Day trading strategies – scalping. It is strategy that I have been using since late 2007. In this strategy I try to catch mostly few cents of move or up to 15-25 cents. All depends on situation and potential of move that can be generated.
In article below you will find description of this strategy with charts but I also add videos from live trading session. The best way to learn is to see real transaction. I hope you will enjoy it.
You should start with reading this article “Day trading stategies that work” – it is nice introduction to all topics about day trading strategies.
Day trading strategies – scalping
Assumptions concerning the strategy:
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profit-taking is after achieving the price movement in a scope of 5-25 cents
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minimum size of opened position is 1000 shares
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stop loss appropriately set to potential profit, which the investor wants to carry out: 2 cents for the movement of 5-10 cent, 4/5 cents for the movement of 10-25 cent
When the trader has still unrealized profit, which doesn’t want to lose, he can place the trailing stop order. It is worthwhile to place the trailing stop order when the profit already exceeds 10-15 cent scope of movement. In such a case, you should place 4-5 cent trailing stop, which will be activated when the rate will drop e.g. 10 cent profit to 6 cents. This order provides a possibility to continue the movement that brings profit with protection of already taken-profit.
Scalping Strategy in practice
When you analyze graphs of different companies, you should search for those where movements and range during the session meet the assumptions of strategy. These not have to be movements that continue on the company for half a year or one year. You must search for currently prevailing trend, to which at least for a short time you will be able to “join”. You may use stock screeners in order to search for companies. Here you will find Free Stock Screeners.
The following assumptions are a result of constant observation of the company, and therefore I didn’t have to wait for drawing up: channel of company’s movement and thus to draw lines that may help.
Example 1
Below I present the strategy on an example of DNP Company listed on NYSE. Average true range informs that the company’s movement is in a range of 10-25 cents during the day. Such steady movements enable to use Scalping strategy. On the graph we can see the upward trend line on the company marked with black line. Each time when the rate reached this line, there were big purchase orders, and this led to an increase in the price at increased turnovers, which was marked on the graph. Spots marked with green arrows indicate the level of opening the long position. After constant observation of the company it was possible to come to the conclusion that the movement usually ended near maximum of the previous session. These levels are treated as a level of exit marked with red arrow.
Take Profit and Stop Loss placed in the example:
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Signal of entering was accepted at the price of 6.74$, the exit was planned along with the end of session on a level of 6.96$. Predicted profit for the long position of 1500 shares: 330$. Stop loss was placed on a level of 5 cents below the level of entry: 6.69$. The rate didn’t reach expected level, thus closing the position was followed by the signal of trend change on a level of 6.80$. The profit in movement of 6 cents was: 6 * 15$ = 90$.
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Signal of entering was accepted at the price of 6.80$, the exit was planned on a level of 6.98$. Predicted profit for the long position of 1500 shares: 270$. Stop loss was placed on a level of 5 cents below the level of entry: 6.75$. Profit-taking of 270$ was carried out when the rate reached estimated level.
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Signal of entering was accepted at the price of 6.86$, the exit was planned on a level of 7.07$. Predicted profit for the long position of 1500 shares: 315$. Stop loss was placed on a level of 5 cents below the level of entry: 6.81$. Profit-taking of 315$ was carried out when the rate reached estimated level.
Summary
This strategy was used three times during six successive trading sessions. We must compare the profit, which the investor would carry out if he managed to open the position on a drop, and to leave on grown. Established size of the position of 1500 shares: opening at 6.74$, and closing at 7.07$. Taken profit: 495$. The day trading investor conducting 6 transactions will take a profit of 675$.
Example 2
Another example of Scalping strategy are movements that appeared on Templeton Global Income Fund (GIM) quoted on NYSE. The company has average daily range of movement around 15-20 cents. On presented example you can see that in a range of 7.34-7.35$ the support level was created, from which there was braking of 15-20 cent. Reaching the level of 7.34$, it gave a signal to open the position, which closing was followed after a minimal movement of 10 cents, or along with the end of trading session. Stop loss each time was placed on a level of 7.30$. The size of opened position was 2000 shares.
Take Profit and Stop Loss placed in the example:
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Signal of entering was accepted at the price of 7.34$, the exit was planned along with the end of session on a level of 7.50$. The size of opened position – 2000 shares. The assumed scenario wasn’t carried out. Breaking was above the level of 7.50$, thus closing the position was on a level of 7.45 along with the end of session. This movement gave a profit of: 11 * 20$ = 220$.
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Signal of entering was accepted at the price of 7.34$, the exit was also planned on a level of 7.50$; however closing the position was carried out after closing the trading session on a level of 7.39$. From established 16 cent price movement, the investor managed to take profit of only 5 cents with 2000 shares, which gave the total profit of: 5 * 20$ = 100$.
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Signal of entering was accepted at the price of 7.34$, the exit was planned as before on a level of 7.50$. The rate to the end of session didn’t reach the level of exit, thus the profit at the end of session was carried out on a level 7.40$. This gave a profit in 6 cents movement of: 6 * 20$ = 120$.
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Signal of entering was accepted at the price of 7.34$, the exit was planned also on a level of 7.50$. However, its realization was carried out along with the end of session, which allows to get the movement of 12 cents (take profit on 7.46$) and the profit was: 12 * 20$ = 240$
Summary
The investor in above presented 7 trading sessions, opening the position on a level of 7.34$ and closing on a level of 7.60$ (2000 shares) would get a total profit of 520$. It is necessary to remember that it was assumed that it would be a drop, but it’s grown. The day trading investor conducting 8 transactions (4 opening and closing the position) will take a profit of 680$.
Videos from session with Scalping strategy
Here you will find some videos in which I describe using day trading strategies – one of them is scalping mentioned in this article (add english subtitles in right down corner:
