SCALPING - it's NOT a four-letter word.
You may be saying to yourself, “scalping” has 8 letters Wayne so what are you even talking about? Even “scalp’ has 5…
The phrase "four-letter word" is used to refer to one of the many offensive slang words in the English language containing four letters.
This four-letter word definition just explains how many traders feel about scalping. For some, scalping in trading has many negative connotations. They feel like there’s something wrong with it. It’s almost like they feel/think that being in a trade for only seconds or a few minutes is wrong. You often hear them try to preach the “right way to trade” which to them isn’t scalping. Much like the same way most brokers aren’t using the words “Day Trader” in advertising these days. Instead they are now using “Active Trader”. Active Trader sounds better to them I guess?
ActiveTraderWayne? Sorry, I'm sticking with DayTraderWayne.
The idea for this blog started a while ago when someone referred to the way we trade as “micro trading”. The implication is that we’re always just scalping for pennies on every trade. Shortly after this comment in chat, it was brought to our attention that someone else was commenting on our trading style. Here was my tweet when I learned of this:
First, I’m going to make a bigger point about Day Trading: The sooner you realize you’re competing with yourself, not the other traders on social media, the better off you’ll be! We constantly say that one of the keys (if not THE KEY) to being profitable over the long haul is finding what works for YOU. Finding a process that works for you is difficult and requires a lot of time, studying, practice, effort, experimenting, capital, mental capital, etc…
But here’s the rub: What doesn’t work for you isn’t wrong. It just doesn’t work for you.
You shouldn’t look at someone else’s trading and say that’s stupid, or dangerous or anything quite frankly. ESPECIALLY IF THE TRADER IS CONSISTENTLY PROFITABLE! You’ll never hear me say Fibs suck and I can’t believe people put them on charts. No, what I say is Fibs just don’t work for me. I spent A LOT of time studying them (and EVERY other technical indicator) and having them on my charts. Over time, I realized that they just didn’t work for me and my trading personality. The same can be said for almost every other technical indicator. Again, my opinion and what works for me. If this is the kind of chart that works for you AND you’re consistently profitable using it, go for it:
I know that chart is an extreme example but it’s not that far off from what many people claim they use. Funny thing is I’ve yet to meet a consistently profitable day trader whose charts do look anything even close to that. There are some that claim they are but...
As most of you know, my charts don't look anything like that one. Candlesticks, volume and a few MAs. That's it. Why so simple? Price and volume is what moves a stock. That’s what I want to see clearly without a bunch of other lines in the way. And honestly, once I'm in a trade I don't even care about the chart. It's all about Level2 and Time&Sales because that's what works for me.
Back to the 4-letter word…
A big part of what I was trying to convey in my tweet was that I never take a trade with the intent of only making $.05. If I’m trading a $1 stock and I get a 5% increase, that’s not bad but never my sole intent. I NEVER think to myself, geeze let’s buy stock $XYZ, risk $.12 because I think it’s going to move a nickel. That would be horrible "R".
Now, that DOES happens frequently. I get into a trade and it quickly goes nowhere. Even though it was one of my A+ Setups and it had the potential to run, it goes nowhere. Rather than ripping Iike I thought it might, it hits a brick wall of sellers. When this happens, I quickly realize I was wrong and I protect myself, my entry and/or just bail out of the damn trade. When this does happen, I don’t say “wow, Wayne what a great trade!”. No, it was a trade with crappy “R” and I’ll talk all about how crappy it was and what I missed and what I could have done better when I fill out my Personal Trade Tracker at the end of the day.
The other point I want to stress here is about always playing defense. When you get into a trade and suddenly something changes and you think you were wrong, GET OUT OF THE TRADE. Don’t wait for your full stop to prove you wrong. Frequently, I’ll get into a trade that had super duper clean Level2. Two seconds after I get in and the sellers were taken out, Level2 becomes the sloppiest thing I’ve ever seen. The edge I thought I had disappeared. What do I do at that point? SELL!
There’s a fine line between staying in a trade and trusting the pattern/chart versus being too stubborn to admit you may be wrong… When in doubt, scalp some and get out. You can always get back in and there will always be another trade…
So, what about those hyper scalpers? The ones that trade for pennies with size? I think they rock! I did that myself for a while when I was learning and building my confidence. I still do this from time-to-time when the market isn’t really giving me what I want.
I think ANYONE, regardless of style, who has figured out this thing we do called Day Trading is a freakin’ rock star.
The one exception and the only type of “trader” you’ll ever hear me bitch about (and you’ll hear it a lot). Those front-running pump and dumpers. They deserve all the criticism they can get. Why? Because technically they aren’t Consistently Profitable Day Traders. They’re consistently profitable marketers. You can read all about them here. Are watch our webinar about them here.
Want to be a successful Day Trader? Stop worrying about what everyone else is/isn’t doing. Figure out what works for YOU. Find your edge which is in your head. Ignore the naysayers, especially if you’re one of them. Think about that…
At the end of the day, the bank isn’t going to ask you how you made your money. I’ve never had CitiBank say, sorry Wayne we can’t accept this incoming transfer from your E*Trade account because you made that money scalping. We only accept money from trades longer than 60 seconds.
And let’s be honest, regardless of what system you’re trading, there are going to be times when you’re just wrong. As soon as you realize this, get out of the freakin’ trade and start looking for the next one.
Thanks for reading!
Questions? Comments? Reach out and/or leave a thought below.