Some Advantages and Disadvantages of Scalping and E-mini Trading

While many investing “experts” claim it is difficult to scalp stocks or futures for a living, there are legions of successful e-mini scalp traders who can prove otherwise. On the other hand, for every 100 new traders in the e-mini markets, only 20 will be around after three months. Those are some pretty grim statistics. I have long contended that there is a correlation between a trader’s personality and his or her trading style, and a certain type of individual flourishes when trading in the scalping style and others never quite seem to get the hang of the technique. Scalping is known for a variety of characteristics. Years ago, a lot of money was made in a style of trading that took advantage of disparities in bid and ask prices; these days, a scalper is more likely to be a trader looking to make 5-7 trades (or more, if the opportunities arise) and take a small profit of 6-10 per trade. It should point out that even scalpers get a runner from time to time. Some characteristics of scalping are: • Scalpers are in cash every night; all trades are completed during a given trading period of the traders choosing. • Scalping takes advantage of the leverage that the futures market offers • Scalpers are looking to make small profits on high probability set-ups when they trade. • Scalpers are interested in overall trends, but focus primarily on individual moves in market to earn their profits. • Scalpers use tighter stops than most traders. (though there are some scalpers who feel wider stops make for a better winning percentage) There are some distinct disadvantages to scalping though, and some find scalping an unsuitable trading style. Some disadvantages might be: • A trader spends an inordinate amount of time in front of the computer when scalping. • It is very easy for an untrained trader to lose a lot of money if he or she doesn’t have a good idea how they define their scalping goals. • This style of trading can be just plain tedious. I can personally attest to this point, as a matter of fact, the traders in my trading room often join together at 4 pm EST and have a celebratory beer on our winning days. It is indicative of the stress trading causes, of course, there is never anything wrong with a cold beer after trading (just my opinion on the last point, superfluous as it was) • In order to trade desirable markets, some e-mini scalper’s trade some very unorthodox hours, sometimes trading all night and sleeping during a part of the day. • Sometimes, no matter how reliable a set up you employ, things just don’t go your way, and that can be very discouraging. Is scalping for everyone? No, I don’t think it is. I have had several students tell me that the pace is just too fast for them to be comfortable; and sitting in front of the computer all day is some people’s idea of sheer torture. The point is a simple one: If you are not cut out for fast paced trading action and lots of computer face time, scalping isn’t for you. My personality is one that is impatient and seeks immediate gratification. Scalping is a perfect venue for me to trade. This may not be true for a trader who is pragmatic and systems oriented. He or she may find scalping the equivalent of a 100 yard dash, instead of the marathon style of trading they are acclimated to trading. In summary, we have listed some characteristics of modern scalp trading and the advantages and disadvantages of scalp trading. Further, it is my belief that scalp trading is especially well suited for certain personality types. Finally, I suppose the only way to find out if this style of trading is you “cup of tea” is to investigate this interesting and exciting style of trading.

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