FAQ

Q: What’s your definition of scalping? Or, what is scalping that you describe?

A: By scalping I mean taking profits equal or slightly higher than the initial risk – size of a stop you define for particular trade. Ideally, profit is taken in a single “leg” – price movement in your favor without pullback. This isn’t always possible but overall, scalping is not about enduring heavy pullbacks.

Q: It has been said that scalping is about “playing” the spread – buying the bid, selling the offer. Do you include this approach in your trading?

A: No. I do not trade for 1-2 cents.

Q: If you had to characterize scalping in three words, what would those be?

A: Consistency. Universality. Safety.

Q: Isn’t scalping the most risky trading style out there?

A: Quite opposite. Scalping allows you to decrease your exposure to the market. Investor is subjected to adversary news events while he is in position. Swing trader is subjected to overnight gaps. Even the day trader can be affected by a sudden market turn. Scalper is engaged in a trade in such brief period of time and controls his risk so tightly that probability of being hit hard is extremely low. This is why I call scalping “defensive style of trading”.

Q: Almost everyone, however, labels scalping as an extremely risky proposition.

A: Does “almost everyone” make money? Opinion of majority is not a good indicator of a truth in trading. Most have no clue about the style of scalping I talk about in this book.

Q: Maybe the danger is coming from too frequent trading?

A: Don’t trade more frequent than the market allows. Trade when there is opportunity. Rapid-fire trading 1000 times a day was never mainstream even among scalpers of 1999, let alone now.

Q: Still, doesn’t a scalper trade more often than a trader using longer time frame strategies?

A: Generally, yes – simply because there are more opportunities in a smaller time frame. 30 minutes chart with no trend can and often will reveal a trend when you go to 5 min or 1 min. It doesn’t mean you have to jump on everything that moves though.

Q: So, what defines a tradable opportunity for a scalper?

A: His trading system, whatever it is. It’s just applied in a shorter time frame.

Q: Doesn’t scalping generate too much commission fees?

A: Use a broker that offers fast and reliable executions (direct access) and flexible pricing. You want to have a choice between flat fee per trade and per share fee. At the end of the day, it comes down to whether you made money or not.

Q: Is scalping the only trading style you employ?

A: No. It’s a supplementary style for me. I use it when the market is difficult. I also use it when I hit a losing streak and need to restore confidence.

Q: How does scalping help you restore confidence?

A: There is no better way to regain faith and confidence than winning. By not allowing trades to go against you and taking small profits you increase your winning ratio. Sizes of your wins become smaller but win after win is exactly what you need to get back that necessary confidence of being able to gain from the market.

Q: Does your book suggest a certain trading system for scalping? Should I abandon mine in order to scalp?

A: I do show you what I do. It doesn’t mean you have to change your entry and exit criteria in order to scalp. I show you how scalping can be applied within any trading system you prefer.

Q: Can you combine scalping with another trading style on single day?

A: Even on single trade. Concept of “Umbrella trade” that is shown in this book allows a trader to extract additional profits from his usual trade, which provides extra-padding to it.

Q: What markets do you utilize for scalping?

A: NASDAQ stocks and e-mini NASDAQ futures.

Q: How do you define stocks suitable for scalping?

A: By volume and by Level 2 appearance. Entry and exit are provided by looking at charts.

Q: Will you show us how to utilize Level 2?

A: Certainly. Not being a directional tool per se, it’s still extremely useful for a scalper. That’s where you can see what kind of risks your particular stock carries. It allows you to size your trade properly. Without Level 2, you risk to trade too big a size for a given stock. There are also some directional clues Level 2 provides and some tricks market participants employ. I will describe these tricks to the extent they can be read.

Q: Are the trades shown in your book hypothetical?

A: No. I cite many examples of real trades, together with screenshots of actual executions of orders. I am a trader first and foremost. I stand behind the concept that I teach, and I feel obliged to show that these concepts are practical. I have been coaching trading students in my trading room since 2000. Check out: http://www.realitytrader.com/tradingroom

Q: Can a trader really learn how to scalp and trade defensively by reading your book?

A: In this book, I will demonstrate techniques and setups that I use. In many instances, after going over a certain idea or setup I will show a plain chart without any remarks so a reader can try and practice his own entries and exit. I will then show the same chart with my entries and exits marked. This allows a reader to have a hands-on learning experience.

Q: Do you consider scalping to be the “Holy Grail” of trading?

A: No. There is no such thing. However, I do consider scalping to be a necessary weapon in arsenal for any trader.

Q: How does your scalping method work on S&P emini?

A: Scalping is rather different approach ro risk and trade management than specific trading system. It's universal method that can be applied with any system. In this sense it is applicable to any market. Examples and some specific tricks discussed in the book are stocks and NASDAQ E-minis related. I can't imagine what could be so different with S&P E-minis, but some markets can have their specifics and particularities. I personally do not trade S&P so I wouldn'r risk to say "Of course!" (call me bad marketer :)) From my daily conversation with our traders that do trade those I never heard from them about any major differencies.