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Questions regarding algo movement!

  #8 (permalink)

North Carolina
 
Trading Experience: Beginner
Platform: NinjaTrader, Tradestation
Favorite Futures: es
 
Posts: 644 since Nov 2011

@rintin2x Right, well there are at least two ways of trading off the tape. In the method I've had more historical success with, I read the tape but do not attempt to scalp but instead use those patterns as a way to formulate my sentiment and manage risk for bigger picture trades: trades that may yield a couple points or more. The second way of trading off the tape is attempting to scalp for some number of ticks. The latter is more difficult. I have seen some evidence suggesting it is possible to do: however, the combination of trade fees and frequent stop losses, as well as constant decision making, makes it very difficult to overcome break even trading. In order to overcome the break even nature of the game, I suspect you will need to either trade some larger size on the best trades or capture some runners. One also needs to be able to identify the different types of randomness in the market and be able to switch gears from limit order to market order scalping depending on the context.

Keep in mind that also if the risk/reward is good and your win ratio is sufficient you can still make money off a lower win ratio strategy. However, when buying momentum and assuming using a tight stop loss, you are not just attempting to capture the move but also you are attempting to time the exact jump point. If you think about it, when the market breaks out of a range that it will often times touch the extents of the range several times before jumping. So, if you are buying/selling at the extents of the range, you will have to either use a huge stop (on the other side of the range) or potentially take many small losers.

Speaking of risk/reward, in general, if you use a tighter stop loss then you need to use a tighter target to keep most strategies from completely breaking down. In general, when scalping, I only try to capture a couple ticks more then my stop loss but if the opportunity is available, sometimes I will attempt to capture much more but generally just taking what the market gives is best.


Last edited by tpredictor; July 2nd, 2017 at 10:58 PM.
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