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Need Some Advice about Scalping ES


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Need Some Advice about Scalping ES

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  #1 (permalink)
Detroit michigan usa
 
 
Posts: 8 since Aug 2013
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Hello All , Im new here and I am looking at the feasibility of switching to scalping the ES after 7 yrs of equities trading (just learning to trade futures). Here is what I am doing : I pick the slowest time of the day for the ES such as midnight. I have been paper trading ES by scalping 1 tick only. I use a bracket that sets my sell price 1 tick above buy in price so that I earn 7.60 per trade minus 4.90 Comms (OpenEcry is who I am considering but please offer suggestions to brokers). My stop is 3 ticks lower or just outside the current range.

So far, It works very well, which is what scares me. If it is this easy, something has to be wrong as I have over a 90% win rate. Problem is, I generate a lot of trades and pay alot of comms even though it is profitable. Here is my concern : lets say I gross 50,000$ in a year with 35,000 in comms and losses and only 15,000 gross profit. Would I have to pay tax on 50,000? even though I really took home 15,000 ? Im wondering if the comms are deductible and also if I can somehow deduct more than the standard deduction of 3000$ for the year. Im just getting started in this venture and am trying to find the hidden snags to a system that seems too good to be true. I guess its the tax implications that worry me as I have no experience in this area. Any help would be appreciated.

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  #3 (permalink)
Legendary Market Wizard
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will take a shot at this one...right after lunch.

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  #4 (permalink)
Legendary Market Wizard
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I read that you are not looking for input on the strategy itself. If as you state it is working at a level that you like you might want to seek a lower commission. If you even save just a buck off the round trip you cut your expense by 20%...that means 20% more for you.

On taxation: I am not a tax pro and this is not tax advice. You have an incorrect assumption there. Taxes are on your net return, not your gross. After you back out losers AND expenses (of which commission is one) you are left with net profit. That is the place to start when it comes to taxes.

Futures have some considerable differences from other products when it comes to taxes. There are two basic considerations when it comes to how you file. @Big Mike did host a webinar on this that you may want to reference. You can google things like 60/40 tax treatment for futures, futures trading tax reporting, section 475 election for futures contracts, section 1256 contract. Start there man...and get ready for a suprise. Past that check with a tax pro about other expenses like internet access, hardware, software, education etc. If you are going to make a go of it, do it like a pro.

All the best.

DB

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You might find this thread useful:



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If you are specifically focused on taxes, watch this:



And there is a more appropriate thread to ask questions here:



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  #7 (permalink)
Market Wizard
Cleveland Ohio/United States
 
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chemfan76 View Post
Hello All , Im new here and I am looking at the feasibility of switching to scalping the ES after 7 yrs of equities trading (just learning to trade futures). Here is what I am doing : I pick the slowest time of the day for the ES such as midnight. I have been paper trading ES by scalping 1 tick only. I use a bracket that sets my sell price 1 tick above buy in price so that I earn 7.60 per trade minus 4.90 Comms (OpenEcry is who I am considering but please offer suggestions to brokers). My stop is 3 ticks lower or just outside the current range.

So far, It works very well, which is what scares me. If it is this easy, something has to be wrong as I have over a 90% win rate. Problem is, I generate a lot of trades and pay alot of comms even though it is profitable. Here is my concern : lets say I gross 50,000$ in a year with 35,000 in comms and losses and only 15,000 gross profit. Would I have to pay tax on 50,000? even though I really took home 15,000 ? Im wondering if the comms are deductible and also if I can somehow deduct more than the standard deduction of 3000$ for the year. Im just getting started in this venture and am trying to find the hidden snags to a system that seems too good to be true. I guess its the tax implications that worry me as I have no experience in this area. Any help would be appreciated.

I would wonder if your simulator is accurate.

If you enter a trade with market order, are you buying at ask price, and selling at bid price?

With your 1 tick profit, is it getting filled as soon as price hits your price, or is the price moving 2 ticks above your entry price, and then you are filled?

With a scalping strategy such as yours, the assumptions and action of your simulator are a HUGE deal.

With what you said, my guess is the approach you are trading in sim will not be able to be duplicated in real life.


The tax question has already been answered correctly by others.

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  #8 (permalink)
Market Wizard
Cleveland Ohio/United States
 
Experience: Advanced
Platform: Tradestation
Broker: Tradestation, DeCarley, others
Trading: futures
 
Posts: 2,793 since Jul 2012
Thanks: 1,440 given, 5,385 received

Here is the math, assuming $5 RT commission - if you trade a lot, you'd qualify for lower rates, and you might even consider leasing a seat)


This analysis assumes no slippage ever on stops. Not realistic.

This strategy looks like a tough way to make a living, but if you can do it, awesome for you!!





if you tell me # of trades per day, and number of contracts per trade, I will update the table. I assume 20 trades per day, all 1 contract each.

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  #9 (permalink)
Detroit michigan usa
 
 
Posts: 8 since Aug 2013
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I was using ApexTrader which I believe is some sort of rewrite of Amibroker. I would set up a bracket that would buy at a price level then would automatically set a sell price 1 tick up with a stop at 3 ticks down. Fills were not instantaneous though with some orders taking 30 seconds due to slow market. Some trades i would just sell at my fill price because I thought it was going to go against me. Im not sure about the difference of the sim vs real, but the fill times were fairly slow. So far, it looks like a possible way to make a few bucks. Next step will be to investigate environment variables like ATR, Volatility, The effect of foreign mkts, etc..... Will be posting my progress anyways.
And many many thanks for the intelligent input, could you imagine what the response would be on yahoo stock forums ????????

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  #10 (permalink)
Ohio USA
 
 
Posts: 65 since Jun 2013
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If you want to make 1 tick on the ES, set your profit target on the simulator at +2 ticks. This ensures that your 1 tick limit order would have been filled in real time. Open ECry's simulator is decent, but it will not mimic the live market perfectly. I assume you're using OEC's auto-brackets, so just increase your profit target by 1 tick. When you run your calculations though, remember each winning trade is 1 tick, not 2 ticks, b/c the platform is going to show you a profit of 2 ticks each trade. It's more work on your end, but this is the only way to ensure your limit order on the ES fills. The reason is that the ES is so thick and the only way you know you'll get a fill is for price to trade through your level.

As for the method, going for 1 tick and risking at least 3 ticks means your win % better be high enough to cover costs + losses along the way. Each loss is going to wipe out a minimum of 3 winning trades so keep that in mind.

I like OEC's platform and think it's a good one for the retail trader.

Good luck!

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