Don't believe the obituaries, scalping isn't dead

March 10, 2015

In the minefield of misinformation that is the internet, you may well read or hear people who claim that scalping is no longer possible. The typical reason for this, we are told, is the proliferation of High Frequency Traders (HFT) who supposedly make scalping impossible.

 

The reality is that HFT have not killed 'real' scalping but it may have hurt those who were using a form of trading that they mistakenly thought was scalping.

 

To understand why scalping is still a valid form of trading we first need to understand what scalping is. This video explains what 'real' scalping is.

 

Many traders who claim to use scalping or flow trading are trying to jump on board where they see the bigger traders. As many HFT also examine the larger trades and try to jump in front you can see why HFT can take edge away from manual scalpers. HFT will be quicker than manual traders and with much lower commissions; it is no contest who will win this game. So these manual traders who claim to be scalpers undoubtedly will see their profitability drop as a result of HFT.

 

Others who claim to be scalpers or flow traders actually use technical levels or other price levels which for whatever reason they believe to hold some predictive powers. Again, this is NOT scalping. The only difference between this and other forms of technical or price level trading is the time frame for holding trades. In my opinion the profitability for this type of trading is closer to 50-50 - too close to 50-50 for my liking. So again I am not surprised to hear that these traders struggle.

 

"Real' scalping involves picking off small retail traders and their badly placed orders. As long as there are many small retail traders in a market we should be able to scalp. We actually try to avoid the big traders hence why HFT are not as damaging to us.

 

This is why it is so important to understand why we are trading; who we are trading against and where we get edge. These are the foundations for the scalping techniques that I teach and must be the foundations for any short term traders.

 

 

So real scalping isn't dead but the imitations may well be.

 

 

 

 

 

 

 

 

 

 

 

 

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