3 Scalp Trading Mistakes to Avoid at All Costs

people say they can't Scout but often they're really are just making one or more of these key mistakes honestly even the best scalpers if they made these mistakes they would not be able to scalp right now we'll talk about three key scalp mistakes you must avoid let's get right into it [Music] we're going to start with how we Define a scalp to us a scalp is a trade that contains the following elements it's a high probability setup so a lot of times this is a specific price action pattern that you know has a high probability of playing out how do you know it has a high probability of playing out you've seen it before you've learned it from somebody you've studied it you recognize what's going on in the pattern that sets that high probability standard if you don't have a high probability then you're playing the risk reward game scalping is not really about playing the risk reward game all the time you typically want that high probability setup on our desk we expect that you will have a high probability setup if you are going to scalp you want a favorable risk to reward profile on your scalp it doesn't have to be perfect it doesn't have to be three to one or five to one but you want a favorable risk to reward profile you need the expectation for the scalp for the trade to play out over seconds and minutes we're not talking about trades that are going to play out over hours or days our expectation you know our shot clock for this entire trade is that it'll start to work quickly that shot clock will be ticking in the back of our minds of how quickly this trade should start to play out and start to occur and work in our favor and that shot clock typically is minutes and seconds for every scalp trade we take with these three things we've defined what a scalp trade is to us mistake number one is scalping the stocks that are not in play Let's talk about what an In-Place stock is on our desk we Define In-Place stocks as a stock with a significant fresh news Catalyst a stock trading at or around a key support or a resistance level or a stock trading on elevated arval typically we talk about three plus arval being ideal what we're really looking for for stocks in play is any or all of these attributes one of the most common mistakes we see on the desk is someone trying to scalp a stock that is not in play why this is such a powerful mistake to avoid is because stocks that are in play will typically move away from your price quickly which offers us that favorable risk reward and allows us to think about that shot clock and how the price action should occur very quickly in our trade stocks that are not in play typically fall into that category of they're going to move with a broad Market you know there's a general rule of thumb that 80 of stocks will trade with the General market with the broad Market at any point well when you're scalping if you're not scalping a stock in play a stock that has independent volume and independent news and a reason for other participants to be involved you're exposing your scalp to all sorts of risk factors that really come by being exposed to the market or being exposed to a hunt algorithm being exposed to trades that other traders that are making decisions that aren't consistent with the edge that we're looking for in this skill if you just focus all your trading on stocks that are in Play You'll typically improve your results very quickly specifically for scalps if you focus your scalps only on stocks that are in play you can expect to have much better results than if you are scalping things that are not in play on the day here's a quick chart example of two different stocks one is in play and one's not in play the one that's not in play has some up and down movement but the fluidity of that movement is very inconsistent your ability to get filled when things move quickly is very inconsistent a stock that's in play will behave like the stock on the bottom of the chart oftentimes they'll move much more cleanly with much more fluidity and much more predictability in the price action patterns that you could see which leads to every scalp you take having a much better risk to reward profile and a much higher probability of doing exactly what you want it to do mistake number two this one really bothers me and it just because I think it's a misunderstanding that a lot of people have about what trading or what scalping is and what scalping isn't mistake number two is all about scalping arbitrary price levels levels they're really just areas of potential support or resistance and on our desk and and just an easy exercise is to score the levels for importance so what we're really talking about is if somebody's saying look at that uh a Stock's breaking 100 what they're really saying is it's breaking a level if we're talking about a real level what we're talking about is the support or resistance and that shows up to based on the price action of that stock how well did it handle that support level previously how well did it what did it do at that resistance level previously levels can be this arbitrary number that people pay so much attention to that just don't have any real importance scalping around that level exposes you to so much randomness if you are going to focus on levels make sure you're focusing on support or resistance levels really easy exercise was if you showed this level that you've identified to five other Traders would they all agree that that level whether it's a support level or a resistance level would they all agree that that was an important level would they very clearly be able to say yes that's an important support area or an important resistance area and here are the reasons why if you can't just show those levels to at least two or three other Traders and they just see it very obviously you're running the risk of overvaluing a level which means you're overvaluing the information that's presented about everything about that trade scalping around a key support or key resistance level is a very effective strategy if you take the time to identify why the support or the resistance level is important let's recap the entire thing don't scalp levels scalp important support or important resistance areas if you have a question of how important that support area is or that resistance area is ask two or three or at least one other Trader and ask them what they see when you tell them that level that support level or that resistance level if they don't agree with exactly what you're saying really ask yourself how important that support area that support level or that resistance area that resistance level is and if you need to be making a trade decision based on that alone mistake number three is not pre-defining a reasons to sell since we're measuring these these trades these scalps in seconds and in minutes and often we're looking for a very distinct opportunity to play out in a very quick way we really need to pre-define our reasons to sell for our scalps just like we have a reason to enter a scalp we need to think about and come up with a predefined reason to sell for our scalp reasons to sell in a scalp it's it's more important than any type of trade because of the probability being on our side for this scalp if we've done our homework and put ourselves in a good position to scalp we have a high probability of something specific happening right after the trade occurs right after we put the risk on if that specific thing happens and we're given our reason to sell and we don't take it we've given up our entire Edge on the trade again the reason to sell is often what gives us real Edge in the scalping trade over a period of time if you get your reason to sell and you don't take it it will likely destroy your trading results it'll add that variability that will lead to that frustration and ultimately lead you to potentially even say scalping's really hard but if you sit there and you understand your reason to sell for a scalp and you get that reason to sell and you take it you will maintain that consistency you'll maintain the Integrity of the scalping idea as it was there and you'll be able to build your ability to take multiple scalps over the course of a day week month and a trading career here's a very quick example of a very simple scalping strategy that some Traders on our desk use once a stock has reversed and is trading with a little bit of fluidity you know a little up and down price action movement will very quickly draw a channel and when we go to the low of that channel we're trading in the direction of the trend you know that short-term Trend that nine EMA is up sloping and when we can draw a channel and we notice that the price action pulls into that channel you know we start with that Green Arrow and we don't really know what the channel is going to look like or if it's even going to channel but when it goes up and finds a resistance level and then pulls right back in that second Green Arrow we all of a sudden have a very clear channel that might be developed so let's think about our reasons to enter and our reasons to sell for this scalp our reasons to enter would be a test of the low of the channel a test but not a break of the low of that price Channel that's being established a reason to sell would be a test or a move up into the top end of that price Channel if we take our exit on those red arrows every single time we've made one two three really good very very simple scalps if we don't take our reason to sell yeah we could maybe eke out a little more profit but we're potentially exposing ourselves to letting it come all the way back and what if it breaks the low end of that channel well all of a sudden you took a very nice scalp a short-term trade where you expected something to happen very quickly and it did and turned it into something else which is I hope it keeps going in this direction those are two different trades and for scalps the reasons to sell are so important because they protect our Edge in the trade so for every scalp you take you really do want to understand what is my reason to sell and why is that reason to sell present we'll quickly review three mistakes to avoid at all costs when you're scalping mistake number one scalping stocks that are not in play again Focus your trading and focus your scalping onto stocks that are in play mistake number two scalping arbitrary price levels instead of coming up with a price level identify why it should be an important support or resistance level share that with other traders to confirm that it might be an important support or resistance level and then even go so far as to score your support or resistance level based on a one to ten scale mistake number three is not pre-defining a reason to sell for your scalp a lot of what protects our Edge and really gives us the wonderful Edge that scalping offers is understanding what our reasons to sell for that scalp are if we don't pre-define our reasons to sell and then take our reasons to sell when they're offered we're taking away and really we're just giving away the edge in our scalp we have this mural hanging in our office it's actually in the kitchen in our office so every time you go and get a cup of water or pick up your food for lunch or anything you see this mural hanging and it's a nice reminder that you are meant to do something great we believe that about every person that's trading you are meant to do something great so you're an active Trader not doing as well as you want not doing as well as you deserve and you just can't figure out why you can't become profitable no matter how hard you try well let me show you why this is your competition the Traders in this room this room right here is full of elite Traders some of them are making seven and even eight figures a year in fact our top guys have made nearly 20 million each in net trading profits in a single year let's head to my office so I can share more so you're probably used to seeing videos of lavish Trader Lifestyles trading gurus trading off of a laptop for an hour a day heck maybe even 15 minutes a day and then them relaxing on some secluded beach for the rest of the day well all I can tell you is that our Traders train like pro athletes they live and breathe the markets and are continually working on their trading skills because at our firm that's what we found it really takes to make it in this game I'm Mike bellafuri co-founder and managing partner of SMB Capital One of the world's top proprietary trading firms located in Midtown Manhattan and we're always looking for trading talent to hire and develop and not just to trade in-house on our desks but also to trade from their own home entirely using our firm's capital and we have numerous Traders doing just that allowing them to make upwards of seven figures trading the firm's Capital without risking their own money but to even get a shot at something like that you need to have the right training that's why we're doing a new free online presentation in which we share how you can get an interview with SMB to become an in-house a remote Trader trading firm Capital without risking yours and gaining access to to all of our firms coaching and resources and the best part you don't have to be a profitable Trader yet in fact we prefer to mold profitable Traders with our methods and our techniques that's why we have just three simple criteria that can earn anyone an interview we're looking for highly ambitious and determined traders who fit our culture first and foremost so if you believe that could be you sign up for the free one hour online presentation by clicking the link that's in your top right corner of your screen now

Channel: SMB Capital

Views: 19,051

Keywords: stock market, day trading, smb capital, trading, investing, markets, wall street, stock trading, options trading, options income, economics, finance, scalping, how to scalp stocks, scalping stocks, stocks scalping, short term trading, smb scalping

Id: YQ9RRItnI3Y

Length: 15min 52sec (952 seconds)

Published: Sat Apr 01 2023