TWDsje 

... Which really stresses just how tight the tolerances really are. Say you knew that the market was going to move up 8 ticks, and you had no risk or margin limitations. What's the optimal number of contracts to maximize your profit when you consider the potential price impact of your trades? When I analyze this I get out about 200 lots. Meaning that if more than 200 lots try trading on the same signal as you, the signal's expectancy could become unprofitable because of execution impact unless you can consistently get in and out first. Maybe that's why you don't see many market orders at any one price larger than 200 in ES?

How did you come up with a number like 200? Trading 200 lots at different times of the day, with different levels of volume, will have different impacts on price.

ondafringe 

How did you come up with a number like 200? Trading 200 lots at different times of the day, with different levels of volume, will have different impacts on price.

I got this number by plugging in the quieter parts of the day into the Kyle model to find Kyle's lambda and optimum Q with current price and volume standard deviations and a two handle target. The 200 is more the lower bound I think. Like it's just a quiet market, and nothing is happening. We should dive into it further and check my application of it, but I didn't want to drive the thread too far off topic

Here’s how I balance scalping and longer trades. Get yourself into as many contracts of ES/MES as your risk management allows per trade. Take 1/2 to 3/4 profits as a scalp and then use the balance for longer holds dependent on your strategy. I especially like to move my stop to break even on the balance if I get some cushion. Having a zero risk/guaranteed profitable trade on as a runner is my goal everyday. Heck I’ve had intraday runners turn into multi-week swing trades for hundreds of points. Think of each contract as an employee and make them work for you!!

DaretoDo 

Here’s how I balance scalping and longer trades. Get yourself into as many contracts of ES/MES as your risk management allows per trade. Take 1/2 to 3/4 profits as a scalp and then use the balance for longer holds dependent on your strategy. I especially like to move my stop to break even on the balance if I get some cushion. Having a zero risk/guaranteed profitable trade on as a runner is my goal everyday. Heck I’ve had intraday runners turn into multi-week swing trades for hundreds of points. Think of each contract as an employee and make them work for you!!

Good approach.
It's good to have statistics for every target separately so you can see that you might lose money scalps. So either you should make a bigger target or don't scalp at all.

TWDsje 

Coincidentally, this is the opposite way of how Grady approaches it in his book. He's willing to share the information because he thinks the more people trading the signal the better. My conclusion after learning more about market microstructure is that he is simply wrong on this point, and that some of the edge has indeed been arbitraged away unless it's a more volatile market or you're really good at the context. His course is still really good BTW, and I highly recommend it.

I don't know anything about John Grady, but I have encountered the idea now and then that it is better for someone if their strategy is followed by others, because all the followers will magnify the effect.

I think the exact opposite.

For one thing, I think that when a given view of the best trade becomes widespread, its profitability ends. For example, look at the recent runup and decline of GameStop that has been in the news, fueled by people jumping on a "sure thing." Late jumpers got creamed, and in terms of the timeframe they were working on, a typical swing-trading holding period, they weren't all that late. But in terms of the popularity of the idea, they were:



For another thing, you put it well when you said "some of the edge has indeed been arbitraged away." A commonly-followed strategy will move the market, which will bring out the counter-trades, erasing the profit. This is another way of looking at the GameStop phenomenon, taking into account the timeframe for the swing-type trading. (There was an element of classic pump and dump in GME as well, but that is part of the market dynamic too.)

On a short-term basis, if you are adroit and can trade counter to the supposed edge, you may do well, but then you are among the arbs... which puts you in a very cut-throat group, most of whom will be much better at it than you.

This is the major problem that every trader faces. Those edges are very hard to come by, and don't last that long.

Which if taken out to an extreme, means no one can trade profitably, in the long run, which brings us back to the efficient market hypothesis.

I do not entirely agree, but it does make it clear why most traders do not do well in the markets. It is not cynicism to point to the widely-held belief that 90 or perhaps 95 percent of traders fail, in the long run. It is simply reality.

Bob.

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Edit: I'm getting a little off-topic here, but not completely. The thread topic is whether scalping is a sustainable strategy. My post, and the one I quoted, are pointing out the difficulties -- not just of scalping actually, but of any approach. The John Grady detour is worthwhile because he apparently thinks it is good if your strategy is widely-followed, but perhaps it is not.

Beyond that, no one should think any strategy is a sure thing. The markets are always actively working against you, even if you're good at what you're doing. This is because the other traders are at least as smart as you, maybe sometimes even smarter.

I think this is just difference of edge, some edge works best when kept to yourself but some will work best when maximum people are using it and your edge is basically this fact "That maximum people are using it". One notable example I can think of is Vwap, its attractive tool because many people are using it, in fact its more than likely that you have heard people say its used by institutions and hence you also keep an eye on it.

It is entirely possible to have an edge based on that and trade it but that's not to say that all edges should be shared so that it has more people trading it, in fact that will certainly make that edge useless.

So it boils down to what kind of edge are we talking about, so unless I know what it is that point will be mute.

Having said that, I feel like "Scalping" or any intra day strategy in general will have much shorter lifespan than the swing trading, so its difficult to tell if its going to be sustainable, at least from strategy point of view.

Just my 2c, I'm probably not making any sense
//Coffee rambling

LastDino 

I think this is just difference of edge, some edge works best when kept to yourself but some will work best when maximum people are using it and your edge is basically this fact "That maximum people are using it". One notable example I can think of is Vwap, its attractive tool because many people are using it, in fact its more than likely that you have heard people say its used by institutions and hence you also keep an eye on it. It is entirely possible to have an edge based on that and trade it but that's not to say that all edges should be shared so that it has more people trading it, in fact that will certainly make that edge useless. So it boils down to what kind of edge are we talking about, so unless I know what it is that point will be mute. Having said that, I feel like "Scalping" or any intra day strategy in general will have much shorter lifespan than the swing trading, so its difficult to tell if its going to be sustainable, at least from strategy point of view. Just my 2c, I'm probably not making any sense //Coffee rambling

Good point about VWAP. One could probably find a lot of other things that are similar.

On the other hand, VWAP is probably one of the most common things we see on charts. But, as I read trade journals here, traders generally still struggle, even though they are looking at it, and I assume are trading with it in mind.

I would not call any one thing-on-a-chart an "edge." I would think of an edge as the strategy/tactics you use, possibly one that makes use of VWAP or anything else. When looking at how people trade, there are great differences in the use they make of the many common elements that they are working with.

I do think there are profitable traders, some using VWAP or many other things, and I read their work here every day. I just think there are good reasons why many are not. It has to do with the fact that competitive markets are competitive... and the other competitors are pretty good at it.

Bob.

bobwest 

Good point about VWAP. One could probably find a lot of other things that are similar. On the other hand, VWAP is probably one of the most common things we see on charts. But, as I read trade journals here, traders generally still struggle, even though they are looking at it, and I assume are trading with it in mind. I would not call any one thing-on-a-chart an "edge." I would think of an edge as the strategy/tactics you use, possibly one that makes use of VWAP or anything else. When looking at how people trade, there are great differences in the use they make of the many common elements that they are working with. I do think there are profitable traders, some using VWAP or many other things, and I read their work here every day. I just think there are good reasons why many are not. It has to do with the fact that competitive markets are competitive... and the other competitors are pretty good at it. Bob.

Exactly, words of the wise man

LastDino 

Exactly, words of the wise man

Thanks, but I never think of myself this way... probably because I know myself too well.

Bob.

lightsun47 

P.S. The OP is nowhere to be seen and the replies are getting bigger and bigger here.....

This is very common. Many threads are started by someone asking a question, and then people start pitching in, often at length, but the thread starter is absent, sometimes not heard from again.

It doesn't surprise me any more... I guess the question just wasn't so important to the original poster after all. I would like to be wrong. Maybe he'll turn up again.

There's some value to others anyway, so the effort was not wasted.

Bob.