Scalping Verdict

Back when I started forex, which wasn't a long time ago, I use to scalp. I did that for a while before realizing that it was useless for me. Didn't lose that much money, as I only used a little per trade but still lost a little.

Now im not going to bash scalping all together, but i'd like to see the amount of people that actually make money from it. I know the whole deal, proper money management, ive preached it time and time again, so no one has to write a novel about the basics of it.

When I refer to scalping im talking about 15 min charts, 5 min charts, 1 min, and even ticks. I see a bunch of popular threads for scalping on FF. Im sure we've all tried them on demo, or live.

I trade on 4hr-weekly charts, which I find is much more profitable and saves hours.

-Taking into account the amount of time used for scalping vs. the amount of time used for making a couple of trades a week.
-Knowing that longer term S/R levels are more reliable.
-Knowing that spread is a huge factor in scalping.
Having a life outside trading.
And a few other facts.

Scalping Verdict: Not worth it compared to higher time frames.

Arguements, strong worded threats about how I am wrong, agreements, and comments welcome

Oh and im going to throw in a poll to see which time frame you prefer.

Im not too surprised to see that so far, people have chosen 1 min, 5min and 15 min.

To those people, have you been profitable for the past 4 months - 1 year?
If you have, how many pips did you make, not dollars or any other currency, how many pips did you make per day. Round figure.

Conservatively, 60 average per traded day. About a dozen trades over last 6 months, not trading every day but aiming to. 4 to 6 hours work.

In lieu of Daily as a choice I've gone for 4-hr.

Pips don't mean much, ask me in %.

I know its pretty important to deal in %. Actually its probably the best way. But doesn't % growth depend on how much some people risk. I like talking in pips because, I can't assume that everyone is risking the same as I am or even using proper money management for that matter.

Just as well, curious to know what your growth has been in % over the past year.
*O yeah, thanks for the thread you created, the one that has reached 'sticky status'.

This is with the scalping method that you've been using?

Yes. Not exactly traditional scalping, more of a swing/scalp mix.

60 pips/trading day on average seems pretty good. The thing is, I don't know if its worth all the trouble. Here's what I know from you're other thread, you win 4 pips on average but lose 16 pips. Risk:Reward, 4:1. Along with a 94.25% win rate. I'll assume the spread is 2.

You'd need to make 71 trades, to make 60 pips per trading day.
If the spread was 1 pip, it would take 33 trades, to make 60 pips per trading day. Just doesn't seem do able in 4-6 hours.

Tell me where i went wrong?
Im not trying to target you, but thats just one of many circumstances that i've seen where scalping just doesn't seem as profitable as longer time frames.

I don't see what the spread has to do with the pip-per-trade calculation... Whichever the spread is, the average 4.xx is counted from the moment it starts going on the positive side (of course this would mean the average pip per trade as in your assessment, would be 5.xx on a 1 pip spread and 6.xx on a 2 pip spread).

I don't use fixed stops, and except for the initial move, I now set pending orders at certain precise levels (that's why I said it's a swing/scalp thing). I am in the process of writing down the whole strategy so to be able to share it here, thus I won't go into details by now but numbers are simple:

------total---lost---pips---%---days
june---121----9---433---92.56---12
may---118----1---619---99.15---11
april---128----0---698--100-------9
march--25----0---133--100-------2
feb.---214---14----78---93.46---16
jan.---417---34--1766---91.85---17

This is on one account, which I monitor more closely. On the other I apply a similar strategy (swing and pending orders) with same MM but have more room because margin requirements are half (100:1 vs 50:1 at Oanda) and I work on several pairs so even if I have included it in my overall performance, the win/loss frequency is slightly lower (around 86%) because at times I will close all if the overall profit balance is in positive, and average profit trade is around 13 pips with a R/R of 2:1, but it's a mixed outcome because I can't scalp on that account (not allowed, and too much lag anyway to even dare).

So, focusing on the 4-6 hour issue: if I am working with the trend (that is, if I have assessed correctly the M30/M5 patterns and take that direction only) I'm usually done in about 3 hours on EURUSD, probably a little bit more now as I switched to AUDUSD. As I have observed, this will happen 3/4ths of the time, then by any reason either the main trend reverses and I have to go countertrending, where I will be making much less pips per entry so I'll need to work longer to reach my daily goal, go through some floating drawdown meanwhile and spend more time managing.

I started the year on EURUSD and trading the pre-Asia session (12:30/1pm GMT-4:30 to NY close), I am now testing Asia and pre-NY as AUD moves differently, and of course if I have trades open I will be monitoring throughout the day but my general work day on that account is that as soon as my goal is reached I'll end, or if the time is done and all trades are closed, I close the platform.

That's mostly it but there's a lot in the details which I'll hopefully be explaining later on.

Edit: sorry for the boring minutia, but your proportions stated kept going round and round in my mind...

71 trades at 94.25% win
66.91 wins x 4 = 267.64 pips
4.09 losses x 16 = 65.44 pips
Net = 202.2 pips for 71 trades
60 pips for 21 trades... which is roughly what I do daily

33 trades at 94.25% win
31 wins / 2 losses (that's more like it... about 31/1 usually but there are losing streaks)
31x4 - 2x16 = 124-32 = 92 pips... thus again about 21 trades for 60 pips

Forgot that part...
Of course, the time invested vs. return profitability of longer time frames is undeniable. At the present moment, scalping is an intermediate step which has taught me to react properly and make quick decisions based on what I see (especially as to precise entries) and strenghten my discipline as to follow the exit rules.

On the other hand, the swing (and maybe position) trading that the strategy involves is aimed to go evolving towards much higher TFs (4h and +) but not losing sight of the basic premise and market behaviour, which is much easier to spot at a smaller level (especially 5 seconds and 1 minute).

Finally, although I may spend several hours "trading", the "focus time" invested on each trade is very short and the reward is almost inmediate 75% of the time. I don't mind entering several times at the same price and often have reached the 60+ pip goal in a 20-30 pip range so I find it efficient especially on slow markets. I tend to lose interest and focus if there is nothing immediate to "do". I need to get accustomed to much higher drawdowns (in pips, not %) so I don't panic and close without waiting properly for the waves to resume their cycles, and the same on entries. Let's say that scalping is the confirmed hypothesis which I will later on have to translate and verify on greater time spans. It's easier to predict in the now... not so much foresee the future...

I'll echo that spread + commission is not that important. With a EU spread of around 0.8 average (on my broker, during my trading session) and a commission of around 0.4 the cost to surpass to become profitable is 1.2.

I wont do the math here but the RR depend heavily on the depth of the stop loss against your expected TP and your hit ratio. I had a terrible habit of taking profit when I see price pause, which mean I would often incorectly take before I had parity with my sl, meaning my hit rate had to be much higher just to BE.

My advice, know in advance what the tp is you are targeting, where is the next SR point that is likely to upset your plans. If it's less than your sl the RR will be out.

In terms of real numbers I'm attempting to change my 3-5pip habit in to a 6-12 pip habit. By I'd reiterate that MM is key Plus a hitrate above 60% to pass BE. The larger the diference between you average TP and SL the lower the HR can be for BE.

thanks dude

The Worlds most Successful Trader

Traders Magazine Interview 2004

Paul Rotter - aka "the Eurex Flipper"
Paul is arguably the single largest and most successful individual futures trader on planet Earth, executing trades on the Eurex exchange primarily in the Bund, but also in the Bobl and Schatz interest rate futures. He trades between 200-300,000 round turns daily using the X_Trader platform, and clearing through GNI Touch.
Every trader can aspire to imitate Paul's success as he is proof that it IS possible for a small trader to build on his success and grow into the biggest most active speculator around.
Interview introduction (translated from German language interview with Traders Magazine):

Paul Rotter has made it - he belongs to the best traders in the world and counts as a real big player. he usually does 150,000 rt/d, sometimes up to 250,000 mostly in BUND/BOBL/SCHATZ futures. in the hall of fame of celeb EUREX players he's top notch end even leaves Tom Baldwin (bonds) or Lewis Borsellino (S&P) behind. he had to work hard to make it. he blew up in the beginning of his career, which was painful but also educational - he learned his lesson and with lots of research, seeking improvement all the time, he became the man.

q: was there any key event that brought you into the game?
a: no, no key event like 'buying my first stock'. took part in some trading contest while at school.

q: how did you get to professional trading?
a: when I was apprentice in a German bank I had to work on the DTB (now EUREX) execution desk for several weeks. this attracted me a lot. during that time I was doing gamble trades on my private account, losing pretty much all of it. when it was deeply in the red, I had to leave the bank but shortly after, I was allowed to start trading in a Japanese bank. I was very lucky here, since I was allowed to gain knowledge through learning by doing.

q: did the bank give you any mentor?
a: not, I didn't have one. in the beginning I was exchanging ideas with the chief trader Ajiasaka, who was constantly profitable. he sometimes even hedged the positions of his boss, when he thought that his boss was wrong. I had many conversations about market psychology, which proved to be very helpful, especially after bad losing days.

q: how was your trading back then? have you been constantly profitable from the very beginning?
a: I was doing 100 - 150 round turns a day after a short time... I had no losing month with the first 3 years of my trading. later on with bigger position sizes i took occasional hits, especially after EUREX allowed terminals in the US and big players like Harris Brumfield / Chicago were entering the field.

q: there is a saying that every trader has to completely blow up his account at least once before he can become successful. what did you learn out of it?
a: like I earlier said, my private account saw some bad times during my apprentice in the bank, although I must admit, that back then I had absolutely no idea that there was something like 'risk-management'.
later on I found 7-digit losses to be cumbering. on day I had a blackout and after losing 2,5 million � I was seriously thinking about stopping. I still had enough capital left to live without having to worry about financial issues and i just wouldn't want to take those psychological hits anymore. after taking 4 weeks off, I regained my motivation and returned in the ring. I was able to make up the loss in a relatively short period of time, so that I came out stronger than before.

q: has this changed the views of the market in a way?
a: with the experience of bigger losing days coupled with good phases right afterwards, I'm not so sensible for losing days anymore. I know that I can make it back. this has lead to being able to switch off the screens on a day with medium/small losses more easily, instead of forcing the way back into positive territory.

q: what are your strengths as a world-class trader and where are the differences between you and other traders?
a: it's the ability to get more aggressive in winning phases, taking bigger risks, and scaling back in losing times. this is against human nature. the best thing is to have somebody around who is neutral to trading, that switches the terminals off, when a certain loss level has been reached for the day.

q: you are known as a order book-scalper, could you please explaining to our readers what you are doing and what your strategies look like? what is your tactic?
a: it's some kind of market making where you place buy and sell orders simultaneously, making very short-term trading decisions b/c of certain events in the order book (level2). for example, I usually have lots of orders in different markets at the same time, pretty close to the last traded price. the resulting trades are usually a zero sum game, but I get a pretty good feeling for what is going on and then ultimately can make a decision for a larger trade.

q: how long are you usually in a position?
a: since I do trend plays very seldom and actually scalp the market, i constantly get fills in different markets on both sides which can cause constantly changing positions for hours. sometimes i change my opinion several times within a couple of minutes, which is not pretty hard for me, since I'm only looking for the next 3-5 ticks.
q: during your professional career, have you always been a scalper or did you try other strategies (momentum/swing) as well?
a: yes, I have always been a scalper, but I am adjusting my strategies to different market situations all the time. on volatile days I of course have less orders in the market and do more 'single trades', although I usually hold them only for a couple of seconds.

q: your strategies only work on electronic exchanges?
a: yes, b/c you cannot handle that much orders in a pit, looking for counterparties and so on. computer exchanges grant fast order flow and are not as easy to manipulate.

q: as a scalper, are you trying to run stops?
a: well, yes, but because of the increase of liquidity in the last couple of years, the fast spikes caused by stops are not happening that often anymore. apart from that, that stops often are not where you would suppose them to be, because the other market participants are not silly either or learned their lesson in the past.

q: what role plays risk-management in your trading?
a: i set daily goals for my p&l, whereas the most important thing is the stopping limit, the maximum loss I take, before I switch off the screens. my biggest positions are 5 digit number of contracts. I don't use any specific money-management rules.

q: what are you doing when a position goes against you? are you using stop-loss orders?
a: I strictly close my position when they start going against me. with bigger positions this is not that easy, because I move the market against me, which could cause other traders to get in the same situation like me, which could accelerate the move. however, most of the time I am able to make some of the losses up, b/c I know what caused that move and therefore take the opposite position.

q: why don't you have any problems with closing out the position and even taking the opposite direction? shouldn't a trader stick to his opinion?
a: no, definitely not. an analyst or some kind of guru has to stick to it, but as a trader you should have no opinion. the more opinion you have, the harder gets it to get out of a losing position.

q: what role plays market psychology?
a: I constantly try to read the psychology of the market and base my decisions on it.

q: how do you handle distracting thoughts and emotions?
a: when it gets really bad - taking a cold shower or jumping in a cold swimming pool.

q: how do you prepare for the trading day? do you follow any routines or do you take it as it comes?
a: before the open I check all the economic reports that are about to be released, speeches of central bankers - simply anything that could move the market. then I try to define important levels in the markets I trade. I do this through my own analysis and through reading analyst commentaries. that's how I get a picture of the market and its important levels. I am not interested in opinions of other market participants as this would influence my own opinion.

q: any kind of mental preparation?
a: nothing specific. actually I am motivated all the time...I see trading more as a sporting challenge and try to erase the thought of the money.

q: how many hours do you spend in front of your screens?
a: usually 5 hours, that's when i trade actively...in case of special events i can be up to 11 hours

q: isn't it hard to spend that much time in front of your pc's? how do you stay concentrated for such a long time?
a: that is what my Japanese colleagues asked themselves as well...well I take it as some kind of game where i forget the time. therefore the real troubles are more physical (eyes) than psychological.

q: what do you do to calm down / relax?
a: i do lots of sports and take lots of vacations.

q: what equipment do you use?
a: MD-trader from TT, Reuters, Bloomberg, CQG and a USD-squawkbox.

q: why a USD-squawk box?
a: i use it because �/$ had some effects on the interest rates over the last couple of months. those effects change, right now it influences oil prices and the DAX.

q: what timeframes are you using on your charts?
a: usually 5- - 30-min charts for trendlines and indicators. I prefer p&f charts because they give me a clearer view on patterns (triple tops). for indicators I like the CCI because it also shows the volatility of the markets.

q: do you think is it possible for a single player to manipulate the market?
a: no, in my opinion a single player cannot influence the market around the clock. there are always several big players in the market. take the BUND for example - there are one million contracts traded a day. when a trend starts out of the blue with only slight pullbacks, I could trade against it, but with no effect. I couldn't stop the market from going up, because there would be more money needed that I could bring in. apart from that, so-called 'Analytics' computerized scalpers have made it tougher for me lately. as far as I know they are analyzing the behavior in the order book and create a fully automated system. since they act in several markets at the same time, I think these computer freak come from the fully automated arbitrage- and spread-trading.

q: what has one to do if he wants to become a scalper?
a: he has to watch the order book for a very long time.

when asked for advice for the readers, Rotter says that everything can happen all the time, so you better have your toilet close to your trading desk.

nice post mate.

Scalper are a brokers best friend. Contrary to popular belief, brokers love having a trader "take" 3-4 pips after paying a 1-2 pip spread. Although there are potentially some pseudo arbitrage opportunities in the market, the majority of the time other conditions will negate the value of any trade attempt.

The only traders brokers hate/ban are ones who are taking advantage of bad feeds, or have found some type of system anomaly and are trying to capitalize off it.

Long term scalping as it is commonly practiced in the forex market breeds poor habits and ultimately blows many accounts out. I completely concur with the original thread statement about how it is easier to be profitable on longer time frame charts. From a money management perspective, paying 30%+ in commissions (the spread) when scalping seems like a poor idea in the long run.

I took into account the spread. Leaving out the spread for scalping is suicide because the numbers will be completely off.

71 trades at 94.25% win
66.91 wins x 4 = 267.64 pips
4.09 losses x 16 = 65.44 pips
Spread cost = 2*71 trades = 142 pips
Net = 267.64 - 65.44 - 142 = 60.2 pips

33 trades at 94.25% win
31.1 wins x 4 = 124.4 pips
1.9 losses x 16 = 30.4 pips
Spread cost = 1*33 trades = 33 pips
Net = 124.4 - 30.4 - 33 = 61 pips

Here I come again with my boring minutious calculations...

Let's assume you have a $6000 equity and use 1:66/1 true leverage
You set a short position on EURUSD entering at 1.4000 with TP at 1.3900 for a 100 pip profit target.

Here would be a sample equivalent through scalping:

1.4000 to 1.3900

1.4010 high
Trade 1 - 1.4000 to 1.3990 = 5 pips
Trade 2 - 1.4000 to 1.3990 = 5 pips

1.3998 lower high

Trade 3 - 1.3995 to 1.3985 = 5 pips
Trade 4 - 1.3995 to 1.3985 = 5 pips

1.3992 lower high

Trade 5 - 1.3990 to 1.3980 = 5 pips
Trade 6 - 1.3990 to 1.3980 = 5 pips

1.3988 lower high

Trade 7 - 1.3985 to 1.3975 = 5 pips

1.3982 lower high

Trade 8 - 1.3980 to 1.3969 = 6 pips
Trade 9 - 1.3980 to 1.3963 = 10 pips

1.3970 lower high

Trade 10 - 1.3965 to 1.3955 = 5 pips
Trade 11 - 1.3965 to 1.3954 = 6 pips

1.3960 lower high

Trade 12 - 1.3955 to 1.3948 = 3 pips
Trade 13 - 1.3955 to 1.3945 = 5 pips
Trade 14 - 1.3955 to 1.3940 = 12 pips

1.3945 lower high

Trade 15 - 1.3940 to 1.3933 = 3 pips

bounce from 1.3933 to 1.3975/80 then dips
(NOTE: what do you do here in your original trade = price pulled back 45+ pips = near 60% of profits made went back)

Trade 16 - 1.3975 to 1.3950 = 12 pips
Trade 17 - 1.3975 to 1.3950 = 12 pips

lower high 1.3952

Trade 18 - 1.3950 to 1.3930 = 15 pips

lower high 1.3933

Trade 19 - 1.3930 to 1.3918 = 7 pips

lower high 1.3921

Trade 20 - 1.3920 to 1.3900 = 12 pips

Scalping
- 20 trades = 39 clicks (about 1 minute effective "work")
- no stress as no open position is going back and forth
- 1 to 2 minutes "checking and waiting" per trade (setting alarms at prices) = total about 1 hour effective directly involved and dynamic work (following rules)

143 pips = $143 = 2.38% on equity
20x2 spread = $40 for the broker

Longer term trade

entry 1.4000 tp 1.3900

- 1 trade = 1 click
- some stress as we know we'll have to wait for a while
- checking at 1.3980, 1.3966, 1.3950, 1.3933 (with alarms)
- spending some time evaluating the bounce at 1.3933 and maybe deciding to close the trade at 1.3955 (40% previous profits given back) and if not, starting to stress, watching closely all the subsequent PA until back down.
- Roughly the same but less directly involved and less dynamic work time as above (following rules but also thinking, doubting, risk of making wrong decisions)

100 pips = $100 = 1.66% on equity
1x2 spread = $2 for the broker

What's the problem in making some extra money for the broker while we also make some more for us? Besides, the wealthier our broker will be, the more chances there are that he'll be around in business for a longer while.

I would rather bend 20 times to pick each one a $5 bill that sticks under my foot while I peacefully walk than chase a flying $100 down a windy road Both are good exercise, though... but the first one is less frustrating. But that's just me.

I don't take the spread into account. Sure it's a cost, but it evens out with the extra gains.
If a 25-30% extra cost implies a 40%+ extra gain, I don't see where is the loss, especially when it is not taken out the profits made but already factored in.

There are several huge flaws in the above Hypothetical situation. So many that I will only touch the most glaring issues:

First off your entire premise focuses on being correct 30+ times. Statistically this not gonna happen unless you want to use some extreme stop loss in which case it will still moot your point.

Second scalping takes FAR more work than long term trading. With scalping you have to constantly be predicting the immediate NEXT move, which is almost a futile act in itself. You will constantly be in front of your screen and constantly checking and estimating each and every move. With a longer term (100pips isn't really long term) you can set a static stop loss and static TP and evaluate your position every so often.

Long term traders have a much better idea of their overall risk and reward ratio as a scalper can never truly know their real risk with the very real possibility of 10+ pip spikes in the a direction opposite of their position.

Trading the forex is a kinked zero sum game. A true zero sum game has a winner for every loser. When you add in the brokers spread, you increase the amount of losers and decrease the percent of winners as the dealer becomes a de facto winner.

Scalping is a very tempting and alluring practice, but ultimately not a reliable long term strategy. It all comes down to odds, and with scalping the odds are stacked greatly against you. Longer term trading is not as glamorous and not as sexy, but it is one of the few ways to survive in this business.

I am sorry to disappoint you but this is the usual real situation I work with when I have assessed correctly the prevailing medium trend (M30). As I said before, I don't use fixed stops, and manage the positions according to the maximum risk allowed when I happen to be going countertrend (about every 4 days in average). And I don't predict, because my strategy is based on a long timed observation of the market micro-behaviour, and finally developed an almost mechanical approach: trend goes down, succesive positions will be set as limit orders with roughly a 5 pip decrease on open price; trend goes up, inversely. I wait for the starting setup to occur, I open the first position at market price, set an alarm to warn me at B/E +1 price and only then I focus and take what the market is willing to give me depending on the momentum and where are my determined exit levels in relationship to the price (usually 3 to 7 pips). As soon as I close and depending on the trend I set a pending limit order at the same price, same price +5 or -5 according to the assessment. Alarm is re-set. And meanwhile I do other things until it rings. And so on.

Counter-trending is a little bit trickier, slower as to results and more complicated but in the end it is calculated upon the same premises and using the same precise levels as above. When I am correct, I get usually more than 100 consecutive winning trades, and yes, my average ratio over the last 6 months on a single currency pair has been 31/1 as I have stated in another of my posts.

Now this is not to say that scalping is better than long term trading. In fact my next step now is to translate my findings proportionally to higher timeframes and see what adjustments have to be made so the strategy holds. But it is certain that I feel much safer at the "right NOW" level because I'm working with the core of the market movements. And the deviation from the norm in a small move is almost unexistant compared to greater ranges (that's plain physics), so the amount of details to be taken into account is also much smaller.

My final aim is directed towards a daily/weekly approach. But buildings have to be started from the basement...

BTW, I find longer term trading way much "sexier" than being there bending and picking the crumbs I imagine myself opening a trade on sunday evening and just check once daily at NY close, probably from the mobile, adjusting stops and heading towards other ventures... or just trail and set and forget. Maybe... but, meanwhile, each trade taken increases my sharpness and experience an inch more at a time...

P.S. In Nature there is room for colibries as well as for hawks. Both find and get exactly what they need to survive.