Swing Trading vs. Scalping: The Pros And Cons

Pre-market futures are modestly red from
yesterday’s close, which in essence means little to nothing in this period of
time. Intraday price action has been covering a decent range for traders while
it remains pinned between a defined sideways roll. It’s quite probable a
directional break session will happen when we least expect it, but the overall
expectation is continued sideways action on waning volume into the end of next
week to come. 

Record Straight



Yesterday’s blurb about intraday scalp trading versus swing trading
brought a heavy volume of email response. First and foremost, I never meant to
dismiss or poo-poo fast action, small profit target scalp trading as pure folly
or an impossible feat to accomplish. Far from it: I personally know some people
who are very good at it.

For anyone who was even slightly offended by
anything I wrote, I am truly sorry and apologize sincerely. I have the
utmost respect for every single successful trader regardless of markets
preferred or methods used. No question about it… anyone who makes a living or
even a solid second income as a trader will always have my personal respect (and
admiration) above all else. The degree of difficulty is exceedingly high in our
profession, partly because the expectation of what it takes to succeed is
usually too low.

By that I mean the average person who is new to
trading figures they can just buy some books or cruise some websites, glean a
few pointers that give them an edge, follow a simple A-B-C recipe for success,
open a live account and start to compete with seasoned veterans on an equal
basis. Possible? Yes. Probable? I’ll let you be the judge of that based on your
own starting experience(s).

Daytona 500

Taking a new or inexperienced trader and trying to teach them how to scalp
trade for a living right off the bat is akin to handing a fledgling driver the
keys to Jeff Gordon’s, er, make that Ernhardt Jr.’s NASCAR and turning them
loose in Daytona on race day.

Now, our fledgling driver may have already aced
the written exam at their local DMV office. Maybe they’ve taken the family van
out on some back roads for a spin, and a little bit of white-knuckle driving in
traffic to boot. Perhaps even a little driver’s education in high school to
polish things up. Whatever. Their whole world changes when they fire up those
harnessed horses beneath the hood of that #8 car and press the peddle as a green
flag drops. Life immediately goes 100+ miles per hour with their hands on the
wheel.

Decisions must now be made in a nanosecond…
far faster than their undeveloped central nervous system can handle. Traffic is
flying all around in seeming discord from their windshield’s view when in fact
the whole field of cars is moving in fluid grace if viewed from back the stands.
Occasionally there is the surprise crash or three out of nowhere, but for the
most part NASCAR racing is just a bunch of cars going really fast around a
circular track. How hard is that?

That analogy is not far off taking new or even
experienced but not supremely confident traders and arming them with a
one-minute or two-minute chart to trade. Pick your indicators, pick your symbol,
it doesn’t matter. The speed at which setup, entry and exit decisions must be
made has been sped up to the max.

The smaller a timeframe chart, the more random
price action appears to be. The further one dials out a view to larger charts,
the clearer price action movement becomes. That is fundamentally true because
the action slows down. It is easier to hit a slow-pitch softball than major
league fastball. Right or right? Get real good at hitting a major league
fastball (along with a few other skills) and profit potential there is enormous.
But how many new baseball players are truly able to do that?

Before a professional baseball player can be
successful at the highest level where speed of the game is fastest, he must be
proficient in the minor leagues. Before that happens, he needs to learn at the
college level, high school level, sand-lot level and pee-wee level. Before any
of that is possible, playing toss & hit in the backyard with someone is where it
all begins.

Highest Degrees

Can you see where I’m going here with various analogies? Scalp trading
successfully requires THE GREATEST degree of focus on charts, speed of decision
making, personal discipline, everything that is necessary for success. It’s the
pinnacle of difficulty in our profession not because it is impossible to capture
+$100 moves in the ES, ER or XYZ market, but because it is very hard to do so
while avoiding oodles of -$50 losses along the way. Without pinpoint precise
entries and exits, scalp trading is probable to completely churn an account.
Pinpoint precision comes from discipline, skill, confidence and decision making
of the highest degree possible in shortest periods of time.

Aspiring traders have an incredibly high
failure rate mostly because they seldom internalize what it takes to succeed
long-term. That is partially because in the beginning, all of us have blind hope
of massive profits with little effort or struggles involved. Who amongst us
hasn’t searched too long and too far seeking the simple answer to success in a
complex world? My hand was the very first one stretching northward on that
question.

Mail Bag

Yesterday’s email ran about three to one negative views versus positive
views on scalp trading. The trader I spoke of who works 100-lots in the ES has
no affiliation with any website or public venue, and was one of the first to
respond in agreement of how challenging it was to become proficient at scalping.

Actually, proponents of scalping wrote the
longest, most articulate and colorful email responses. That in itself
demonstrates to some degree a high level of intelligence, patience (you try
composing = typing 1,000 to 1,500 words email and see how long it takes) and
open-minded view. some of the characteristics necessary for scalp trading
success.

The heavier volume of email in disfavor of
scalp trading essentially stated what I have heard (and experienced myself)
countless times since year 2001: they have been successful trading longer
timeframe charts, but not so good inside those frenetic 1-minute or 2-minute
timeframes.

This has less to do with methodology than
application. The method I use will trade any timeframe chart, from one tick to
one week in length. Same tools, same framework, same approach. The degree of
focus, intensity and discipline needed while trading a one tick to one minute
chart is far, far higher than trading a ten minute, sixty minute or daily chart.
That fact is true regardless of methods, chart tools or any other factors
involved. Speed kills and kills the quickest… until one learns to handle it.

Kicked Back A Bit

I enjoy working a more relaxed pace of intraday trading myself. I like to
use an eight minute chart, targeting three to five turns per day on average.
When seeking new trade entries, I like to focus on the chart for about two
minutes out of every eight on the clock. Two minutes before the next candle
close to assess what may happen next. When a candle closes above, below or at
certain points of action, I act accordingly.

The other six minutes are free time to move
around, step away and take care of other things. On days where trade entries are
stretched quite thin, I do not endure hours-long focus on two minute bars with
no physical or emotional break from the screen. Anyone who has watched a one
minute chart trade a 2pt total & entire range on the S&P for over an hour can
attest to how draining that is.

When I first began trading a number of years
ago, I loved sitting in front of the screens all day. It was so fascinating,
watching all that potential money in my pocket flying around. At some point in
time, it ceased being fun to just stare at the charts for 6.5 hours each day,
uninterrupted. For those who love to watch every tick on the chart without
missing a beat, I understand. For those who’d rather multitask, I equally
understand.

These days I like to incorporate a bit of
living inside my trading day. I enjoy cooking in the kitchen with a wireless
laptop running charts on the counter. I like to lift weights in the garage. I
handle housekeeping chores, business admin chores, phone calls, nutritious meals
and a host of other daily tasks while trading. None of that would be possible,
none of that was possible when I was enslaved to the screens from bell to bell.

I can and sometimes do trade a two-minute
chart… for the first and last two hours of a session. sitting thru an entire
session of unbroken focus simply does not work for me anymore. To each there
own. If what you are doing right now is profitable and suits you well, by all
means keep up the good work! On the other hand, if short-term charts and
intraday trading seems to fast paced or frenetic, consider stepping back a bit
and slow the action down. Taking 10 ~ 50 trades per day or 2 ~ 4 trades is
irrelevant: whether the end result is black or red at week’s and month’s end is
the only true measure of accomplishment in our profession.

Summation

Recent intraday action has been profitable on a sideways or reversal-trade
basis. Plenty of signals long and short between the bells, but no range travel
outside the established zones. Same thing is expected most days until past the
holiday weekend and Fed gathering in Jackson Hole next week. We’ll return to our
usual chart views tomorrow, and I hope today’s explanation help bring clarity to
my concise thoughts of yesterday.


Trade To Win

Austin P


www.CoiledMarkets.com

(free pivot point calculator, much more inside)

Austin Passamonte is a full-time
professional trader who specializes in E-mini stock index futures, equity
options and commodity markets.

Mr. Passamonte’s trading approach uses proprietary chart patterns found on an
intraday basis. Austin trades privately in the Finger Lakes region of New York.