How would you describe trading?
In the words of motivational guru Tony Robbins, what metaphors you use to describe your Life affects
the quality of your perceptions, and ultimately your Life. So it goes with trading. Some people say it’s like a dangerous animal, waiting to pounce; others think of it as rough seas, waiting to be sailed. I like to think of trading as a walk in a knee-deep wishing well full of coins – be content to consistently pick up coins here and there, and avoid the temptation to go for a chestful of coins, lest you fall and wet yourself.
Definition of Pit scalping
By the very nature of trading in the pits, scalping is best defined by trades that are very short term in nature. This presupposes small consistent profits from trades that last no more than a few minutes.These methods presented here are exactly that -high probability trades with extremely small risk stops and predefined profit objectives.In the adage of the successful pit trader, it all about taking a million trades to make a million dollars.
Whilst entry techniques here are self explanatory, the risk management aspect of these trades are such that they must be followed without question, or when the position doesn’t perform as expected. Being relatively tight stops the trader must either be very fast in exiting, or already have orders placed in the market after entry.The methods here depend very much on taking these losses as and when they come-taking larger than normal losses when they should have been taken earlier will undermine week-to-week profits significantly
3 categories of scalp trades.
These timing methods come under 3 classifications:
1) Time-sensitive trades
This comes in 2 forms:
· In opening range breakouts, where a quick scalp is taken minutes after the open, in the direction of any market thrust.
· Trading to capitalise on the regular market turnaround times like 10am & 3 pm NewYork time.
2) Countertrend trades
Where trades are taken in known periods of trendlessness during the trading day.
3) Trend continuation trades
These methods focus on entering the market in the direction of a trend AFTER the trend has gone underway. They are also classified as retracement trades.
The Ultimate market for these scalping methods
As the S&P500 futures is, in my opinion, one of the most liquid, most active and most electronically accessible market, these methods represent the best known chances for picking consistent profits as a trader-scalper.
TIME SENSITIVE TRADES:
My bread and butter
Pattern 1: The 15-minute Opening Range Scalp (15ORS pattern)This is my all-time favorite method- it’s easy to do, need no more than telephone or Internet access to a broker, and is very reliable. It differs from the usual notions of opening range breakouts in that profits are taken so quickly that the trade lasts no more than 1 minute.
Setup: Wait for the first 15miute range to form from the open.
Entry: Enter on a buy stop 2 tics above the high of the first 15 min range or Enter on a sell stop 2 ticks below the low of the first 15 min range
Profit exit: Close out positions on an immediate 1-point profit
Stop Loss: Exit for loss on a 1 point loss from entry or,Exit if trade is open for more then one minute.
Re-entry: On being stopped out, look for the usual breakout in the opposite end of the opening range. In this case I normally double my stop entry size and wait. Same exit rules apply.
Chart 1: S&P 500 -15 Minute Open Range Scalp
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Notice relatively clean breakouts from the first 15-minute bars of each day. All 9 trades for the 9 trading days were winners.
Note: All charts in this article depict market action in the S&P500 futures for the same week of August 2003.Blue words and entry circles denote profitable trades. Red denotes losing trades. Time Scale in Chicago Time, which is 1 hour behind New York.