Insight #1: The Myth of "scalping"
The insights/opinions found within this thread originate largely from the premise that if we can properly define a problem within the context of a well-structured question, then inevitably an answer will follow sooner or later. With that in mind let's tackle the subject of "scalping".
Question #1: Why do you and I trade forex?
Answer #1: To generate profits.
Question #2: How are profits most efficiently generated within the context of financial markets?
Answer #2: By consistently pursuing and periodically taking profits that are larger in size than the initial risk involved in taking a trade. The greater the discrepancy between the average size of ones profits compared to ones losses, the more efficiently profits are generated.
Question #3: What is "scalping"?
Answer #3: The purposeful pursuit of small profits within the context of short periods of time. Profits are roughly equal to initial risk at best, and many times are less than initial risk.
What becomes apparent if we compare Question/Answer #3 with Question/Answer #2? It should be that "scalping", as it is practiced by most traders, is diametrically opposed to generating trading profits in an efficient manner. Why would we be interested in purposefully structuring our business inefficiently?
Before writing this post I thumbed thru the forums and looked at many of the scalping systems offered and being discussed among us. Here are some direct quotes I found regarding the subject of stops (i.e. initial risk) used with some of these gems:
1. "Trading this methodology is not going to give you a 1:1 R/R. Scalping is built on probability theory as mentioned."
***************
What kind of R/R profile will it give us then? It seems that lofty terms such as "probability theory" have lulled this particular trader into not having to assume the responsibility of researching and testing this system to come up with this vital information. Is this rational?
2. "Contrary to popular belief I'm not a friend of setting a Stop Loss. May be to set a stop loss perhaps 5 pips above the last candle or at the counterpart upper or lower Band of Bollinger Band."
*****************
If you are not a friend of stop-losses, then it is a certainty that you are not a friend of trading profits either. Words like "maybe" and "perhaps" have no place in a rational trader’s trading plan.
Many of the proponents of scalping hark on the fact that they are most comfortable with the short hold-times of most trades and that this style of trading "fits their personality". However, in my own pursuit of consistent profitability as a trader I studied and modeled many traders. And there is one characteristic that all of them share and it is this: All profitable traders adapt and become comfortable with being and doing that which makes them uncomfortable. I suggest you read that last sentence again, as it truly is one of the keys to becoming a successful trader. So if you find yourself defaulting to inefficient behaviors as a trader simply because you cannot handle the discomfort, unease, and uncertainty that results from efficient action ( i.e. taking small frequent losses, longer-term hold-times as profits run, etc…) then you may need to rethink whether you are cut out for this business or not.
More Insights/opinions to follow…….
The insights/opinions found within this thread originate largely from the premise that if we can properly define a problem within the context of a well-structured question, then inevitably an answer will follow sooner or later. With that in mind let's tackle the subject of "scalping".
Question #1: Why do you and I trade forex?
Answer #1: To generate profits.
Question #2: How are profits most efficiently generated within the context of financial markets?
Answer #2: By consistently pursuing and periodically taking profits that are larger in size than the initial risk involved in taking a trade. The greater the discrepancy between the average size of ones profits compared to ones losses, the more efficiently profits are generated.
Question #3: What is "scalping"?
Answer #3: The purposeful pursuit of small profits within the context of short periods of time. Profits are roughly equal to initial risk at best, and many times are less than initial risk.
What becomes apparent if we compare Question/Answer #3 with Question/Answer #2? It should be that "scalping", as it is practiced by most traders, is diametrically opposed to generating trading profits in an efficient manner. Why would we be interested in purposefully structuring our business inefficiently?
Before writing this post I thumbed thru the forums and looked at many of the scalping systems offered and being discussed among us. Here are some direct quotes I found regarding the subject of stops (i.e. initial risk) used with some of these gems:
1. "Trading this methodology is not going to give you a 1:1 R/R. Scalping is built on probability theory as mentioned."
***************
What kind of R/R profile will it give us then? It seems that lofty terms such as "probability theory" have lulled this particular trader into not having to assume the responsibility of researching and testing this system to come up with this vital information. Is this rational?
2. "Contrary to popular belief I'm not a friend of setting a Stop Loss. May be to set a stop loss perhaps 5 pips above the last candle or at the counterpart upper or lower Band of Bollinger Band."
*****************
If you are not a friend of stop-losses, then it is a certainty that you are not a friend of trading profits either. Words like "maybe" and "perhaps" have no place in a rational trader’s trading plan.
Many of the proponents of scalping hark on the fact that they are most comfortable with the short hold-times of most trades and that this style of trading "fits their personality". However, in my own pursuit of consistent profitability as a trader I studied and modeled many traders. And there is one characteristic that all of them share and it is this: All profitable traders adapt and become comfortable with being and doing that which makes them uncomfortable. I suggest you read that last sentence again, as it truly is one of the keys to becoming a successful trader. So if you find yourself defaulting to inefficient behaviors as a trader simply because you cannot handle the discomfort, unease, and uncertainty that results from efficient action ( i.e. taking small frequent losses, longer-term hold-times as profits run, etc…) then you may need to rethink whether you are cut out for this business or not.
More Insights/opinions to follow…….