Scalping - Momentum, Reinforcement and Speed

[JayBee]

I am a computational finance specialist and have written a few articles on my blog. Feel free to give counter-claims as I would welcome the discourse.

I am not here to name-call scalpers but to determine how they actually profit, if at all.

It is my belief that scalping is a psychological activity, whereby reinforcement by scalpers jumping into a trade causes the price to move. The early movers get the most profit. Those slower to the draw get less or no profit.

When the momentum of the scalp fizzles out then those scalpers looking for the reversal or swing traders move in. The previous scalpers who were late into the market now find themselves in a negative trade as the price reverses and are faced with a scratch.

I don't believe for one moment that a scalper predicts the movement of the price, which is a random walk. Simply that a price move is reinforced by scalpers jumping in. The only prediction that can be made is, "If I am quickest and others follow then the price may move furhter to allow me to profit."

I have not had time to collect data as I am working on a bot for another project. But I would say that you would see a normally distributed short-term volume chart. The early traders with the best technology and "skills", followed by the bulk of the herd and then those who lesser technology and "skills" who will either get no or negative return on their trade.

In summary. Something (be it new information or just an increase in liquidity) initiates the most adept scalper to make their move. Reinforcement arrives as less quick scalpers jump on the bandwagon. Then the lesser traders follow. Momentum then runs out as early scalpers cash-out. The tide turns, the herd start cashing-out too. The price may then return to an approximately efficient price or it may stay where it is if reversal scalpers/swing traders have not moved in.

I have nothing against scalpers. If you want to give it a try then do so. However, you are not predicting anything, you don't feel anything, you are just gaming the psychology of the market.

[PeterLe]

The beauty of scalping On betfair is that you don't need the underlying price to move at all to profit.

[JayBee]

The beauty of scalping On betfair is that you don't need the underlying price to move at all to profit.

Do you want to provide an example of that???

I'm sure you about to play games. Still, gaming is good.

[switesh]

I'm pretty sure Euler has answered this very effectively before.

Have a look at his comments here:
viewtopic.php?f=2&t=7520&p=59085&hilit=academic#p59085

If you can suspend your academic beliefs temporarily and see the markets with the eyes of an Opportunist you'll find your answer.

[JayBee]

I'm pretty sure Euler has answered this very effectively before.

Have a look at his comments here:
viewtopic.php?f=2&t=7520&p=59085&hilit=academic#p59085

If you can suspend your academic beliefs temporarily and see the markets with the eyes of an Opportunist you'll find your answer.

So far I have had two interesting answers, which are psychological in themselves.

I am not here to put-down scalpers who are a little touchy about discussing the subject.

I know there are profitable scalpers. I am just pointing out why there are successful ones and a lot of not so successful ones.

[switesh]

JayBee

Here's a few examples:
http://www.youtube.com/watch?v=XLGGUj-_uyc
http://youtu.be/MMs3SfXiV8U
http://www.youtube.com/watch?v=KfAeW1KznRI

Scalping's not that hard.

Once you know the basics, only two things make a difference between profitability and loss:
1. How quick & accurate are you to the draw. This is something the trader has absolute control over and can master with sufficient practice.
2. How fast is your responsive counter. While this is something the trader can't control.

Lose out on either one of these factors and the same basic strategy becomes a drag.

The most successful scalpers will definitely have the best of both - snappy fingers, intuitive thinking & < 50 ms connection speed.

[JayBee]

JayBee

Here's a few examples:
http://www.youtube.com/watch?v=XLGGUj-_uyc
http://youtu.be/MMs3SfXiV8U
http://www.youtube.com/watch?v=KfAeW1KznRI

Scalping's not that hard.

Once you know the basics, only two things make a difference between profitability and loss:
1. How quick & accurate are you to the draw. This is something the trader has absolute control over and can master with sufficient practice.
2. How fast is your responsive counter. While this is something the trader can't control.

Lose out on either one of these factors and the same basic strategy becomes a drag.

The most successful scalpers will definitely have the best of both - snappy fingers, intuitive thinking & < 50 ms connection speed.

Thank you for confirming what I said.

[PeterLe]

The beauty of scalping On betfair is that you don't need the underlying price to move at all to profit.

Do you want to provide an example of that???

I'm sure you about to play games. Still, gaming is good.

no I don't play games.
There are lots of examples, look at markets where black caviar has been involved in (aus horse racing) , you can get many successful trades without the underlying price changing.
I wouldn't advocate scalping as a sole strategy, that would be akin to playing golf with a single club in your bag, but employed correctly under the right conditions it is immensely powerful.
I have provided some videos on here illustrating scalping at randy for 1 tick profits, I can't find the right now , I'm away from my desk on my iPad.
I do love it though when an academic states that something isn't possible; everything is impossible till it is done.
No disrespect, but looking at this solely from an academic standpoint, you will be subjected to paradigm paralysis! There are many things I've done on here that defy logic, the hard bit is finding them.
regards
Peter

[JayBee]

The beauty of scalping On betfair is that you don't need the underlying price to move at all to profit.

Do you want to provide an example of that???

I'm sure you about to play games. Still, gaming is good.

no I don't play games.
There are lots of examples, look at markets where black caviar has been involved in (aus horse racing) , you can get many successful trades without the underlying price changing.
I wouldn't advocate scalping as a sole strategy, that would be akin to playing golf with a single club in your bag, but employed correctly under the right conditions it is immensely powerful.
I have provided some videos on here illustrating scalping at randy for 1 tick profits, I can't find the right now , I'm away from my desk on my iPad.
I do love it though when an academic states that something isn't possible; everything is impossible till it is done.
No disrespect, but looking at this solely from an academic standpoint, you will be subjected to paradigm paralysis! There are many things I've done on here that defy logic, the hard bit is finding them.
regards
Peter

You said "you don't need the underlying price to move at all", which is a little odd. I won't get into an argument about the current price or underlying price so I will leave it at that.

I am not an academic arguing that scalping is impossible. Again, people reading what they want to read and not what I write.

I know that some scalpers succeed. The ones with low-latency and first on the move. The herd fighting over the scraps. The last to the party taking a loss.

I guess this is not a forum for such debate and will take it elsewhere. Still, I do recommend that anyone wishing to scalp does read all available literature and not just what they read on vendor sites with a vested interest. Balance in all aspects of life.

[redtra]

Interesting post JayBee. I had a quick look at your web page and couldn't help noticing your views on Weight Of Money. Do you really think it is not worth bothering with? Isn't the more info the better for trading...or do you think some info causes bad decisions?

[PeterLe]

JB
This is a great place for such a debate; it is a friendly forum, I for one like many on here would welcome your views/ideas
The only other comment I would add to your closing paragraph is that reading all avail literature will give you an insight, (but no advantage), far better to analyse the markets independently and draw your own conclusions.
Regards
Peter

[Euler]

I am a computational finance specialist

And that is probably a flaw in the way you approach things. You are seeking to justify your position rather than examine all available facts. Have you ever attempted to liaise with a professional trader?

Not sure why you would come onto a site full of professionals then not expect a slightly frosting reception when you basically say they don't know what they are doing? But we are a friendly bunch here, but don't expect anybody to give away any secrets.

If you did dig a bit deeper you would realise your criticism of scalping is a bit off the mark. Scalping is actually one of few strategies that have consistently worked on Betfair over a large number of years. IF you know what you are doing.

Still, I do recommend that anyone wishing to scalp does read all available literature and not just what they read on vendor sites with a vested interest. Balance in all aspects of life.

As many people know the software marketplace is very competitive and therefore you probably shouldn't level that on a site where the person behind the software has made more from using it than selling it. I'd proposition that overall the vendor marketplace overall has lost money in aggregate. So many vendors have gone to the wall over the years or never really made much after the time and effort they have put in.

I guess the main problem is with your approach is duff input. But that's understandable as Betfair trading has morphed from a niche activity to a mainstream one full of people trying to get their oar in and a bit of chinese whisper syndrome has kicked in. Things that start out as perfectly valid strategies get distorted and twisted into 'advice' that ends up being far remove from reality. Appealing to the populace outweighs real advice IMHO.

Tipsters now call themselves traders and people who have never traded in their life also call themselves traders and offer 'advice' which has muddied the whole thing. It's a shame really but I think that happens everywhere TBH, not just this marketplace.

Because you linked back to your site, I'm not sure if this is just a way to promote it, or whether you want a serious debate here?

[Euler]

Should add, I'm not being critical here, just thing you have been too assumptive based on your current knowledge and approach.

[JayBee]

Interesting post JayBee. I had a quick look at your web page and couldn't help noticing your views on Weight Of Money. Do you really think it is not worth bothering with? Isn't the more info the better for trading...or do you think some info causes bad decisions?

If you can data mine past WOM data and find something to trade on then do so.

For my purposes WOM is not useful as I am attacking a different problem, on a different time scale.

It is hard to write a blog and accommodate everyone reading it. I should have a banner saying, "These posts reflect my strategy and do not represent all possible strategies."

Being from a financial background, anything I do on Betfair must be relevant to financial markets. I am not on Betfair for the profit but take it when it comes, all the same.

Another question to ask the scalpers would be, If you could encapsulate what you do logically and craft a bot from it so that you don't have to sit at a screen all day growing a spare tyre, would you do so? Or are your "gut feelings" that random and unquantifiable? Even feelings that depend on x or y count as fuzzy logic, which too is quantifiable.

[JayBee]

JB
This is a great place for such a debate; it is a friendly forum, I for one like many on here would welcome your views/ideas
The only other comment I would add to your closing paragraph is that reading all avail literature will give you an insight, (but no advantage), far better to analyse the markets independently and draw your own conclusions.
Regards
Peter

Thanks. I understand what you are saying. However, I am not a trader at the LIFFE so Betfair scalping would not be relevant to what I do.

My background is in algo and HFT trading. I leave my emotions well out of it.