and then was gapping up after
you know closing in the middle of its
range the previous day comes up in the
morning it was kind of opening towards
the top of its pre market range big
selling comes in early you know big
volume pukes it all the way down to the
bottom of the pre-market range Spike’s
up a little bit comes making some
marginal new low and then starts to
really tighten up here under view app so
this is a pattern I like for a potential
squeeze play you know
on higher time frames I was expecting
Baba to kind of have a stronger move you
know if we really dived into it what was
it selling off on the market wasn’t
really necessarily weak you know I’m
thinking that anyone who’s looking to
short you know short the bounce short
the bounce they think it’s gonna trend
down today they think it’s really gonna
have a super weak day the opening drive
lower you know fail from vu app now it’s
pressing against vo these are such great
prices for me to get short get short you
can kind of see the volume just really
die off as it doesn’t hold this new low
first warning sign if you’re trying to
trade this short you know they couldn’t
push it down with more volume they
couldn’t hold it down and it instantly
is retracing back up here so in my head
I’m thinking all right as it wedges you
can kind of see this nice trend line it
puts in it tightens and tightens and
tightens and tightens if it breaks up
above this level I think it ends up
being like 40 or 50 cents on the whole
number when that breaks through that’s
going to be my trade to get in I’m going
to look to see if it has a strong
driving price I’m gonna look to kind of
take my size let it sit in and see if
there’s any type of big drive in price
so you can see what ends up happening is
takes it out small little retest no
volume on the down move and then that
rips all the way up to 220
so the first two camels right like it
hits baby no I’m gonna beginning that
right at yoga mmm playing so it also
hits like the pre-market though no yep
so why we not buying this yeah the
reason for that for me in this
particular instance I don’t like when
the pre-market range is really wide so
you can kind of see the pre-market range
here I think ends up being like you know
almost three or four points that’s kind
of too wide for me I’d like it to be you
know less than a quarter of an ATR so if
this was like a let’s say just this was
the range and it peaked underneath here
and then started to go that would get me
interested in that type of idea but we
have to think about is this just had a
really solid down move you know three
and a half points in a minute
that type of down move is a little bit
too much for me to think it’s gonna
reverse the whole thing right away I’m
thinking it’s gonna need to spend a
little bit more time I might not even be
trying to take it to new highs I might
just be thinking you know I can get to
squeeze above view app maybe it takes
out this candle and fails up here
somewhere
or maybe consolidates up here after it
bounces but it’s a little bit of a
different trade just because the selling
pressure early is a lot more aggressive
than what you saw in Roku Brookwood kind
of dip down a little bit and then
instantly got back up sat there for a
second and just ripped you know way less
of a down move no volume to the downside
this is a completely different situation
it ran the entire pre-market range in
one minute and the pre-market range
itself was almost an ATR so that kind of
has to get you prepared for it might
need a little bit more time so you can
see Baba has this down move
you know dips all the way down you know
big move there takes out the entire
pre-market range the pre-market range is
relatively wide it looks like there was
some buying swipes the whole thing but
never really shows severe weakness so in
that instance you know I’m looking to
buy this break and I’m really targeting
just for it to you know quick scalp up
to here and because I have a smaller
target range and a tighter stop I’m
gonna get bigger in this particular
trade you know then I did in Roku where
I don’t really have time to see where
exactly my prices I’m just paying
for because there’s so much wind at my
back then I’m gonna be one two three
points on the money right away and if I
have enough sighs where maybe I lose a
point if I’m wrong if it you know
collapses if I lose a point I can get
out quickly it’s not gonna damage my day
too much
if I’m right you know risk a point to
make five yeah that’s that’s why we’re
in the business that’s what you’re
looking for mm-hmm okay so for this
bah-bah trade you know kind of see that
you know this forty cent high forty cent
area you know we like to call any type
of like sticky offers we like to call
that being heavy on the tape you know
that means that every time the price
moves up to that area on the offer they
just hit it back down you can’t really
get the price to go above you know you
get a quick 30 cent down move back to
the low to 18s now you can tell that you
know they’re pushing this down they’re
not letting this thing get above to 1850
you know again gets to the mid forward
mid 40s
you know wicks back down 20 cents so
right away I’m starting to think okay
you know picture a balloon underwater if
you take a balloon
you hold it underwater as soon as you
let go it flies right through so anytime
you have a lot of upward pressure stocks
really worked the same way anytime the
selling pressure keeps selling keep
selling but the buyers are holding it
you know eventually you get this
equilibrium as soon as one side gives up
you’re gonna get explosion in price to
either direction so in this instance
given the fact that it never really you
know took out the pre-market low in any
meaningful way you know not really
seeing any volume continuing to the
downside I’m thinking that you know this
might be that type of situation
so obviously if I’m thinking that it’s
gonna break to 1850 I want to try and
get in you know towards 2:18 be a little
bit anticipate Ori you know I have a
general feel for how Bob is gonna trade
you know I want to be in from the bottom
of this wedge that way I have a little
bit more room to add another lot above
to 1850 keep my price is going correctly
you know I don’t want to be the guy
buying the top of the range then we
quicks back down and I have to hit out
that’s like you’re losing the spread so
I’m trying to be patient with the way
that I’m doing it you know really trying
to make it so I’m in a great position if
it breaks about to 1850 and doesn’t
really explode away from price
considering you know we still have all
this downside momentum that started a
day you know I’m not expecting this to
break and instantly be above 219 you
know maybe it gets back up consolidates
has a little bit of a pull in back to
this 50 cent area and then goes so I’m
in I’m in like two tiers at this point
oops you know being anticipate Ori you
can see it’s sitting at 50 cent evenly
you know we’re really tightening up here
at this point if it breaks 50 cents you
know this trade is now really in play
got great prices I’m already in the
money I can hit another lot so I’m
preparing myself to hit another one I’m
still kind of holding it right there you
could see they gave up 50 cents and let
it go 51 52 53 now I’m thinking all
right that offer at 50 cents isn’t
sticky anymore you know there’s not a
real seller there next time this goes
through it’s probably gonna skip 15
cents right away boom right away we’re
in the 60s
I had another lot through there so at
this point not really seeing the volume
I wanted to see to take any out or think
that I’m gonna get a big trade so right
away you know dishes back underneath 50
Cent’s no volume yet so I’m not really
too worried if I had hit that lot above
50 cents which I did and that was my
only trade I probably would have puked
this right away and not been in but
since I established the core from a
little bit lower
all I did was just take out that
momentum lot but I’m still in the
original trade really on that break of
fifty cents I wanted to see it get to
219 quickly and since it didn’t do that
I got back down to two tears instead of
three tears you know so now I’m in a
decent position still this point don’t
need to overthink it too hard
gets back above that area take a little
bit off ahead of the whole number you
get a nice move two to nineteen breaks
through to nineteen not really any size
there but you can see it’s kind of
struggling to really expand and you’re
not seeing any big volume come in so at
that point I want to be diligent
you know trim all the way back down to
one tear and if it pulls back into to
1842 1850 get all the way back up to
three tears if it drops this you know
twenty-five thirty cent area I’m out of
the trade maybe this is just an
opportunity to reach short so it’s
acting nicely has a really shallow pull
in you know they can’t even get this
back to fifty cents as soon as you see
it rebate back about two nineteen I put
a momentum lot on so now I’m back up to
two tears didn’t have an ability to get
back to three tears because it didn’t go
all the way back down here really
shallow pull in oops
you know that you know general rule of
thumb if you have a break in price and
they’re not really showing the expansive
candle yet and has a little bit of down
move that retraces instantly you’re
probably about to see that balloon
underwater effect happened a little
later but you know at this point I’m
already a dollar plus and the money so
that momentum lattice is kind of like a
freebie definitely thinking it’s gonna
break this area you know thinking in my
head it’s probably gonna go to 220 try
to get at least a tear and a half up
there I think I dish out a tear or half
a tear somewhere around this 50 cent
area
you know some nice candle to the upside
took off half a tear now I’m gonna tear
and a half see what it does at 220
you know big failure happen they’re
thinking it might need to consolidate
ahead of it if it spikes up they’re
right on this candle the big size on the
offer I’ll probably get all the way back
down to a half tear as you can see we’re
coming up to it you know decent size
there never really gets up there yet you
know kind of seeing how it does right at
220 see all these green prints coming in
and they can’t even get it to to 2001 so
you know right away I’m thinking okay
maybe it’s actually there’s legit
sellers here they actually might be able
to hold this down see still big green
prints coming in can’t get above can’t
get above really holding it this would
have been a great round number scalp
this time so one example I’ve seen where
it works and recent times yeah
I got smoked in that bobble yes so I
will say that Baba likes to be a sticky
sock it likes to go to these whole
numbers especially big psych levels you
know the corridors to 25 to 20 to 10 200
it likes to you know have these crazy
like 40 50 cent rejections from those
areas so I know that ahead of time so as
soon as I see it fail right here all the
way back down to half a tear you know if
we go and look at the chart stalls at
their stalls it there and then we got in
big 50-cent pull in they try and spike
it back up and it just gets smoked again
so I actually got out of that last half
a tear that I left on to see if it would
break once this candle kind of broke
down from to 1950 you know out of the
position maybe it needs some time maybe
it needs to consolidate somewhere it
becomes a different trade it’s no longer
the scallop as soon as you see if
slowing momentum you know against the
direction you’re in the trade you know
you don’t have to overstay you don’t
have to be a hero buys this buys this
buy into view app try and get bigger try
and get bigger you know the trade has
changed you have to have your plan stick
to your plan that’s a great example of
what can go wrong
if you don’t do that all right
those were all three examples any other
questions yeah I’m just gonna I’m just
gonna hit the bids yeah especially in a
stock like Baba where you know if it’s
not having a big momentum driving price
you’re probably only gonna have like a
two three four cents bread not too
worried about a about taking that just
trying to get out just a scalp you know
already made point a half on the trade
I’m good now it’s your turn
do you use a scalping strategy in your
trading if so please share the type of
scalp trades that you make let us know
by leaving a comment below right now

* no relevant positions