Rules for Scalping

In order to scalp the markets effectively, you must apply certain rules which do not necessarily apply to other forms of Day Trading. You will need to know and observe these rules carefully and consistently if you plan to become a successful scalper:

1. To compensate for the relatively small size of moves which you will attempt to be capturing as a scalper, you will need to trade considerably larger positions.

2. If you are not willing to accept the risk of trading larger positions, then you cannot scalp the markets in a fashion which makes trading worth your while. After all, if you plan to scalp bonds for one or two ticks at a time three or four times a day, and if you are unsuccessful in your efforts one or two times a day, then the bottom line of your trading on a one-contract basis may only be one tick. Subtracting from this commission costs, your Scalping will prove to be a losing proposition or a minimally profitable venture, above and beyond what you have lost in terms of time. Therefore, it is necessary for you to make a commitment to larger positions, perhaps 5 or 10 contracts at a time, and to increase your position size once you have mastered the various Scalping techniques.

3. To be a successful scalper, you will need to take your losses as well as your profits very quickly. If, for example, you are long T-bonds at $105.20 expecting a move to $105.22, then you must enter orders to sell at $105.22, since you have set yourself a two-tick target. To expect $105.23 or $105.24 would not be consistent with your Scalping goals. The idea is to take numerous small profits of several ticks on large positions throughout the day. Only by following this goal will you achieve success as a scalper.

4. You must pay close attention to the market you are trading at all times. This means that you will be able to trade only one market at a time, since you will need to be at the screen watching every tick. If you have a multiple screen monitor, it may be possible to scalp more than one market at a time; however, I think that pragmatically this would be difficult. In addition to these rules, which are more operational rather than methodological, important techniques are explained in the next section.