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Point-and-Figure Charting

The Market Profile

The market profile is yet another technique which can be used for the purpose of scalping. J. Peter Steidlmayer, developer of the technique in association with the Chicago Board of Trade, has published many fine articles and several books on the topic. In addition, Dalton and Jones published Mind over Money, which describes their adaptation of the market profile technique in great detail. Since the market profile is an extremely detailed and extensive topic, I will not discuss it herein, but I will tell you that if you understand the profile you can use it very sucВэcessfully for the purpose of day trading. Of particular importance in using the profile is the TPO count and the concept of market balance. The best type of day for trading for scalping the market is what Steidlmayer identifies as the normal distribution day. As I noted earlier, I suggest you read any of the excellent references available on the market profile such as Pete's excellent books or Mind over Money (Probus Books, Chicago, 1989) by Dalton and Jones.

Scalping on Rising or Falling Markets

I have not yet said enough about the procedures for scalping within existing trends. Although most scalpers can do extremely well in sideВэ ways markets which move back and forth regularly between support and resistance, scalpers can also profit handsomely during quick moves either up or down. Such moves tend to occur most often after the release of certain government reports, statements by supposedly knowledgeВэable officials, or international news events. Should you happen to be on the correct side of a market which begins to move sharply in your favor, then take advantage of the move by exiting your position immediately. It is always easier to exit a position while prices are moving within your favor than it is to do so when prices have started to change direction. Therefore, the successful scalper will want to take advantage of such bulges, or craters, as I prefer to call them, by entering orders while the market is still moving in your favor. Do not wait until the trend has either slowed, lost momentum, or changed direction.

There is a certain degree of tape-reading skill involved in following such a procedure; however, it can certainly be developed with experiВэence. As an illustration, consider the chart and accompanying tick printout shown in Figure 14-6. As you can see, this market bulged, began to trend sharply higher, peaked, and then turned lower. The scalper who took advantage of the bulge to exit per my illustrations did well. However, the scalper who failed to do so did not profit handsomely at all.

Summary

Scalpers find themselves in a unique category of day traders. Not only do they seek to trade within the day time frame, but they also attempt to capitalize on the most minute of moves during the day. In order to be a successful scalper, you must either possess or develop specific skills to assist you in your endeavors. Since the scalper seeks to profit only on extremely small moves of several price ticks, it is of paramount imporВэtance that positions be entered and exited quickly and that trading be done on a large scale in order to compensate for the relatively small size of price moves. The scalper who truly wishes to be successful must be willing to trade large positions, to take small moves out of the market, and to do so many times each day. While I feel that in some ways the job of the scalper is more well-defined and more easily implemented than that of the more traditional day trader, it is also an extremely demandВэing role inasmuch as large positions which move against the scalper quickly can prove very costly. Therefore, if you intend to be a scalper, begin to increase your position size slowly and do so only as a function of your financial ability.