Can You Use Price Action To Successfully Scalp The ES
There are many styles to trading, and we believe that each trader’s style of trading should be based on their own personality, which will be dominated by the emotional and mental aspects that trading has on their overall psyche. Many people think that scalping is dead, and many people claim that scalping the stock indexes is no longer possible, so we hear the question often: Can you use price action to successfully scalp the ES? If you have not been trading for very long, then learning about the emotional aspects of day trading may sound very foreign to you, but if you have traded for any length of time already, you need no introduction to the fact that the hardest part about learning to trade profitably is learning to deal with the emotional pitfalls that trading creates when we enter a live trade with real money.
While we use a combination of scalping and swing trading in our price action methods, we don’t believe that either scalping or swing trading holds any real advantage over one another. We believe that some people will do better scalping while others may have more success in swing trading. It’s all dependent on your make up and your personality as to which one may hold the most value for a day trader. What you must do is find yourself in trading, and that’s where we hear so much about trading psychology and that’s also why it’s such a popular topic. Most traders don’t survive long enough to really get the experience necessary to realize how important psychology really is to a trader, but if you do, you will know exactly what I am referring to here.
When it comes to scalping, it’s much easier to figure out where prices are going for the next 4 to 10 ticks, but then if you only take 4 to 10 ticks, then you can’t have many losing trades either, so that’s why scalping can be a double edged sword at times. However, when the market is choppy and not trending, it’s sometimes next to impossible to get extra ticks or points, so it can be very difficult to swing trade a ranging market, so the only way to profit in the range is to scalp it. That’s why we like to use a combination of both a scalp and a swing trade. We will go into a trade with a minimum of 2 contracts with the plan that we will scalp out of one contract, and then move our stop to break even on the other half of our trade. That way, if prices do indeed go further in our direction, we can manage the final contract like a swing trade in case prices move much further in our favor. By using this strategy, very few of our winning trades ever turn into losing trades, which is what normally happens to most traders.
We have done some studies in the ES and proven without a doubt that it’s easier to scalp 4 ticks than it is to ever make 4 points. That’s one reason you see so many professional traders scalping for 4 ticks in the ES, and that’s because it can be done consistently. Think about this for a moment. How many times have you entered a trade and seen profits rather consistently early on, only to watch that small profit turn into a losing trade? I know I did that often in my early trading days until I finally decided to change the way I was managing my trades, and then suddenly, I started making money. Of course scalping is not the only strategy that works, and that’s why we think you must find what works for your personally in your trading style.
Here is what another trader had to say about scalping in a recent post that we found at www.emini.mind.com.
The art of scalping is becoming more and more difficult. Dominated by large volume, high frequency trading firms, these firms have the ability to trade huge size in fractions of a second.
Without getting into the technical jargon these high big firms can get in and out of the markets lightning fast because they co-locate their servers (house them right next to the exchange servers) giving them the fastest fills possible and least amount of latency.
Whether you call yourself a retail trader, at home trader, or independent trader the advantage we have is the ability to ride the coat tails of these big players. In trading smaller size (relative to the big firms) we can jump in and be taken along for the ride to meaningful profits. The trick is to not fall victim to the bandwagon effect.
Looking at the E-mini S&P, I consider anything under 1 point ($50 per contract) scalping. Typically you need a market to trade through your order to get filled so in order to profit 1 tick ($12.50) you really need the market to have a trading range of 3 ticks.
Taking quick, small profits lead to insurmountable odds. The goal here is to profit in the form of multiple points, targeting a reward to risk ratio of 3:1 with the expectation that some of our trades will result in larger winners. You can read the rest of the original article here.
This trader goes on to use a football analogy to explain his reasoning, but we tend to differ on our thoughts somewhat. We are not saying that his strategy or his analogy are incorrect. We are simply saying that he is only seeing one side of the argument, but that is probably because that is what has worked well for him. If you can only pick a winner 50% or less of the time, then yes indeed, you must score big to win, so he is completely correct in that sense.
However, if you can pick a winner 60% or more, then you don’t have to win big every time. Using our price action trading strategies, we end up with a winning trade more than 80% of the time, and when we do lose, we lose very small. But even more important, occasionally we still get a home run or defensive TD as well, because we consider our combined scalp and swing method to be a strong defense, and our strong defense often allows us to score multiple points on our runners or swing portion of our trades that don’t get stopped out at break even. Using this scalp and swing combination, we get the benefits of both worlds when we get it right. While we don’t think there is a right or wrong answer to our question of can you use price action to scalp the ES, we certainly do think that it is possible and that if you have the right strategy, you can do it very successfully, because we do so every single trading day!
If you would like to learn to scalp the ES, or any market for that matter, using our scalp and swing combination of price action trading, then you can find our price action trading manual at http://priceactiontradingsystem.com/pats-price-action-trading-manual/.