# Question about trading strategy, scalping?



## achan168 (19 May 2007)

Hi all,

First I'd like to say that I'm pretty much a newbie in trading shares.

I just had a quick question to ask.

Let's say, you buy $10,000 worth of SDL (for instance) for 21c, then straight after put in a sell order for 21.5c, and when it does hit 21.5c, you would make a profit of around $200 (less brokerage). What's to stop someone from doing this continuously, buying at x cents then selling at (x + 0.5) cents, thus racking up huge profits?

Let's say you do this once a day, wouldn't you be able to earn $1000 in a week? 

Is what I just described a perfectly legal thing to do?

Thanks for your input,
newbie trader


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## BIG BWACULL (19 May 2007)

achan168 said:


> Hi all,
> 
> First I'd like to say that I'm pretty much a newbie in trading shares.
> 
> ...



I dont think there is anything wrong with that and a lotta people do it Day trading, but less brokerage lets say $30 online, in and out thats $60*5 = $320 in brokerage fees that leaves $680 less capital gains at full whack  , And thats on the good days


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## achan168 (19 May 2007)

Thanks for the quick reply mate. So you'd say what I described is definitely legal? It's not classified as "market manipulation" right?


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## yogi-in-oz (19 May 2007)

achan168 said:


> Hi all,
> 
> First I'd like to say that I'm pretty much a newbie in trading shares.
> 
> ...






Hi achan,

Aside from the obvious brokerage and tax issues ... what you have 
described is essentially scalping and to do that effectively, you need
to be glued to the screen ... and that means higher stress levels, as 
you are not really sure, just WHEN that 1/2 cent move will come along.

Some people do it successfully for a while, but there's many that
"burn out" physically, emotionally and financially, in a short period of time,
due to the high stress associated with such trading.

..... by opening up our trading time frames, we are not contributing 
as much to our brokers' welfare or the tax man's either ..... and we
can spend more time on things in life, that are far MORE IMPORTANT
than trading ... like our own family relationships, for example !~!

have a great weekend

     paul



=====


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## achan168 (19 May 2007)

yogi-in-oz said:


> Hi achan,
> 
> Aside from the obvious brokerage and tax issues ... what you have
> described is essentially scalping and to do that effectively, you need
> ...




Thanks for the reply. But can't I just buy it at 20c then leave a sell order open at 20.5c, then go back to doing whatever I was doing? If I'm pretty sure that it will jump up that 1/2 cent.


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## yogi-in-oz (19 May 2007)

Hi achan,

Sure, nothing wrong with that ... IF, you get it right the first time 
and there's no guarantee of that, is there ... ???

... and then, do you plan to stop there ...??? Or does greed set in, 
with the inevitable mistakes as well ... that means your trading
plan must make provison for losses and even higher brokerage
costs ... yes ???

Here's a free download, that will help you to address some of the
issues, that we all face as traders, on a daily basis:

Trading Plan ... wozzat ... ???

happy days

  paul


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## CanOz (19 May 2007)

achan168 said:


> Thanks for the reply. But can't I just buy it at 20c then leave a sell order open at 20.5c, then go back to doing whatever I was doing? If I'm pretty sure that it will jump up that 1/2 cent.




So you've got your sell or in for a higher price....what happens when Joe Blow comes along and sells his shares 19.5 because he in a hurry to get the money....then your in the red...how long do you hold out...hoping for it to go back to your buy level? What if it drops more again. and then again....where is your stop loss?

Cheers,


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## Wysiwyg (19 May 2007)

achan168 said:


> Thanks for the reply. But can't I just buy it at 20c then leave a sell order open at 20.5c, then go back to doing whatever I was doing? If I'm pretty sure that it will jump up that 1/2 cent.




I think your idea is foolish...

a)you don`t know what the price will do (hoping it will go up)
b)I tried it for a while, though holding for longer than your talking about and I had twice as many stock decline as rise.
c)if you think you can pull in $200 a day ($200 minus brokerage - cgt - power - paper - i.s.p. fees - real time trading platform) then you need a *reality check*.
d)if you don`t believe me , then simple , learn the hard way.


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## CanOz (19 May 2007)

Wysiwyg said:


> I think your idea is foolish...
> 
> a)you don`t know what the price will do (hoping it will go up)
> b)I tried it for a while, though holding for longer than your talking about and I had twice as many stock decline as rise.
> ...




Settle Pettle!

Give the guy a chance mate, they're new!

Cheers,


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## achan168 (19 May 2007)

Wysiwyg said:


> I think your idea is foolish...
> 
> a)you don`t know what the price will do (hoping it will go up)
> b)I tried it for a while, though holding for longer than your talking about and I had twice as many stock decline as rise.
> ...




Thanks for the advice. I'm planning on executing this "strategy" on stocks that I think are fundamentally sound and would continue on an uptrend in the medium to long term (like SDL). My reasoning is that these stocks, on their way up, would experience fluctuations, and that I would exploit these fluctuations. My strategy would work except when I buy the stock at a peak which would never be reached again, because if you think about it, the price has to go up that extra 1/2 cent *some* time or other unless it's a peak. And if you can be quite sure that the stock is on an uptrend in the medium to long term, then I think my strategy would quite possibly work?

E.g. if I buy SDL at 20c and put in a sell order for 20.5c, then even if 20.5c is not reached on that day, then I would hold until it eventually *does*, assuming that 20c is not the peak and that SDL will continue its uptrend (which is probable/likely due to fundamental/technical research I have conducted). I think it would work especially well with stocks that have high volumes traded daily (like SDL).

Am I making sense? :S


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## steven1234 (19 May 2007)

Your strategy will work well in a bull market.  When we have a correction, a bull maket, or there is negative news announced, you are in trouble if you are holding. 

How many good trades will you need to make to cover your losses on 1 bad trade.  You would definitely need tight stop losses with this strategy to limit your losses.


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## Wysiwyg (19 May 2007)

Yep..trading the indices fluctuations would give you a better win/loss ratio.(maybe)

I think you should take into consideration trading halts (good or bad news ) , international/local market movements , product/service demand & online broker service failures to name a few.

Besides these if your stock go to 30c after you sold at 20.5c you will see that term of holding is important.


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## CanOz (19 May 2007)

achan168 said:


> Thanks for the advice. I'm planning on executing this "strategy" on stocks that I think are fundamentally sound and would continue on an uptrend in the medium to long term (like SDL). My reasoning is that these stocks, on their way up, would experience fluctuations, and that I would exploit these fluctuations. My strategy would work except when I buy the stock at a peak which would never be reached again, because if you think about it, the price has to go up that extra 1/2 cent *some* time or other unless it's a peak. And if you can be quite sure that the stock is on an uptrend in the medium to long term, then I think my strategy would quite possibly work?
> 
> E.g. if I buy SDL at 20c and put in a sell order for 20.5c, then even if 20.5c is not reached on that day, then I would hold until it eventually *does*, assuming that 20c is not the peak and that SDL will continue its uptrend (which is probable/likely due to fundamental/technical research I have conducted). I think it would work especially well with stocks that have high volumes traded daily (like SDL).
> 
> Am I making sense? :S




what about this?


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## Ferret (20 May 2007)

Don't forget the time cost of money too.  If its your money, it could be earning 6% interest.  If its borrowed, your probably paying 8%.  If you wait too long you've lost money even with the 0.5c price increase.

If it was as easy as you make it sound, everybody would be doing it!

Ferret


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## professor_frink (20 May 2007)

achan168 said:


> Hi all,
> 
> First I'd like to say that I'm pretty much a newbie in trading shares.
> 
> ...




scalping is possible, but I personally wouldn't bother doing it on the ASX. Brokerage is way too high here. Index futures, or the U.S market are better suited to this kind of thing.



achan168 said:


> Thanks for the advice. I'm planning on executing this "strategy" on stocks that I think are fundamentally sound and would continue on an uptrend in the medium to long term (like SDL). My reasoning is that these stocks, on their way up, would experience fluctuations, and that I would exploit these fluctuations. My strategy would work except when I buy the stock at a peak which would never be reached again, because if you think about it, the price has to go up that extra 1/2 cent *some* time or other unless it's a peak. And if you can be quite sure that the stock is on an uptrend in the medium to long term, then I think my strategy would quite possibly work?
> 
> E.g. if I buy SDL at 20c and put in a sell order for 20.5c, then even if 20.5c is not reached on that day, then I would hold until it eventually *does*, assuming that 20c is not the peak and that SDL will continue its uptrend (which is probable/likely due to fundamental/technical research I have conducted). I think it would work especially well with stocks that have high volumes traded daily (like SDL).
> 
> Am I making sense? :S




The medium to long term trend of a company and it's fundamental situation will have very little impact on your ability to scalp it intraday.

After looking at the chart canuck posted, I think the only person who will be happy with you trying this strategy on this company would be your broker.


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## nizar (20 May 2007)

steven1234 said:


> Your strategy will work well in a bull market.  When we have a correction, a bull maket, or there is negative news announced, you are in trouble if you are holding.
> 
> How many good trades will you need to make to cover your losses on 1 bad trade.  You would definitely need tight stop losses with this strategy to limit your losses.




Beg to differ.

Your strategy will work poorly, even in a bullmarket.

Risk/Reward is 1:1 at best, which means you have to win 60% of the time. Not many can do this.

The best moves take time to play out, a few days at least.

And also with this strategy you can only trade stocks between 10c and $2.00. Limiting your universe a bit.

Biggest myth is that penny stocks make you more money. Look at AED and FMG, about 40-50% in a few weeks.

Canaussie covered the issue of stops well, where will your stop be?

*Because of your ego, and overconfidence, like the way you said:*


> I'm planning on executing this "strategy" on stocks that I think are fundamentally sound and would continue on an uptrend in the medium to long term (like SDL). My reasoning is that these stocks, on their way up, would experience fluctuations, and that I would exploit these fluctuations. My strategy would work except when I buy the stock at a peak which would never be reached again, because if you think about it, the price has to go up that extra 1/2 cent *some* time or other unless it's a peak. And if you can be quite sure that the stock is on an uptrend in the medium to long term, then I think my strategy would quite possibly work?




It shows your newbie understanding to the markets. 
You need to KNOW what to do if the price goes sideways, or up, or down.

From your comments, because you seem to be a pretty confident im right kinda guy, you probably wont use a stop, thinking that you have such a good understanding that you cant be wrong.

You'll probably end up with the other 90-95%.

Also, how much will you buy of this stock?
Might as well put the house on it yeh, since you cant be wrong?

How many losses will it take to wipe you out?
One ? LOL 

You need to give this strategy a bit more thought i think.


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## CanOz (20 May 2007)

nizar said:


> Beg to differ.
> 
> Your strategy will work poorly, even in a bullmarket.
> 
> ...




I was hopingto eventually get to the points of position sizing and max.drawdown but you beat me to it Nizar. Maybe we should provide some more detail for them.

Later, must go out for a nice brisk walk on such a beautiful morning!

Cheers,


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## lbradman (1 April 2008)

This is such a newb strat no offence but I can understand him wanting to approach it as simple as that. He didnt make any mention of using stops so I gather he would want to hold on hoping for the price to get that one positive tick. Lets say market is bullish and everything goes up and he'll get a run of winners giving him confidence. He'll start getting overconfident and let it ride to a full cent or more before long there will be a retracement where he'll lose all the small gains he made because he wont sell at a loss knowing how 'fundamentally strong' his stock is. Sure maybe the price will go back up but how long does he have to wait before then and imagine the emotional stress you'd go through.
It sounds like trying to take a long term approach using fundamentals and applying it to the smallest time frame possible of a scalper which are completely different strategies. Even a simple MA crossover would have a better expectancy than this. I think you need to decide if your going to base your buying/selling on fundamental reasons then stick to a long term approach as you'll find they offer the best returns possible. But I can tell your pretty young and want to be more aggressive and be a scalper now so if thats the case go with what the others advised you here and stick to index futures or forex. You can read up on taysers thread on how he's apply linuxtrolls rainbow scalping method on forex quite successfully. Good luck and keep learning you'll soon realise this is really a bad idea. I dont even need to backtest this to know.


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## xyzedarteerf (1 April 2008)

achan168 said:


> Let's say, you buy $10,000 worth of SDL (for instance) for 21c, then straight after put in a sell order for 21.5c, and when it does hit 21.5c, you would make a profit of around $200 (less brokerage). What's to stop someone from doing this continuously, buying at x cents then selling at (x + 0.5) cents, thus racking up huge profits?
> 
> Let's say you do this once a day, wouldn't you be able to earn $1000 in a week?
> 
> newbie trader




i wish it was that easy  being a newbie myself I know where your coming from believe or not your method wont work if you don't believe me paper trade this method for a month.  by the way when you put your method in realtime with realmoney it will be a totally different emotion, all traders will tell you this. good luck


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## prawn_86 (1 April 2008)

Welcome to ASF 

Here is my list of pointers, do not take it personally, as you can see some of the members can be quite blunt. When it comes to 'make cash quick' schemes most of us have had the exact same thoughts. There are reasons they do not work

1. Never scalp a spec stock

2. Fundamentals do not really apply in this volatility, especially for spec stocks.

3. Know your timeframe. No point looking for a short term scalp if you are happy to hold if it drops. This means you will end up with a portfolio of long term holds that are negative.

4. As others have said, have defined stops and RR.

5. For scalping, indexes, futures or forex work better due to lower brokerage and  higher volume


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## MITCH027 (16 January 2010)

I initially tried to do this. I no longer employ this strategy.

One thing you need to consider is how you are going to get out. Some of these stocks don't move much volume (I learnt the hard way)

Scalping might work if you are moving large amounts of capital, but the risk may not make it worthwhile

I tried to do this earlier with ELD, buying at 16.5c with a large capital base. It kept moving between 17 and 18c so I thought 16.5c would easily bounce back to 17c at the very least. It kept going backwards, went down to 14.5c. Thats over 10% lost in one trade! If you're scalping you still need to employ a strategy around probable ranges etc


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## MS+Tradesim (16 January 2010)

Some time ago I did a thread on scalping ASX stocks.

https://www.aussiestockforums.com/forums/showthread.php?t=15175


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## Nero64 (26 January 2010)

> But can't I just buy it at 20c then leave a sell order open at 20.5c, then go back to doing whatever I was doing? If I'm pretty sure that it will jump up that 1/2 cent.




The problem is with a stock like SDL 20-30 people are trying to scalp as well. 

So say you buy in at 20c and you want to sell at 20.5 there might be 600 000
on the offer side. You come in an you are 10th in the queue. The 600 000 have to be processed before your 10000 or whatever it is. You might get lucky you might not. 

Depends what your time frame is because you might be locked in for a while or you might be locked out forever. I personally have been caught out scalping but I have a higher risk tolerance than some. 

Good luck with your scalping.


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## ptony1948 (28 January 2010)

Seems that spec stocks are no good.  What about BHP?  It has huge vol every day and is solid.  Plus I get feeling that it must be traded as dividends are poor yield and capital gain isn't huge.(ok it doubled in last 12 months but that was a bounce back from a smashing)


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## craigj (30 January 2010)

you need to follow individual stocks for a while to see how they behave to scalp well
i prefer stocks in the 10c to 30c range with medium daily volume and a trading range of 2c per day
gbp mhm ccu to name a few that i have had success with this month


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