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Who makes more money. Scalpers or Point Traders
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Who makes more money. Scalpers or Point Traders

  #21 (permalink)
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Great screens @djkiwi

No doubt that the major problem with scalping, putting aside the psychological problems that this type of trading might create, is slippage and commissions. This alone eat a great piece of the pie.

Commissions alone eat 15% of my gains which is too much. I know that, I need to take care of that.
I never have included slippage since I never found that to be a big problem for me. I never run after a price. I put an order in, if it's not triggered I might go 1 tick higher or lower but never higher than that.

This is another problem with scalpers, running after prices. Again, know your risk. If the market is not being able to rallie more than 10 ticks and you've already traded 5 you're not in a position to go after that price. Stay put and wait to see what's next. Keep that urge in control.

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  #22 (permalink)
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arnie View Post
Great screens @djkiwi

No doubt that the major problem with scalping, putting aside the psychological problems that this type of trading might create, is slippage and commissions. This alone eat a great piece of the pie.

Commissions alone eat 15% of my gains which is too much. I know that, I need to take care of that.
I never have included slippage since I never found that to be a big problem for me. I never run after a price. I put an order in, if it's not triggered I might go 1 tick higher or lower but never higher than that.

This is another problem with scalpers, running after prices. Again, know your risk. If the market is not being able to rallie more than 10 ticks and you've already traded 5 you're not in a position to go after that price. Stay put and wait to see what's next. Keep that urge in control.

You need a new broker if your getting hit with 15%
Round Trip on oil is $5 at Mirus.
If I take 10 tics that = $100 on 1 contract.
5/100=.05

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  #23 (permalink)
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Im @ 15% on 2 ticks .075 for a pt but this really isnt the point I was going after

We all know on paper, scalping wouldnt win using set standards for our data ....Scalping if one is able to master it will outperform any other type of trading and win. I dont have years of experience(going on 4yrs for me) needed to say one way or the other hence question to you guys with experience.

But I do know one retail scalper that impressed me even amazed me,.....But I know many more swing or hold traders that do well too

Thanks for all the input

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  #24 (permalink)
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Patrick S View Post
You need a new broker if your getting hit with 15%
Round Trip on oil is $5 at Mirus.
If I take 10 tics that = $100 on 1 contract.
5/100=.05

Not a new broker, but trading less. I'm with IB, you can't get much lower than what they offer.
I've made 60 trades so far this month.

I'm now directing my attention to ZN/ZB since their commissions are much lower than ES's. Also, since ZN/ZB are much slower markets, I'm hoping that with time I'm able to lower also the number of trades on ES and go a bit wider on my initial targets.

This is a process...

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  #25 (permalink)
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djkiwi View Post
Furthermore the scalper is spending much more time in front of the screen to earn his $741,000+ than the day/small swing trader to earn the same amount. The day/swing trader is done after this first trade and on the golf course while the scalper still needs to grind out another 4 trades for the day.

This requires additional concentration which can lead to fatigue which may affect the consistency of returns over the longer term.

this is certainly true for some days. but don't forget there're a lot more ranging days than trending days.

in other words, on ranging days a scalper might be done a lot earlier than a day/swing trader for the same amount, simply because the target is out of reach.

of course this is all relative. what I try to do is being a scalper on ranging days and a day/swing trader on trending days. not an easy task I should add.

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  #26 (permalink)
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Here's an example of something that I could have taken a bit further.

Got in at 51 looking for a break of 51.25 and looking at ON high's at 54.25.
Had a first down rotation of 5 ticks right before I got in. After I got in, another down rotation of only 4 ticks, at 50.75, 1 tick below my entry. Had now my stop loss just 3 ticks below my entry since with 1 tick above 51.25 (RTH 1st min high) I could have a false break of it and the natural target would be a revisit of the lows at 48.5.

Prices move upwards, hit +3 ticks my favor. I didn't liked it to see going back down to -1 tick against me but I had my stop loss, so I waited. Also, the rotation hit -5 and reacted upwards so uptrend was still intact.
Jumped to +4, +5, came back to +3 and god knows why I put my target at 53. I got hit for a +8 trade. Prices go to 54, rotate down 5 ticks, I tried to reenter at 53.25 but couldn't get it, again, my initial target at ON high's was still valid and the uptrend was also intact since we has just done another 5 ticks down rotation. That was key now.

Prices continued to go higher till 56.25 where rotated down again for 4 ticks. Up trend still intact. Probability is to continue higher although now you need to look at the profile and see there'a LVN and singles right at 55.75/56.50 so you need to take that in consideration while thinking going long or add to them.

So in hindsight, that was a premature exit. I could have waited to see what could be generated when in a new down rotation.

Now add these types of trades 8 or 10 times per day and we can easily see commissions adding up.
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  #27 (permalink)
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djkiwi View Post
Guys, this is a very interesting discussion topic. To put some flesh on the bones, I've included an example that highlights the stark differences between the retail scalper and day/small swing trader.

Scenario 1 - Scalper

Scenario1 shows a retail scalper who takes one long and one short trade each day over 200 days for each instrument listed using limit orders on entries and market on exits. Each trade has 2 targets and 2 contracts per target so a total of 4 contracts are traded. First target is 10 ticks, 14 tick second target with an 8 tick stop giving a risk reward 1.5 to 1.

The probability of achieving the first target is 60% and 35% for target two. Slippage varies by instrument.

Note this very interesting thread by @Anagami provides an analysis of expectations. The 60% for the first target and 35% for the second forms the basis of my trading budget.
...

Cell T49 shows average direct costs of slippage and commission of 18%. This is the equivalent of playing roulette with 6 zeros on the roulette wheel. I'm not sure even an avid roulette lover would play with these odds.

The total profit the scalper will expect to earn as shown in Cell T51 is $148,200. Not bad on the surface.

Scenario 2 - Day/Small swing trader

...

Scenario 2 shows a day/small swing trader, who also takes the same trades. This trader has a 30 tick first target, 60 tick second target and 30 tick stop. The same return is 60% for the first target and 35% for the second target. The same risk/reward of 1.5 to 1 is achieved.

Note there is no evidence I've seen that supports some claims by retail scalpers they achieve any better expectancy than retail day/swing traders. For this reason I'm using the same expectancy for both.

Note also the day/swing trader's second target of 60 ticks is within the daily ATR of all of the traded instruments so there is no reason the day/small swing trader will not be able to complete his daily quota of long and short trades per instrument.

In this case cell T49 shows the direct costs of slippage and commissions is now only 5% compared to 22% for the scalper.

The total profit in Cell T 51 shows $757,200 per year compared to the scalper of only $148,200 which is to be expected simply due to the higher dollar value of Scenario 2 targets.

Scenario 3 - Scalper Profit enhancement

...

Scenario 3 quantifies the additional size and risk the scalper needs to undertake just to equal the profit of the day/small swing trader. The impact of direct overhead can be clearly seen. The only variable changed is row 8 which has increased from 1 trade per day per instrument to 5. Bear in mind the scalper is now trading 20 contracts per day per instrument as opposed to 4 before.

Even with 20 contracts per trade per instrument the scalper is only expected to achieve (see cell T51) $741,000 compared to the day/swing trader of $757,200 in Scenario 2.

In other works the scalper is taking on much more risk and working much harder to pay the middlemen i.e. the broker and market maker.

Furthermore the scalper is spending much more time in front of the screen to earn his $741,000+ than the day/small swing trader to earn the same amount. The day/swing trader is done after this first trade and on the golf course while the scalper still needs to grind out another 4 trades for the day.

This requires additional concentration which can lead to fatigue which may affect the consistency of returns over the longer term.

Interesting spreadsheets, but I think they are purely theoretical, and reality is most likely quite different. Let's take the ES for example as one of the more popular among the mentioned contracts, 60 tick targets on the ES in one single trading session? really? Show of hands if you took one 60 tick trade on the ES in the past month! Anyone...anyone...Beuler? What percentage of the total number of hands are raised right now?

30 tick stops on 2 lots on the ES for the typical small retail trader with 10k, 25k account? Seems most small traders like around the 4tick, 8tick stops, I thnk it is because that's what they can stomach. Will they suddenly become comfortable to increasing their stop size to 30 ticks on the ES starting tomorrow, so they can achieve these theoretical results? If they do, is it really likely they will even approach these results? Will they really be able to go pick up that golf club with a 30 tick stop on 2 lots riding on the ES. I know I personally could not. There's a reason you will only see these results in theoretical spreadsheets, because 95% of the people reading this thread right now could not stomach it, and therefore will never even approach it.

Commissions. Why does no one want to pay commissions? Tom is a scalper, Tom reaches his profit goal every day, his account increases by that much everyday, why does Tom care if he pays 15% commissions to reach his goal, or 3%? I have been a scalper for 7 years, I have never once in that time thought about how much commissions I paid my broker. Why do I care, when my account is growing satisfactorily every day? Boo-hoo I wish I could have paid $10 in commissions instead of $100 on the $1000 added to my account today, because $1000 reached one way is actually greater then $1000 reached a different way? Here are a couple of extreme example of a scalping system based on real charts.

https://futures.io/traders-hideout/18809-probability-101-a-4.html#post205362
https://futures.io/psychology-money-management/17811-concerning-risk-per-trade-sizing-15.html#post199582

Would the commissions from these results prompt you to reject this type of performance, in search of one that only has 1/10th of the amount of commissions?


Last edited by monpere; October 17th, 2012 at 01:07 PM.
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  #28 (permalink)
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monpere View Post
Commissions. Why does no one want to pay commissions?

It's not a question of not wanting to pay commissions. It's a question to try to pay less for them.

A 6 lot trader, pays for 60 ES trades, $1447 in commissions.
The same trader, trading ZN/ZB, for the same number of trades pays $1030 in commissions.
That alone is a gain of $417, per month if you make 60 trades. At the end of the year you've just saved $5000 in commissions.

Of course I'm not here advocating that we shall all move to treasuries but if one has a profitable strategy he might try to apply it on cheaper market to see if he's able to retain some of the commissions paid in other markets.

I do agree with you, if you hit your target for the day you really don't need to be stressed over the commission paid but then again, at the end of the week, month, year you see how much you paid and it's impossible not to think about retaining part of that.

If I become half a percent smarter each year, I'll be a genius by the time I die

Last edited by arnie; October 17th, 2012 at 01:38 PM.
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  #29 (permalink)
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arnie View Post
It's not a question of not wanting to pay commissions. It's a question to try to pay less for them.

A 6 lot trader, pays for 60 ES trades, $1447 in commissions.
The same trader, trading ZN/ZB, for the same number of trades pays $1030 in commissions.
That alone is a gain of $417, per month if you make 60 trades. At the end of the year you've just saved $5000 in commissions.

Of course I'm not here advocating that we shall all move to treasuries but if one has a profitable strategy he might try to apply it on cheaper market to see if he's able to retain some of the commissions paid in other markets.

I do agree with you, if you hit your target for the day you really don't need to be stressed over the commission paid but then again, at the end of the week, month, year you see how much you paid and it's impossible not to think about retaining part of that.

It's still a fallacy. It's chasing a theoretical idea that will seldom apply one to one in real life. If I make $5000 with 10 trades with 2 contracts on CL, does not mean I will make $5000 with the same 10 trades with the same 2 contracts on YM. You can take 60 ES trades, make $20,000 and $1447 in commissions, then take 60 ZN trades, make $5000 and pay $1030. Would you still rather pay less commissions? Unless you can guarantee the same trades will perform exactly the same on both scenarios, the linear interpolation of that theoretical idea from one scenario to the other, in real life is a mirage.


Last edited by monpere; October 17th, 2012 at 02:20 PM.
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  #30 (permalink)
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@monpere

The posted example merely shows the differences between scalping and day/swing trading using multiple instruments. It was not based on factual numbers. Thanks for pointing out this post as it enables me to use real life numbers into the model to compare scalping with day/swing trades.

https://futures.io/traders-hideout/18809-probability-101-a-4.html#post205362

Your post implies you typically use a 6 tick stop 12 tick target and place about 41 trades per day with 59% probability and 2/1 risk reward ratio. If this is not representative let me know and I will update the numbers. I've put these assumptions in the model in the scalp 1 column

The first observation is your 59% and 2/1 risk reward is only 1% less than Case 6 in Anagami's model shown here.

https://futures.io/psychology-money-management/19870-why-7-difference-between-failure-success-trading.html#post217834

If this is your level of expectancy over a longer timeframe then you are operating at a level few can or ever achieve. In fact you are excelling in spite of the deck being heavily stacked against you.

What we need to find out is can the average aspiring scalper achieve profitability given the huge hurdle they face with commissions and transactions costs?

1. CL Scalp Trades

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To answer this question I've also included other scenarios, labeled scalps 2 - 6. These scenarios are the same except they include a reduction in the expectancy from your 60% to 30% in row 19 in 5% increments. This enables us to see the changes in net profitability as the expectancy reduces.

To get a feel of trader expectancy lets look again at Anagami's model. He points out with a 2/1 risk/reward case 3: 40% expectancy is a likely scenario suggesting improved traders and Case 4: 45% for expert traders.

So even if a scalper is classified as improved/competent and achieves 40% expectancy as shown in Scalp 5 he will still make a loss of $12k (Cell I46) mainly because he is getting whacked with significant trading expenses.

He would make $73,800 (Cell I35) in pre-expense margin then get whacked with $86,100 (Cell I43) in trading expenses. This is primarily because of the increased slippage from the increase in losers. Commissions are fixed at $31k per year based on 41 trades per day.

Even an expert trader achieving Case 4: 45% would be whacked with 25% trading expenses. His whack is $81k trading expenses resulting in a measly $48k in return for all his hard work.

Note the above numbers are actual numbers of exactly what you will earn based on the numbers presented and merely changing the expectancy. It is simple math.

2. Day/Swing trading

For the day/swing trader I'm going to use my own budgeted expectancies. Recently I've doubled my contracts per trade from 2 to 4 and am now averaging 2 trades per day compared to a single trade before.

My budgeted expectancy is 60% achievement of the first target and 35% the second target. These assumptions are shown in the Swing 1 column.

Here is a chart example using my 30 tick stop/30 tick first target and 60 tick second target based on front-running the swing pullback and using volume profile and cumulative delta as an overlay in the final decision. These target numbers have been optimized to take into account transaction costs.

It should be noted setting wider targets can still result in a sufficient number of trades. The chart shows 9 trading opportunities (red arrows for shorts and blue for longs) over 4 days for CL. The 30 tick stop is in red, and first 30 tick target at the first yellow bar and 2nd 60 tick target at the second yellow bar.

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On Anagami's scale my budgeted performance would approximate Case 3:40% improved trader i.e. nothing spectacular. It's hard to categorize it accurately as he is only using 2:1 risk reward in the model whereas my 1st target is based on 1:1 risk reward and 2nd target 2:1.

Now, if you look at the Swing 1 column if I'm able continue to achieve by budgeted expectancy of 60% and 35% over the course of a year then this should result in a net profit of $153,000 (Cell M46) after all expenses. So even with my mediocre expectancy I'm able to achieve solid returns and easily cover my transaction costs without operating at a super high competence level. The point is I don't need to be a spectacular trader because I don't have to cover the significant overhead of commissions and slippage like the scalper.

Furthermore, my expenses shown in Swing 1 are only $26k (Cell M43) or 6% of revenues. Compare this to a similarly competent scalper achieving Scalp 5 - 40% expectancy where his expenses are $86k, plunging the trader into a loss situation of $12.3k.

My longer term goal is to periodically add 2 additional contracts (See row 9) providing minimum performance benchmarks are met. By scaling up the corresponding improvement in the post expense margin is shown in row 46.

The overall point is for traders to review their cost structures and take action where appropriate to optimize their targets/stops and transaction costs. If you are a struggling scalper and cannot figure out where you are going wrong this is a good area to start.

I will tidy up this spreadsheet and include a copy so people can play around with it themselves as I think it's a critical part of money management which is pretty much overlooked.

Cheers
DJ


Last edited by djkiwi; October 18th, 2012 at 04:15 AM.
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