S
fromthepit
A
KevinHo,floortrader,revealshissixfavouritehighprobabilityscalpingsetups
withtightriskrules.
calpTrading
Methods
fterworkingatradingbusinessplan,theprospectivetraderby
nowhasaverystrongjustificationfortrading,andshouldbe
lookingtoformulatestrategiestoextractconsistentprofitsfrom
themarket.Aspromised,thisissuelookstodemonstrateanarrayofpit-like
scalpingmethodswithhighaccuracy.
TradingisaWishingWell
Howwouldyoudescribetrading?Inthewordsofmotivationalguru
TonyRobbins,whatmetaphorsyouusetodescribeyourLifeaffects
thequalityofyourperceptions,andultimatelyyourLife.Soitgoes
withtrading.Somepeoplesayit’slikeadangerousanimal,waitingto
pounce;othersthinkofitasroughseas,waitingtobesailed.Iliketo
thinkoftradingasawalkinaknee-deepwishingwellfullofcoins–
becontenttoconsistentlypickupcoinshereandthere,andavoidthe
temptationtogoforachestfulofcoins,lestyoufallandwetyourself.
(Orworse,drowninknee-deepwater)
DefinitionofPitscalping
Bytheverynatureoftradinginthepits,scalpingisbestdefinedby
tradesthatareveryshortterminnature.Thispresupposessmall
consistentprofitsfromtradesthatlastnomorethanafewminutes.
Thesemethodspresentedhereareexactlythat-highprobability
tradeswithextremelysmallriskstopsandpredefinedprofitobjectives.
Intheadageofthesuccessfulpittrader,itallabouttakingamillion
tradestomakeamilliondollars.
RiskManagement
Whilstentrytechniqueshereareselfexplanatory,theriskmanagement
aspectofthesetradesaresuchthattheymustbefollowedwithout
question,orwhenthepositiondoesn’tperformasexpected.Being
relativelytightstopsthetradermusteitherbeveryfastinexiting,or
34chartpoint
alreadyhaveordersplacedinthemarketafterentry.Themethodshere
dependverymuchontakingtheselossesasandwhentheycome-
takinglargerthannormallosseswhentheyshouldhavebeentaken
earlierwillundermineweek-to-weekprofitssignificantly
3categoriesofscalptrades
Thesetimingmethodscomeunder3classifications:
1)Time-sensitivetrades
Thiscomesin2forms:
·Inopeningrangebreakouts,whereaquickscalpistakenminutes
aftertheopen,inthedirectionofanymarketthrust.
·Tradingtocapitaliseontheregularmarketturnaroundtimeslike
10am&3pmNewYorktime.
2)Countertrendtrades
Wheretradesaretakeninknownperiodsoftrendlessnessduring
thetradingday.
3)Trendcontinuationtrades
Thesemethodsfocusonenteringthemarketinthedirectionof
atrendAFTERthetrendhasgoneunderway.Theyarealso
classifiedasretracementtrades.
TheUltimatemarketforthesescalpingmethods
AstheS&P500futuresis,inmyopinion,oneofthemostliquid,most
activeandmostelectronicallyaccessiblemarket,thesemethods
representthebestknownchancesforpickingconsistentprofitsasa
trader-scalper.
TIMESENSITIVETRADES:
Mybreadandbutter
Pattern1:The15-minuteOpeningRangeScalp(15ORSpattern)
Thisismyall-timefavoritemethod-it’seasytodo,neednomorethan
telephoneorInternetaccesstoabroker,andisveryreliable.Itdiffers
fromtheusualnotionsofopeningrangebreakoutsinthatprofitsare
takensoquicklythatthetradelastsnomorethan1minute.
Setup:Waitforthefirst15miuterangetoformfromthe
open.
Entry:Enteronabuystop2ticsabovethehighofthefirst15
minrangeorEnteronasellstop2ticksbelowthelow
ofthefirst15minrange
Profitexit:Closeoutpositionsonanimmediate1-pointprofit
StopLoss:Exitforlossona1pointlossfromentryor,
Exitiftradeisopenformorethenoneminute.
chartpoint35
Re-entry:Onbeingstoppedout,lookfortheusualbreakoutin
theoppositeendoftheopeningrange.InthiscaseI
normallydoublemystopentrysizeandwait.Sameexit
rulesapply.
Chart1:S&P500-15MinuteOpenRangeScalp
Noticerelativelycleanbreakoutsfromthefirst15-minutebarsofeach
day.All9tradesforthe9tradingdayswerewinners.
Note:AllchartsinthisarticledepictmarketactionintheS&P500
futuresforthesameweekofAugust2003.Bluewordsandentry
circlesdenoteprofitabletrades.Reddenoteslosingtrades.TimeScale
inChicagoTime,whichis1hourbehindNewYork.
Pattern2:The10o’clockjiggle(10OJpattern)
Asmentionedinthelastfewissues,10o’clockNewYorktimeprovides
ampleopportunityforthemarkettoreverseitscurrentintradaytrend
fromtheopen.
Setup:Waitforthemarkettomaketo15-minutebarclosesfrom
theopen.Ifthemarketisneartheintradayhighforthe1st
30minutesoftrading,bepreparedtogoshort.Ifthemarket
isnearanintradaylowforthesametimeperiod,thenbe
preparedtogolong.
Entry:Forsellsetups:Enteronsellstop1tickfromlowof
thelast15minbar.
Forbuysetups:Enterinbuystop1tickfromhighof
thelast15-minutebars
Profitexit:Closeoutpositionson1.5pointprofit
StopLoss:Closeouton1pointlossoriftradetakesmorethan
1minute.
Cancelallstopentryorders(ifnothit)after10.30
haspassed.Nore-entryruleshere.
36chartpoint
Figure1:EngulfmentPatterns
Entry:Timingwindow:onlytaketradeswithinfirsthour
andlasthourofthetradingday.
Forbullishengulfments:buyatmarketpricewhen
thewhitebodyofthecurrentbarexceedsthehighof
thelastdark-bodiedbar(seeabove)
Forbearishengulfments:sellatmarketpricewhen
thecurrentdarkbodyofthecurrentbargoeslower
thenlowofthelastwhite-bodiedbar.(seeabove)
ProfitExit:Closeoutpositionfora1-pointprofit.
StopLoss:Exitfora1-pointlossorifthetradelastsmorethan
30seconds.
Chart3:S&P500–PennyPincher(duringfirstandlasthourof
trading)
Thisweektherewere14outof15successfultrades.
Trend-ContinuationTrades
Ilikethembecausetheyonlyentertrendsafterthemarkethastipped
itshand.
Pattern5:The5-MinuteStandardDeviationScalp
Ok,it’safancynameforre-enteringthemarketonapullback.The
strategyissimpletounderstand.Youonlyenterthemarketon
meaningfulretracements.
Pattern3:The3o’clockjiggle(3OJpattern)
DuetotheUSbondmarketclosearound3pmNewYork,thereisa
reversaltendencysimilartothe10o’clockjiggle.
Buysetups:Placeentrybuystopsifthemove30
minutespriorto3pmhasbeendown
SellSetups:Placeentrysellstopsifthemove30
minutespriorto3pmhasbeenup
Entry,Exit&stoplosses:sameasthe10o’clockjiggle
Cancelallentrystoporders(ifnothit)
after3.30haspassed.Nore-entryrules
here
Chart2:S&P500–10&3O’ClockTrades
Horizontalbluelinesdenoteentrylevels.Alltradesfortheweekwere
winners.Notethe‘downtime’periodonTuesdayandearlyWednesday-
nosignalshere.
ScalpPatterns:
Withtheideaofextractingscalpingprofitsfromshortmarketthrusts,
Ire-introducemy10minute‘coin-collector’in‘penny’form.
Pattern4:ThePennyPincher(10PPpattern)
Setup:On10minutecandlestickbars,lookoutforbullishorbearish
engulfments.
IreproducetheclassicengulfmentpatternsinFigure1.
chartpoint37
Setup:On5-minutebarchart,imposea10-barmoving
average.Fromthismovingaverage,expandanupper
andlowerbandexactly1standarddeviationfromit.
Entry:Inanuptrend,wearelookingonlytobuythedipthat
penetratestheLOWERband,providedtheslopeofthe
bandsarestillup.
Indowntrends,welooktoselltherallythatpenetrates
theUPPERband,providedthebandsaresloping
downwards.
ProfitExit:Closeoutforprofitona2-pointgainorittheprice
touchestheotherband,whicheverissooner.
StopLoss:Takea1.25-pointstoplossorexitatmarketiftheslope
ofthebandschangesafterentry.
Chart4:S&P500-Showing10outof14profitabletradesin3
tradingdaysforthe5-minutestandarddeviationretracementpattern.
Pattern6:The‘ANTI’
Thisone’saLindaBradfordRaschkeoriginal.She’stheonlywoman
tobefeaturedinJackSchwager’s‘NewMarketWizards’.Gofigure
whyshecallsitthe‘ANTI’.
Setup:On5minutebars,weusea7periodslow
stochasticindicator,witha10-periodmoving
averageofittoactasatrendfilter.
Entry:ForBuys:Buyatmarketwhenthe7-bar
stochasticindicatorcrossesaboveits
ownupwardsloping10-barperiod
movingaveragelineonthecloseof
any5minutetime-period
ForSells:Sellatmarketwhentheindicatorcrosses
beneathitsowndownwardsloping10-bar
movingaveragelineonthecloseofany5-
minutetime-period.
ProfitExit:Closeoutforprofitata2-pointgain.
StopLoss:Exitwitha1.5-pointlossorifthetradegoesnowhere
after3minutes.
Nore-entryruleshere.
.
Chart5:S&P500-5winningtradesin3tradingdaysusingthe
‘ANTI’.
ConclusionandCaveat:
Thereyouhaveit-6highprobabilityscalpingsetupswithtightrisk
rules.Besuretotakethoselosseswhentheyinvariablycomeby,and
avoidthetemptationtogunformoreprofitsbystayingtoolongina
trade.
It’seasytodismissthesepatternsasunexciting,sincetheydonotlead
tolargewindfalls,butarehappytochugalongwithsmallconsistent
profits.
Imagineusingall6setupseachtradingday.Thefirst3occurwithout
fail,withtheresthavingveryhighchancesofappearingduringthe
tradingday.Byexperiencetheyusuallyhaveadecent75percent
accuracyrate(sometimeshigher!),whichroughlyequatestoabout
closetoanaverageofUS$200perdayprofitsinasinglelotofthee-
miniS&P500.Don’tscoffattheapparentlysmallmonthlyreturnsof
aboutUS$2000(giveandtakeforlossesetc).
Tradingisscalableandveryprofitableifconsistent.Try10lotsforsize.
It’sgoingtoberealseriousmoneyifyouknowwhatyou’redoing.Just
remembertocutlossattheslightestdiscomfort.Andremember:“A
milliondollarsonamilliontrades”.
KevinHoisamemberoftheSingaporeExchange(DerivativesTrading
Division),andcomesfromamoney-centerbanktreasurybackground.He
isinthemidstofmigratingallhistradestoscreen-basedoff-shorecapital
management,andcanbecontactedathiswebsite:
kevinho@market-kinetics.com
MarketWizards:InterviewswithTopTradersbyJackD.Schwager
Publisher:HarperBusiness;Reissueedition(January1994)
Paperback;480pages
ISBN:0887306101
Visitwww.chartpoint.bizbookstorefordetails
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