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Scalping: An effective and highly profitable trading strategy

Jun 01, 2021
In this video we present an

effective

and

highly

profitable

trading

strategy

. Hi, I'm Mike Bellifiore, co-founder of SMB Capital, a proprietary

trading

firm located in midtown Manhattan, and I'm also the author of the trading classic One Good Trade. and the PlayBook in this video, a trader from our firm shares winning trades made through

scalping

that you can learn to grow your trading account, so this will be like my set, an introductory video to

scalping

for some of the newer guys here, you know? You're probably very aware of all of these things that I probably talked to you about before you heard them, but let's dive into it, so what does the scalp do for Scouts to do a very short-term intraday trade that seeks to capitalize on the rapid movements in the price of a stock, you know, we are not building positions, we are looking to quickly capture some type of volatility expansion, you know, a rapid movement, this will require the ability to physically read the tape and make quick decisions based in impulse movements.
scalping an effective and highly profitable trading strategy
I've read the tape in quotes because we're going to do a lot more of that in the second video, but at the end of the day we read the bids and the offers and the rate at which they change and this is usually done on stocks that have rapidly changing prices. and like I said, a decent level of intraday volatility in simple terms is really just buying and selling stocks at a very tight risk to capture a quick move in the direction of your trade. I'd like to provide some context. On this, if okay, sure, one of the best day traders I know, who consistently makes five hundred and six hundred thousand dollars a month every month, guess what he does, just scalp, explore with sighs, just scalp scalp one of the myths is that you can't make a lot of money speculating, that's not true, and I know another trader in the Midwest who works at a tier one firm and his trading style I wouldn't say it's just speculation, but reads a lot. the box swaps with the sides comes in when the box is with them comes out when level two shows it's time to exit very very big merchant I pray there are a couple of guys in this room that get as big and like Well, any of those guys, so don't let anyone tell you that scalping is not a legitimate way to make money, as you have seen with Tesla in the last few days, you literally could have ripped it off and made over a hundred thousand dollars. just going in and out of it, not even at a particularly large size.
scalping an effective and highly profitable trading strategy

More Interesting Facts About,

scalping an effective and highly profitable trading strategy...

I know a trader who actually made over $100,000 and he never made more than 2,000 shares speculating Tesla in and out and the other thing I will say is never let if you are making money with a particular

strategy

, it's time of the month in which we do our monthly reviews. If you are making money with a particular strategy, hold on to that and do more, don't let anyone tell you that it's not sophisticated enough, it's not academic enough, it's not sexy enough, if you make money with it, that's it. its a big problem. Put together some scalping fundamentals because it's important to know that the idea behind scalping is that you're looking to get them quickly. movements, you're looking to have very tight sticks and because you have very tight stops, you're going to end up having to size up accordingly, you know, because let's say for the size that we use if you have a hundred actions or something like that and if you're looking to capture thirty forty cents and you're looking to risk ten and twenty cents, you know that you want to get evaluated so that those quick scalps are really significant to your profits and losses and you know that either way and that's why you have to be very diligent in taking those stops because the scalp scalp that you should enter should work quickly and you should exit quickly, if it doesn't work you should strike quickly, you know, that's the fundamental idea of ​​your involves looking for some kind of momentum, moving some kind of momentum in the price away from your entry. , that happens quickly, you have to know quickly if you're right or wrong and you have to be diligent with your process of taking those stops like any guy.
scalping an effective and highly profitable trading strategy
For a straight trading strategy, you will need to have a specific system and plan that fits your style and that will be something you will need to develop. You can't just go in and start investing in a bunch of stock stocks going in and out going in and out all day long racking up fees unless you have a very organized way of doing it and you have statistics that obviously show that if you're just starting out as a trader you don't will have those statistics still that's why you could start with the demo, you know, you exchange these ideas on paper, test them in the software, create scripts and things like that to see if these strategies work or not and look to develop some kind of idea behind the scalping.
scalping an effective and highly profitable trading strategy
What we're going to do today is go into some charts and show some examples of scalps that I've taken and the types of setups that I'm looking for and that I think I have some real power behind. You see a lot of guys who can take advantage of the trend, you know, they look for these little Wiggles and things like that, but again, if they don't have a system for that, it seems like they're buying and selling blindly, you know, thinking too much about the tape it's easy to see the things. which aren't actually there if you want to learn three real-world setups that our traders use, including the simple setup we teach all of our new traders and the setup that turned one of our traders into a huge seven-figure earner, check out the free webinar that we are currently running, just go ahead and click on the link that should appear right now in the top right corner of your screen and it will open this free registration page in the new window, so don't worry .
You won't miss this video, you will learn more in a couple of hours of this trading workshop and after years of online education, which brings us to the fact that, in my opinion, the most

effective

scalping is done around key technical levels that They will provide a momentum moves in any direction, you know long or short, the ideal is to be quickly in the money on the right side of the puck and the price away from that technical level, okay, so here's a quick example of this , this is actually on Nvidia two days ago. I personally took this trade and you know there was some breaking news behind it so context will always be key, even if you are speculating you need to understand what the stock is doing, you can't just slap around hoping a chart pattern will move .
Taking the strongest trades, even on the smallest time frames, will always have the wind at your back, so in this example you know I am highlighting the resistance levels that we will put in at the beginning of the session. Nvidia opens develops this opening range fails tags view app which is artificially high because it was going up with the market and this 216 level starts to form some pretty solid resistance and then we fail and we don't retest that price until much later in the day, get back on top of your application. now we start to build this nice consolidation of a display application below those resistance levels, so if I wasn't speculating if I was looking to build a position on this, which is what you guys are typically familiar with, you know I'm looking to buy these drops against the vu app, you know they get bigger as you adjust, add a little more as you go, that's position trading, you know you're trying to trade a thesis, you have a wider stop, You're being lazy with her. you're buying dips maybe you're shorting some that's not what we're talking about here we're talking here about taking the momentum move fast being in the money immediately selling as soon as the momentum ends and I'm in the moment of trading on one or two minutes, those are scallops, so in this particular case news ends up coming that the video was going to release something to do with their product line.
I didn't even have time to really hear the news. I saw the volume coming in I saw the technical level at 16 I quickly saw that we had a squeeze if I had been watching the stock beforehand instantly I'm I'm at the checkout I'm looking at the bids at the bids I'm trying to figure out, if this goes up to 16, it's very likely it has some momentum, since you see the volume coming in at around 216, I bet you it could be, sorry, 246, I look like a 1 if it gets around 246. I can probably take this by a point to 247 very quickly as it will hit new highs on this volume so in the idea it breaks 246, I quickly get momentum, it slows down above 247 247 50-ish starts to get a little bit of a level on the tape and I hit and that's it, you know, very fast, one point movement.
I was in the trade for one, two, three, I sold on that third candle, three minute trade, move on to something else you know, in and out. that's the idea of ​​a scalping mentality, you know, dine and run, take your money where you can get it, get in the money, small quick losses and make a big move. Important point, you are in the majority of the guys in the room are in the sampling stage. You are trying different types of trades to find out which ones are best for you. The next stage you're going to go into is developing your PlayBook and then after you've developed your PlayBook, try to do what you can and focus on what the girl is. consistent I'm glad you gave me the wrong answer that's what most people would think the next stage is to be consistent what is a strategy that generates very consistent traders generates very consistent results scalping month after month and therefore not all at the same time they speculate and because it is a simple exchange that you know quickly if you are right or wrong, you buy it, it does not work, you exit, not for a lot of money, you do not suffer a big loss, you buy it, it is working, it is in your favor, your reward is greater than your risk, so if you wait for those big levels in the stocks that are in play, you will be consistent with your results, which is important at that stage where you are trying to get consistency and then Jake, after you are consistent you can evaluate and focus on that so you know in this example I bought because it broke 246 at this previous level if they offered dunder 246 again and it was back below you know Nvidia can move so if it's again below 245 80 just after passing 246.
I'm batting very fast, you know, I'm not interested in whether it will break the level or not, they will bear it if they go ahead. I'm not interested in seeing if it returns to the breakout point of the wedge maybe buy a little more. I'm looking for this to boost the price and break it up quickly. I'm looking to see those offerings increase treadmill speeds. above, I'm looking to see if this can get 40 50 60 cents right away and NVIDIA, you know, you develop a certain kind of feeling for certain products. I change the video a lot, so I know when Nvidia pushes a level, what it looks like. when it works is that it will break away from the price quickly and I will be in the money and I will be ready as soon as the momentum slows down, it will probably need some time to consolidate which is why I am out. quickly, as soon as I see the tape put on a candle like this, the supply starts to recede, you know, the green in the moment and the sales, this kind of slowdown, take it and I don't forget the Jesus stop where orders the market. paid for it, I think that will also depend on your style.
I think that in this particular case, if you launch offers and you are going to lose it, many times it depends on this type of movement, I always scalp with momentum because ideally you want to. be for, you know, fast and in that particular case I'm going to pay, you know, so I'm just getting offers. I'll take it because if it works out and I pay the offer, I'll be in the money. right away and if I make offers and they might not fill me and then I'll have to chase it for 30 40 cents they might never cover me you know that's not what you want no that's not the idea of ​​scalping in the end . of the day, whatever I pay in fees for not adding liquidity shouldn't really matter because ideally scalping you know, risk adjusted is really good reward and I risk maybe ten and fifteen cents on this so that's why You're starting to get really good risk reward trades, so adding liquidity isn't necessarily that important, so you'll often have to pay out.
Well, here's another one, so we saw kind of a breaking news technical level opening range breakout later in the day, so what are we? What I'm going to have here is an example of Apple breaking the day's low that was set in the first hour and having a quick moment to move lower, so obviously this one is not going to be as volume driven as in the video because I had a Some breaking news might add a little more size to something like this, but on a purely technical level,You know you're looking to get in as soon as the recent consolidation you're in, so you know Apple is really weak.
Bounce in the morning to see the application consolidate and break down if you were building a position. I would like to do this in parallel for you guys to see how there is power behind the speculation setup. If you were building a position, you would ideally have started selling somewhere around here. you get a consolidation right before the lows, you start selling a little bit more and then maybe you add this momentum, but considering we're talking about speculation, I'm not into trading, I just want to take speculation, that's my strategy, that's how I make money on this scalping opportunity if we had this really good consolidation right above Lowe's.
If this consolidation breaks and some volume comes in I can't see if I'm getting this volume increases and then you start to see that if we break this low we should break away from the price and maybe I can get 50 60 70 cents so on this case, as we were going down, we broke this consolidation that I hid below 320 150, which is Kind of the bottom of the consolidation again, you know, hitting the bids. I am willing to take liquidity. Okay, I reached for the deals right away. It is at 321. I expect this low to be broken on volume.
You will see the increase in volume as soon as possible. as the momentum decreases, I go out, so it goes up to 320, also a whole number, a little bit of psychological level, maybe you know we have a peak up to that level. I'm taking it, I think I came out maybe five or six cents, you know, 3 2005. I usually make my bids if I'm busting like that. I'm trying to get a quick fuse. I usually make my bids, you know, 1 cent ahead of a 5, you know, 5 10 15. I'm putting my bids on 6 11 16 21 things like that, so you're guaranteed to get sprayed because institutions like it. use those nice round number areas for liquidity purposes, so sometimes it's good to bring them forward a little, especially if you're speculating because I can't bear to turn that wick up again.
I need to go out. It is an impulse movement. You know I'm scalping. Those were very good examples of technical level breakouts where I look to gain momentum. Now I want. To talk a little bit about the trends that scalps follow, a lot of times this can happen, you know, let's say you have a core position with really good prices and you're looking to trade around that core, generate some cash flow. An excellent method to do this is to scalp. with the trend again you have to develop your own method to do this, you can't just buy every pullback in the trend you know and hope it bounces, you know you have to have some kind of method to do it, people use different things, some people they use trend lines some people use short term RSI I personally use moving averages I think they really worked very well to develop a specific system with you, you have probably heard me ad nauseum talk about it again, it is important that whatever you develop is for you and works for you again do a backtest develop your system look at your stats so let's dive into some examples of trend following with the MAS so on this chart we have a ten period EMA.
I like to use that to follow very short-term trends, so this is In fact, at Tesla, I think this was maybe like a week or two, although two weeks ago that's crazy considering what the price is now, but this is later in the day, you know, just a little bit of context, we developed some kind of range earlier in the day, you know, we're at highs that day and they put a little 580 price at resistance, so we're pressing, pressing, pressing, breaks above 580, good volume, that's a good example of what we talked about before. key technical level breakout take it as momentum you know it's crazy and Tesla you can take that and make two points very quickly today with volume you can make five 10 points on these scalps and Tesla is crazy it's a perfect example of the scalp technical level breakout, but if I want to follow the trend, follow this once I have an idea that the stock is reaching new highs on the day it is completely and within the trend defined by my system, it holds above the nine, nine or ten EMA, now I'm looking to buy. pulls back towards those nine EMAs to quickly trade on extensions for some sort of scalp, so ideally what could happen here is a big trip from 9:00 a.m. to 1:00 p.m. m. and you get really light volume, you look down, the volume is starting to contract labels, the nine EMA placed in a test scalp position moves away, you are meeting another extension beyond the 90 MA and I spread it well and now I am generating cash flow, look at this 582 right at 585 three points and when I'm looking for a maybe 20 point trade, I'm constantly taking five to ten percent of that move and adding work, even working on my average, probably, so if you want to call it that, add cash flow operating around a core. or just just scalping and this is what I do to make money, you know, I'm not even into this like core in and out, in and out, in and out, that's perfectly reasonable, that's exactly what Bella was about. speaking, you can be that traitor if you want, but you have to have a system that works again, a big overextension attracts light volume and then you get another little push very quickly here at new highs as soon as you know if I was going to take this and quit the 90 ma.
What I like to do is have some kind of rule for where my confidence level is. If I try to scalp this frequency, it will be the next EMA, so for me it will be the 21 EMA or if I am scalping the 21. EMA, the 55 EMA again, you have to build your system yourself. Quick note speculation works best for people who think quickly, so if you have experience, if you have gaming experience, if you have experience where, for whatever reason, you can do real math. quickly in your head and you realize that about yourself, if you're tasked with making a decision that requires processing a lot of information quickly and you're just one of those people and we all know people like this, Spencer is like that, he's just like you. listens for about 10 minutes and then says the answer is this: those are the kind of people who should think more about scalping if you're a more thoughtful person if you're led here by that person who goes to a grocery store to buy a loaf of bread and it takes you like five minutes to figure out which loaf of bread to buy, that's me, so you're probably going to look for more swing trades or more trades that actually settle down and go from there, so you want to just know that swang obviously it takes very good advantage of the quick thinking background of that, so think about that before, when you're trading these things, you know you think pretty quickly, a strategy that you can probably employ quite easily, yeah, I kind of talked about a You already know a lot of this, but just to put into words some of the tips I use for trend-following scalps, you know you have to have some kind of system.
I like to use EMAS in the short term. I use a nine period EMA on a 1 minute chart. It is definitely a super possible method to speculate along a strong trend. You have a way of defining the trend. You have a way to enter an exit. You have a way to define your stops and you have a way to define your departures in any type of large size. candles expanded away from 90m and deals if you miss the next part of the move and you're worried about it, then you're not really understanding the essential fundamentals of what scalping is, you know if you have problems with FOMO or something like that. that or chasing things you know maybe scalping isn't the best idea for you because you may need to be able to sit back and build positions if you're speculating you're in, you take your money, you run, you move on and look for the next opportunity it takes a little patience you know which is a little counterintuitive because you think you know them I'm hitting I'm hitting I'm hitting I'm hitting I'm hitting at the same time as you You're not doing that without a system, you're being patient waiting for those specific areas to follow the trend or break a key technical level, you have scanners to develop those setups and stuff like that, you know which stocks are in strong trends, that's how you can really build a solid scalping system, so here are some other tips.
This speaks specifically to what I see on tape when I'm speculating, so we'll do another video where I'll actually show it to you. the tape and some examples of me taking trades on them, chart patterns are really the beginning of how to effectively find areas where you can get price units that you can capture very quickly with scalps, but you still have to be able to read the tape . So some of the things you might be looking at is the acceleration in velocity and how bids and offers are changing. So I mentioned this in one of your meetings, how I saw some of you had it where it was a pimple. all the bids or offers at a specific price and then you just stack them up and I made a comment.
I thought, oh, it's just making it easier or harder for you guys to read the tape, you know, it's just making it so I can't really value the speed, it's only really useful at key technical levels, if you saw them with a huge size on sale or sale, I personally set it to where it's color coded with a gradient so it's yellow and it fades to a lighter yellow so the darker yellow is where the current price is the ones Sharks, for example, is blue and then goes to a lighter blue because they have blue light glasses, so it's probably easier on their eyes and by doing it 10 years from now you'll want to be able to see. and build a system even with your visual cues about how you are seeing whether the tape is speeding up or not, because then you start to develop intuition, like scalping is definitely a systematic thing and you need to set rules behind it, but in the end of the day, as Bell says, it's very quick decision making and again you'll get visual cues which are a great way to help with that.
You know, I can tell when if I see a burst of green prints on time and sales and I see the bids and offers really start to move quickly up to the key technical level, let's say 99 cents buys a whole number and suddenly I see that the whole number decreases in the bid and I see a lot of green The impressions come that's when I hit it at 246 and NVIDIA and then it goes up and now you know I'm instantly in the money. Those visual cues will take time to develop. I think the default here is so you have a bunch of different colors.
For all the bidding and offers in the montage, I always thought it was impossible to know what was going on, all these bursts of colors coming into your eyes, you know, that's not necessarily the best way to develop any kind of intuition about how the tapes move you. I know again that with all things you have to develop that for yourself maybe you like the color green. You know, if you're looking for a scalp you might want your montage to be green. I don't mind developing some kind of way to do it, yes. so I quickly mentioned big size on a technical level, if you see in the order book that there's a huge block size on an integer, the specific things that I like to do with big integer moves like that or in IPOs, so a lot of times recent IPOs will have large institutional players that need to back the stock or need it to go up because they just allocated tons of stock, in those particular cases sometimes you can see 100,000 shares in the bid or in the offer. at a specific price, those are the types of moves you want to get involved in if someone is looking at Tesla yesterday when he went down to 850 or was 750.
Does anyone remember? I think it was 750 at the close so it came to 750 shares at SSR 750. for 750 o1 and there is a large size at 750 you know if Tesla has a large number of shares you know what sizes are large and you know that a couple of hundreds of thousands of stocks are priced, I buy the penny and a stock that has a spread of like 25 to 50 cents most of the time, that's a key technical level in real time, you can hit it for all you want no risk if you read Erie's deals you know you kick it but if it breaks down from 750 the next thing you do is I know you're taking advantage of the opportunity.
In the case of Tesla, you could have gotten 30 points yesterday. You could have shortened it as much as you wanted, so those specific things and visual cues that build your system and see the technical levels on the tape. We'll go a little deepermore in the video below, but at the same time, all the factors that determine where stocks are act contextually so you can make that really quick play. This is just a review slide, you know, obviously it covered all of this. short-term momentum trading very tight stops I want to do these trades at key technical levels or on a stock that is trending strongly I have to have a system to record trends I have to have a system to define key technical levels reading the tape is vital skill and we will talk about the next video, okay, now it's your turn to do scalping, a strategy that you use in your trading.
If so, what are your favorite times to scalp? Let us know by leaving a comment below right now.

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