Scalping: An effective and highly profitable trading strategy

in this video we introduced an effective and highly profitable trading strategy scalping hi I'm Mike bellifiore co-founder of SMB Capital a we're 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 by scalping that you can learn to grow your trading account [Music] so this is gonna be like my set an introductory video to scalping for some of the newer guys in here you know you're probably well aware of all this stuff I've probably talked about with you guys before you've heard it but let's dive into it so what does the scalp so Scouts a very short term intraday trade that looks to capitalize on quick movements in a stock's price you know we're not building into positions we're looking to quickly capture some type of volatility expansion you know quick move this is going to require an ability to physically read the tape and make quick decisions based on momentum moves I've read the tape in quotes there because we're gonna do a lot more of that in the second video but at the end of the day reading the bids and offers and the speed at which the bids and offers change and this is usually performed in stocks that have rapidly changing prices and like I said a decent level of intraday volatility in layman's terms it's really just buying and selling stock with a very tight risk to capture a quick move in the direction of your trade I'd like to give some context on this if that's okay sure so one of the very best intraday traders that I know who makes consistently five hundred six hundred thousand dollars a month every month guess what he does for a living he only scalps he scouts with sighs he only scalps one of the myths is that you can't make a lot of money scalping all right 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 is only scalping but he very much reads the Box trades with sides gets in when the box is it with them gets out when the the level two is showing it's time to get out very very big trader I pray that there are a couple of guys in this room who become as big and as good any of those guys so don't let anyone tell you that scalping is not a legitimate way to make money as you've seen with Tesla over the last couple of days you literally could have just scalped and made over a hundred thousand dollars just just trading in and out of that not even with particularly big size I know one trader who actually did make over $100,000 who never really got more than 2,000 shares scalping Tesla in and out and the other thing I'll just sort of say is just never let if you're making money in a particular strategy it's the time of the month where we do our month reviews if you're making money in a particular strategy grab ahold of that do more of it don't let anyone tell you that it's not sophisticated enough it's not academic enough not sexy enough if you make you money on it with it that's a big deal put some fundamentals of scalping together because it's important to know that the whole idea behind scalping is that you're looking to get these quick moves you're looking to have very tight staffs and because you have very tight stops you're gonna end up having to size up accordingly you know because let's say for the size that we use if you have a hundred shares or something and you're looking to capture thirty forty cents and you're looking to risk ten twenty cents you know you want to be sized up so that those quick scalps are actually meaningful to your P&L and and you know in any type of way and because of that you have to be super diligent with actually taking those stops because a scalp you should get in it should work quickly and you should be out quickly if it doesn't work you need to hit out quick you know that's the whole fundamental idea of you're involved looking for some type of momentum move some type of drive in price away from your entry that happens fast you should know quickly whether or not you're right or wrong and you have to be diligent with your process of taking those stops like any type of straight trading strategy it's gonna have to have a specific system and plan that fits for your style and that's gonna be something that you're gonna have to develop you can't just go in and you know start slapping into a bunch of shares of stock in and out in and out in and out all day racking up fees unless you have a very organized way of doing that that you have stats prove obviously if you're just starting out as a trader you're not gonna have those stats yet that's why you could start on the demo you know you paper trade these ideas you back test them in the software you you build out scripts and things like that to see whether or not these strategies work and look to develop some type of idea behind scalping so we're gonna do today is I'm gonna get into some charts and show some examples of scalps that I've taken and types of setups that I'm looking for that I think I have actual power behind them you see a lot of guys that you can scalp in trend you know looking for these little Wiggles and things like that but again if you don't have a system for that you're seeming to be buying and selling blind you know overthinking the tape it's easy to see things that aren't actually there if you want to learn three real world setups that our traders use including the simple setup that we teach all of our new traders and the setup that turned one of our traders into a seven-figure big money earner check out the free webinar that we're currently running just go ahead and click the link that should be appearing right now at the top right hand corner of your screen that's gonna open up this free registration page in the new window so don't worry you're not gonna lose this video you're gonna learn more in a couple of hours from this trading workshop then from years of online education so kind of leading into that the most effective scalping in my opinion is done around key technical levels that will provide a momentum move in either direction you know long or short ideally you want to be quickly in the money on the right side of the drive and price away from that technical level okay so here's a quick example of this this is actually in Nvidia two days ago I personally did take this trade and you know had a little bit of breaking news behind it so context is always gonna be key even if you're scalping you need to understand what stocks doing you can't just slap in expecting a chart pattern to pan out the strongest trades even on the smallest timeframes are always gonna have the wind at your back so in this example you know I'm highlighting resistance levels we'll put in early in the session Nvidia opens up develops this opening range fails tags view app which is artificially high because it was gapping up with the market comes in and this 216 level starts to form pretty solid resistance and then we fail and you know we don't test that price again until much later in the day get back above you app now we start to build this nice consolidation of a view app underneath those resistance levels so if I wasn't scalping if I was looking to build into a position in this which is what you guys are kind of normally familiar with you know I'm looking to buy these dips against vu app you know get bigger as it tightens up add a little bit more as it goes through that's position trading you know you're trying to trade a thesis you have a wider stop you're being loose with it you're buying dips maybe you're trimming some off that's not what we're talking about here we're talking about here is taking the quick momentum move being in the money right away selling as soon as momentum is over and I'm in the now to the trade in one or two minutes those are scallops so in this particular instance news ends up hitting that in video was going to launch like 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 to 16 quickly saw that we had a compression had it been watching the stock beforehand instantly I'm I'm in the box I'm looking at the bids in the offers I'm trying to figure out okay if this gets above to 16 it's pretty likely gonna have some momentum behind it as you see the volume kind of come in it gets about 216 I bet you I could era I'm sorry 246 I look like a 1 if it gets about 246 I can probably get this for a point to 247 very quickly as it will make new highs on this volume so in that at idea breaks 246 I quickly hit in momentum slows up above 247 247 50-ish starts to be a little bit of a level on the tape and I hit out and that's it you know very quick one point move 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 dash take your money where you can get it be in the money quick small losses and take a big move important point you guys are in most of the guys in the room are in the sampling stage you're trying different types of trades figuring out which ones are best for you the next stage you'll get into is developing your PlayBook and then after you developed your PlayBook and to try and do what you can try and focus on what chick be consistent I'm glad you gave me the wrong answer that's what most people would think the next stage is being consistent what is a strategy that breeds very consistent traders breeds very consistent results a month-over-month scalping and so not everybody at once scalping and so because it's it's it's a simple trade that you know if you're right quickly or not you buy it it's not working you get out not for a lot of money you don't take a big loss you buy it it's working it's in your favor your reward is is higher than than your risk and so if you wait for those big levels in stocks that are in play you will be consistent with your results which is important in that stage of when you're trying to get consistency and then Jake after you are consistent you can size up and focus on that yes so you know going off of that in this example I bought as it broke 246 this previous level if it reoffer dunder 246 and was back under you know Nvidia can move so if it's back under 245 80 right after breaking above 246 I'm hitting out really quick you know like I'm not interested in seeing whether or not it's gonna get above the level they're gonna support it if they're gonna keep going I'm not interested in seeing if it pulls back to the breakout point of the wedge maybe I'll buy a little more I'm looking for this to drive through the price and separate quickly I'm looking to see those offers get lifted tape speeds up I'm looking to see if this can get 40 50 60 cents right away and NVIDIA you know you develop a certain type of feel for certain products I trade in video a lot so I know that when Nvidia breaks a level what it looks like when it works is that it's going to separate from price quick and I'm going to be in the money and I'm gonna be set as soon as momentum slows it's probably going to need some time to consolidate so that's why I'm out quickly as soon as I see the tape put in a candle like this offer start stepping back in you know the green on the time and sales this kind of slowing down take it and I'm out nothing forgetting the Jesus stop where market order that you paid for it I think that's gonna depend on your style too I think in this particular instance if you throw bids and you're gonna miss it so oftentimes for scalps it depends in this type of move I always scalp with momentum because ideally you want to be in you know in favor quick and in that particular instance I'm gonna pay up you know so I'm just hitting offers I'm gonna take it because if it works and I pay the offer I'm gonna be in the money right away and if I put bids and I might not get filled and then I'm gonna have to chase it for what 30 40 cents maybe I never get filled you know that's not what you want no it's not the idea pound scalping at the end of the day whatever I pay in fees for not adding liquidity shouldn't really matter because ideally scalping you know tight risk really nice reward and I risk maybe ten fifteen cents on this made a point so those are why you're starting to get really nice risk reward trades so that adding liquidity isn't necessarily as important so you oftentimes will have to pay up okay here's another one so we just saw kind of like a breaking news technical level opening range breakout later in the day so what we're gonna have here is an example of Apple breaking the low of day that was put in the first hour and having a quick moment to move to the downside so obviously this one's not gonna be you know as volume driven as in video was because I had a little breaking news to it maybe add a little bit more size to something like that but on a purely technical level break like this you know you're looking to enter as soon as the recent consolidation that you're in so you know Apple really weak in the morning bounces up to view app consolidates breaks down if I was building position I'd like to make this parallel so that you guys see how there's power behind the scalping setup if I was building position ideally I would have started shorting somewhere around here you get a consolidation right ahead of the lows you start shorting a little more and then maybe you add this momentum lot but considering we're talking about scalping let's I'm not in the trade I only want to take scalps that's my strategy that's how I make money this scalping opportunity would be we have this really nice consolidation right above the Lowe's if this consolidation breaks and some volume comes in can't see if I'm pulling this up volume comes in then you start to see now if we break this low we should separate away from price and maybe I can get 50 60 70 cents so in this instance as we were coming down we broke this consolidation I hid underneath 320 150 which is kind of the low of the consolidation again you know hitting the bids I'm willing to take liquidity that's fine I hit the bids right away it's at 321 I'm expecting this low to get broken on volume you see the increase in volume as soon as momentum slows I'm out so it goes all the way 320 also a whole number a little bit of a psychological level maybe you know we get a spike right down to that level I'm taking it I think I got out maybe five or six cents you know 3 2005 I usually put my bids if I'm scalping like that I'm trying to get a quick wick down usually put my bids you know 1 cent ahead of a 5 you know 5 10 15 I'm putting my bids in at 6 11 16 21 things like that so you guaranteed to get sprayed because institutions they like to use those nice round number areas for liquidity purposes so sometimes it's nice to front-run them a little bit especially if you're scalping because I can't handle taking that wick back up I need to be out it's a momentum move I'm you know I'm scalping okay so those were like really good examples of technical level breaks where I'm looking to get momentum now I want to talk a little bit about trend following scalps so oftentimes this can happen you know let's say you have a core position from really good prices and you're looking to trade around that core generate some cash flow great method to do that is to scalp along with the trend again you have to develop your own method for doing this you can't just buy every pullback in trend you know and expect it to bounce you know you have to have some type of method to do that people use different things some people use trend lines some people use short term RSI I personally use moving averages I think I think they really they worked really well to develop a specific system with you guys have heard me probably ad nauseam talk about that again it's important that whatever you develop is for you and works for you again 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 for really short term trend following so this is actually in Tesla I think this was maybe like a week or two though two weeks ago that's crazy considering what the price is now but this is later on the day you know just a little bit of context we developed some type of a range earlier in the day you know now we're at highs on the day and they put in this little bit of a price of 580 on resistance so we're pressing pressing pressing pressing it breaks above 580 good volume that's a good example of what we talked about before key technical level breakout take that for momentum you know it's crazy and Tesla you can take that and make two points really fast nowadays with the volume you can make five 10 points on these scalps and Tesla it's insane that's a perfect example of the technical level breakout scalp but if I want to trend follow this once I have an idea that the stock is making new highs on the day it's thoroughly and within trend as defined by my system it's holding above the nine nine or ten EMA now I'm looking to buy pull backs into that nine EMA to quickly dish out on over extensions to kind of scalp around so ideally what could happen here you get a big drive away from 9:00 a.m. a you pull in really light volume you look down there at the volume is starting to contract tags the nine EMA put on a feeler scalp position pulls away you're getting to know another extension away from the 90 MA and I dish that out alright and now I'm building cash flow look at this 582 right to 585 three points and when I'm looking for maybe a 20 point trade I'm consistently taking five to ten percent of that move and adding on working even working on my average probably so if you want to call it that adding cash flow trading around a core or just purely scalping and this is what I do to make money you know I'm not even in this as core in and out in and out in and out that's perfectly reasonable it's exactly what Bella was talking about you can be that traitor if you want but you have to have a system that works again big overextension pulls in on light volume and then you get another little thrust really quickly here at a new highs as soon as you know if I was gonna take this and it gives up the 90 ma what I like to do is have some type of rule for where is my confidence level if I'm trying to scalp this often times for me it'll be the next EMA so for me the 21 EMA or if I'm scalping the 21 EMA the 55 EMA again you have to build your system out for yourself quick note scalping works best for people that think quickly so if you have an experience if you have a background and gaming if you have a background where whatever reason you can do math really quickly in your head and you notice that about yourself if you are tasked with coming up with 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's like this it's like you he listens for like 10 minutes and then he's just like the answer is this those are the types of people that should be thinking more about scalping if you're more of a reflective person if it takes you here that person who goes into a grocery store to buy a loaf of bread and takes you like five minutes to figure out which loaf of bread to buy that's me then you're probably gonna look for more swing trades or more trades that really set up and and go from there so you want to just you know swang obviously scalps nicely quick-thinking background of that so think about that before when you're when you're trading these things you know you think pretty quickly strategy that you can employ probably pretty easily yes I kind of talked about a lot of this you know but you know just to put in words some of the tips that I use for trend-following scalps you know got to have some type of system I like to use short term EMAS I use a nine period EMA on a 1-minute chart definitely super possible method for scalping along a strong trend you have a way to define 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 exits any type of big expanded candles away from the 90m a dish it out if you miss the next part of the move and you're worried about that then you're not really understanding the essential fundamentals of what scalping is you know if you struggle with FOMO or something like that or chasing things you know maybe scalping isn't the best idea for you because you might need to be able to sit through things and build positions if you're scalping you're in out you take your money you run you go on and look for the next opportunity it takes a little bit of patience you know which is kind of counterintuitive because you think you know them I'm hitting in I'm hitting out I'm hitting in I'm hitting out at the same time you're not doing that without a system you're being patient waiting for those specific areas to trend follow or to break a key technical level you've scanners to develop those setups and things like that you know what stocks are in strong trends that's how you can really build out a strong scalping system so here's some other tips this is just kind of specifically talking about what I'm seeing in the tape when I'm scalping so we'll do another video where I'll actually show you guys the tape and some examples of me making trades in them the chart patterns are really the principle of how to effectively find areas where you can get drives in price 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 one of looking at is the acceleration of the speed and how the bids and offers are changing so this is I brought this up in one of your meetings how I saw some you guys had it where it a grits all of the bids or the offers at a specific price and then you just stack them and I made a comment I was like oh is that is that making it easier or harder for you guys to read the tape you know is that making it so you can't really value speed is only really useful at key technical levels were you seeing them have massive size on at the bid or the offer I personally have it set up where it's color-coded with a gradient so it's yellow and it fades to a lighter yellow so the darkest yellow is where the price currently is sharks for example is blue and then goes to a lighter blue because he has blue light glasses so you know probably easier on his eyes and doing it 10 years you want to be able to see and build a system out even on your visual cues for how you're seeing whether or not the tape is speeding up because then you start to build the intuition right like scalping is definitely a systematic thing and you need to have set rules behind it but the end of the day like Bell is saying it's very quick decision-making and again you'll get visual cues are a great way to help out with that you know I can tell when if I see a flurry of green prints coming in on the time and sales and I see the bids and the offers really start to move quickly right up to the key technical level let's say 99 cents buy a whole number and all sudden I see the whole number decrementing on the offer and I see a bunch of green prints coming in that's when I hit it at 246 and NVIDIA and then it gets above and now you know I'm instantly on the money those visual cues are gonna take time to develop I think the default here so you have a bunch of different colors for everything on the bids and offers on the montage I always thought it was impossible to tell what was happening all these flurries of colors coming at your eyes you know that's not necessarily the best way to build some type of intuition on how the tapes moving you know again as with all things you have to develop that for yourself maybe you like the color green you know if you're looking to scalp maybe you want your montage to be green I don't care develop some type of way to do that yeah so I did quickly mention large-sized at a technical level if you see down the order book there's a huge block size at a whole number the specific things that I like to do with big whole number moves like that or in IPOs so a lot of times recent IPOs will have huge institutional participants who need to support the stock or need it to go up because they just allocated you know tons of shares in those particular instances sometimes you could see you know 100 thousands of shares sitting on the bid or the offer at a specific price those are the types of moves where you want to get involved in if anyone's watching Tesla yesterday as it came down to 850 or was it 750 anyone remember I think it was 750 into the close so came into 750 stock on SSR 750 by 750 o1 and there's big size at 750 you know if Tesla's a high bit of stock you guys know what big sizes and that you know a couple hundred thousand shares sitting on one price i buy the penny and a stock that is a spread of like 25 to 50 cents most of the time that's a key technical level in real time you can hit that for all you want with no risk if it read the Erie offers out you know you kick it but if it breaks down from 750 now next thing you know that's you're scalping opportunity in the case of Tesla you could have gotten 30 points on that yesterday you could've short it all you wanted so those specific things and visual cues building out your system and seeing technical levels on the tape we'll dive into a little bit more in the next video but at the same time that all factors back into where is the stock act contextually so that you can make that really quick play this is just a review slide you know obviously covered all this already scoffs of short term momentum trade very tight stops want to make these trades are on key technical levels or in a stock that has a strong trend got to have a system for trend filing gotta have a system for defining key technical levels reading the tape is a vital skill and we'll talk about that next video okay so now it's your turn is 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

Channel: SMB Capital

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Keywords: scalping trading strategy, scalping trading strategy crypto, scalping trading strategy stocks, scalping trading, scalping trading live, scalping day trading strategy, scalping day trading, scalping day trading swing trading, scalping stocks day trading, scalping techniques day trading, scalping thinkorswim, scalping vs day trading, day trader scalping, day trading scalping live

Id: 8F3mdBtygzQ

Length: 26min 48sec (1608 seconds)

Published: Thu Feb 06 2020