Scalpers and Trading the News!!

A successful spread betting scalper shares his experience…

Scalping is a technique used by intraday traders who try to benefit from small price changes on larger transaction sizes in anticipation of a profit. The practice involves selling the trade almost immediately after the trade becomes profitable. This is a very fast form of day trading with day traders often being in a trade for just minutes and sometimes mere seconds, searching for small nominal gains of less than $0.50 say – could be a little more or less. Scalpers will focus their efforts on devising strict exit strategies to ensure one large loss does not eliminate any profit, and they will invariably place high frequency trades within a specific time frame – usually no longer than a day.

Spread betting is not suitable for scalpers. Full Stop. The spread betting companies do not want the scalping business although they will not admit this. That is not in the least surprising, since they are dependent on trading on the London Stock Exchange order book to match positions taken by what is probably a largish number of traders, often acting in unison or nearly so. Even with clever computers they would be dependent on trading using aggressive orders thereby costing themselves the spread and making ‘dealing for free’ totally uneconomic for those trades.

Personally I don’t believe any forex or spread betting company has your interests at heart either, but there again I don’t believe that they will directly rip you off. That said, put yourself in the position of the managing director or director or whoever is “Big Cheese”. How would you feel about giving tons of cash away every major news report, imagine at 13:29 on the first Friday of the month your system is fit to bust with every man and his dog trying to get their straddles in place. If I was that person I would be very keen to find a way to even things up a bit, if I could body swerve only half of the punters and put them on the wrong side of the trade, wouldn’t that solve the problem because the losers would pay the winners. If your trading desk struggles and throws everything into confusion for that vital minute would you want to fix it??? If orders disappear off the screen while the system is trying to keep up with the trading and only get filled when there is a lull in the battle in other words the top of a whipsawing spike is it in your interest to fix that??? I think not

My attitude is, if something doesn’t suit you change it or work around it. I have traded the various news reports with mixed results, I don’t think it is the way to become a good trader (personal opinion) as too much is left to chance and in my experience a lot of split second decision making. I still have a little dabble but only with tiny amounts. I find it much more profitable to play price action on 1hr and 4hr charts, and its a lot less stressful.

If they’re available to you, spread bets are a very tax-effective way of trading the markets (there is no tax to pay on profits in the right jurisdictions) although they also have certain disadvantages, the main one being that you’re effectively trading against the company giving you the prices, namely the bookmaker. Now, in reality, the prices quoted for spreads can’t move too far away from the standard futures for too long otherwise there’d be a significant arbitrage opportunity, but it can be very frustrating when price servers ‘inexplicably’ go down at times of rapid price movement, or the bid/ask spreads widen dramatically outside normal market hours, or a seemingly winning bet is revoked on the basis of ‘unfair advantage’! (That last one’s a cracker – win too much and they’ll say you’re taking advantage of them. A bit like winning at a casino – you’re not meant to do that so “go away and play somewhere else”). As you can probably tell, my own opinion of spread bets is that tax efficiency is probably the only advantage they offer to the serious trader.

However, during the learning process, spread betting offers an economic way to hone your skills and steadily build your trading bank given that you are not affected by any of the above potential negatives – we trade serious amounts of money so we expect everything to be absolutely perfect, but don’t be put off using a spread betting service as a stepping stone to bigger things.

Anyway… trading through a spread betting firm is good for the most part but there are issues that have occurred in my experience…

…Picture this “spreads of 1 & instant execution” (no mention of any names) a dream for any trader…
then you start making consistent money – your account is limited…
the instruments you were successful with are now
“not available for internet trading”…
wait it gets better… your account gets set to manual execution…
and better then… quotes as a result of manual execution come back up to 2 mins later AND up to 6 pips away from the actual market price at that time…!!!
but you still make some money so they stop you from trading…
they don’t tell you they’ve done this (earn interest on your cash…etc)…
I don’t notice this because I trade from various accounts (spread the eggs – different baskets).
when you do notice you call them and they tell you that you are trading on incorrect prices…
WHAT?… and I’m the ONLY ONE? – WHAT?… They’re gonna fix the issue as its a price feed issue (Only for Me!!?)… should take 2-3 weeks…
Lucky I got other baskets!…
Anyway… want to give them a fair chance…So I wait and wait… then decide to trade 1 month later… and it says I am not allowed to trade!…
Phone up… My account is closed! – WHAT? And no one told me!?!
Surprise surprise… I was making money… anyway needless to say the account is closed and my money is mine (they did return it promptly)
They are still happy to send me “junk emails”???!!!

I know someone with an account who made most of their money on a particular instrument
…they’ve just experienced they can’t trade that instrument online anymore!

Anyway… excuse the sarcasm… you can probably tell that this just happened recently so I’m still a little mad at them!… ok…

(sharp intake of air….. and….. exhale… ahhhhhh….)

So if you really want to scalp the markets use a specialised spread betting company like ProSpreads but beware that it is not for newbies

Scalping, Fading and Day Trading

Some day traders try their hand at scalping because to them it seems like an easier way of making a profit – and that is an art in itself. If you want to scalp from home (or scalp in any form for that matter) what you have to realise is that most traders lose money. That is because scalping/trading is best compared to a professional sportsman, a lot of it comes down to natural talent and a lot can be taught or coached there are some people who will always make a fortune and others can’t figure out why, but there will be others who always manage to make the worst of every situation.

Fading is when you short the stocks after rapid moves upwards. You do this based on the assumption that they are overbought and that early buyers are ready to begin taking profits or that existing buyers may be scared out. This strategy is risky and involves a real psychological game as well as a tough mental game but it can be extremely rewarding, particularly when done right.

Fading and scalping are often used in Level I online stock trading. They are fairly simple concepts that stock traders can learn and master early on. People who don’t understand what scalping is call it punting and usually because they can’t do it. It is hard to quantify why some scalpers make money and some don’t, but I can tell you from experience if you understand what your ‘edge’ is you can make money. Consistently. I have a very good friend who had 4 down days 2 years ago. Last year he had about 20 but earned twice as much by pushing boundaries. If you ‘get it’ then it is a great lifestyle, if you are one of the many who don’t then you waste money and learn nothing except ‘those guys are just punting’.

Scalping is mostly about feel. Some people stick rigidly to technical indicators and others trade purely on flow, but a lot of it comes down to feel. What I tell people is that as with anything in life you get better by practice. The problem is most people who try it on their own run out of money before they learn anything. To start off you want to trade as much as possible but REALLY small. Trade small size and often and get a ‘feel’ for the market and how it moves. Hopefully the more you trade the more you will learn and will get better, this may then enable you to make a living from it but it will take time – a lot of it. Watch the screens for 8 hours every day and after 6 months you might have a clue what is going on – scalping and monitoring minute by minute movements is very stressful in itself. In my experience I would say that scalping is probably the most hit-and-miss method of trading. You have to understand that price can go anywhere throughout the day so some are better of trading long term. But that is by-the-by, if it works for you, then that it what counts and I wish you well.

Join the discussion

Share
Recommend this on Google

The content of this site is Copyright 2010 - 2017 Financial Spread Betting Ltd. Please contact us if you wish to reproduce any of it.