Saturday, January 2, 2010

"Swing Scalping" in 2010




Let’s face it traders, 2009 was the toughest year in the decade for pure day trading despite the huge move off March lows to finish with some nice gains in the overall averages. The absence of the retail investor led to anemic volume and the rise of HFT computer models was not a good recipe for momentum day trading. Over the years I have always been able to adapt to changes in the marketplace (a quality everygood trader must posess - my SFOmag article) but I must say that this has been one of the toughest hurdles. Although it was another profitable year at TodayTrader, my day trading profits were not near the level I have come accustomed to over the years. I finished the year on a positive note by applying some more patient and selective strategies (to be discussed in YouTube video) and I am encouraged going into 2010. I also accepted the fact early on in 2009 that HFT is here to stay and focused a lot more in my swing trading account as a way to beat the bots.
A technique that has made me some big profits during my day trading career is being able to see a setup (usually accompanied by volume), study the level II and tape, anticipate the move and then pounce with huge size and ride the momentum. With the onslaught of HFT algorithms these setups have been much harder to predict with the price action mimicking that of a Richter scale in many cases making it too risky to play the size I was used to. Since we have always used a lot of setups on a daily chart I started to buy these in my swing account based on intraday volume. I started to notice more and more the same trades I was getting jigged out of day trading were really showing some nice profits in the swing account. A good recent example is SRZ on 12/18. I entered this trade in both accounts at $3.13 based on the daily chart setup and volume. After hitting a high of $3.17 the stock pull backed to $3.08 (2 cents off lows), wicked, and eventually went back thru highs on bigger volume to go as high as $3.52 without a bar reversal. In this case I was able to stay in the trade in both accounts but there would be many times I would get worked out of the day trade.
OK, nice entry in SRZ, now what. I have always applied the same strategies, rules and disciplines in my swing trading as I do my day trading. In the case of SRZ I had a strong gut feeling based on volume. I grabbed a pretty big chunk at $3.13 and scalped out of 2/3 of the position at $3.48 for some nice gains using a stop below the 10 MA at $3.20 on the remaining. We like to refer to it as “swing scalping” at TodayTrader. The advantage that a full time trader has over other swing traders is they are monitoring the markets intraday and can catch these setups. Most swing traders just trade off the daily charts and miss the intraday opportunities. DON’T underestimate this. It was by far my most profitable setup in my swing account. Another good example is F on 12/18. This is one that I had been stalking and already long but bought more at the breakout above $9.14 based on the volume. Once again, it paid off to be an intraday market participant in this action.
So if you are having a hard time beating the bots on an intraday level you might want to give “swing scalping “a try. You can enter a trade with much less size and many times will get a few days of follow thru. “Swing Scalping” can be very profitable but like any style of trading one must apply rules and disciplines

There are other techniques I deploy in my swing trading but in every one of them I am quick to take at least half of my position off to lock in profits when I get a move in my direction and quick to cut losses when it goes against me. I also remained hedged at all times using SDS varying my size with market conditions. The lack of volume scares me and wouldn’t be surprised to see a sudden downside move in at some point in January. This is not a prediction and I will continue to react and not out-think the market.

44 comments:

vaidyanathan said...

Thanks for the great insight on swing scalping.

I would like to ask a question regarding SRZ trade. You mentioned that you held a big chunk meant for daytrade for few days and scalped out 2/3rd of the position at 3.48 for nice gains.

May I know how to manage if there's a gap down at the open in the subsequent days following this strategy in which case the losses could be huge?

-Ravi.

TodayTrader said...

In this case I had suck nice gains that I scalped out of 2/3 on the first day. On F I scalped out of 1/2 pos on 2ND day. Any time I can get a 10 to 15% and many times more I will take that gift and peel some off. There is always a risk of a trading going against you and you must mange it accordingly. If it were to gap way down and take out the prior days low I would stop out.

AlphaVL said...

Like you I had very nice profits from the March lows into early November of 2009 and then my day trading hit the wall. It took me a while to figure out what was happening and begin to modify my set ups but your article has helped, thanks. The old adage of not fighting the tape is as true today as ever.

Good Trading and Good Luck!

Vince

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gseoa5 said...

Day trading for beginners is like lion taming, except more expensive. It's a risky and challenging pursuit: buying stocks and selling them again in the same day, making money off tiny fluctuations in the price of a stock over a twelve hour period. For many years the tools of day trading were not available to the average investor: real time stock results, analysis tools and access to instant trades.
http://www.livetraders.net/

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http://www.livetraders.net/

pslvseo a5 said...

Day trading for beginners is like lion taming, except more expensive. It's a risky and challenging pursuit: buying stocks and selling them again in the same day, making money off tiny fluctuations in the price of a stock over a twelve hour period. For many years the tools of day trading were not available to the average investor: real time stock results, analysis tools and access to instant trades.
http://www.livetraders.net/