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Scalping the Markets

For many years, it was a given that scalping, or trading the market for extremely quick and relatively small moves, was the exclusive domain of the floor trader. Given the floor trader's low commission costs and quick order executions, the ability to enter and exit markets promptly was translated into profitable trading with relative ease. Although the scalping game has become more competitive in recent years, it is still a game which may be played with fairly good odds of success provided one is acquainted with the proper techniques.

Unfortunately, many futures traders do not understand how the majorВэity of floor traders operate. This misunderstanding, or I should say lack of understanding, leads to the erroneous conclusion that we, as off-the-floor traders, somehow compete directly with traders on the floor. This is not necessarily true. What suits the floor trader in terms of technique and goal is not necessarily right for the outside or off-the-floor trader. The majority of floor traders prefer to trade markets which move in fairly narrow but well-defined price ranges, thereby allowing them to buy and sell freВэquently, trading large positions for small moves. In other words, most floor traders are perfectly content to trade back and forth in a market, taking profits of one or two ticks frequently during the course of each trading day. What the floor trader misses in size of price move is easily compensated for in size of position. Whereas the average off-the-floor trader seeks to profit from fairly large moves, the floor trader seeks to profit from small moves using large positions.

Given the general availability of instant price quotations, computerВэized trading systems, and low commission costs, it is possible for all traders to become scalpers, assuming that they have the temperament and motivation to do so. But I warn you that of all the possible day-trading methods and orientations, scalping is the most demanding, the most intense, and the most difficult to learn. Yet it is paradoxically simpie in its goals and intentions. Before discussing some of my favorite scalping techniques, I'll first define both the goal of scalping and how scalpers do what they do.