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Buying into Large Declines or Selling into Large Rallies

Many traders feel that they can successfully scalp a few ticks out of a market by buying into large price declines in bull trends or selling into large price rallies in bear trends. This certainly makes a great deal of sense in terms of ideal thinking; however, in practice it is a very risky procedure because large price declines can continue well beyond theoВэretical support levels and large price rallies in existing bear trends can continue well beyond theoretical resistance points. Nevertheless, very quick money can be made during such moves. The scalper can take advantage of these, provided certain rules are followed.

First, I refer you to my book Short-term Trading in Futures (Probus Publishing, Chicago, 1988) for additional methods of support and resisВэtance trading on a short-term basis. In particular, consult the section on price spikes and probes. These two techniques, namely buying on probes to support and selling on probes to resistance, can prove very effective to the scalper who is willing to establish a position during large declines to support or large rallies to resistance but who must also be willing to exit these positions very quickly, right or wrong. An illusВэtration will serve to clarify what I am suggesting. If you will recall my discussion of price spikes and probes, I noted that when a market declines quickly to a previous price spike on the down side that very quick rallies can develop within a matter of seconds or minutes. This is particularly advantageous to the scalper who will anticipate such moves; moves which usually occur in response to significant governВэment reports or other scheduled news items.

Conclusions

No matter what method you use for scalping the futures markets, remember that the scalper attempts to achieve the following important goals:

1. To trade as often as possible to accumulate as much profit as possible by taking advantage of small but reliable moves within the day time frame

2. To exit positions very quickly either at a profit or at a loss

3. To avoid having a strong opinion as to market direction in order to limit the possibility of being influenced to act on opinion as opposed to market fact