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@djkiwi
How will knowing this information make you a better trader?
First i just wanted to see if info was out there and accessible to public(probably isnt unless your a cpa hummmm lightbulb), to answer your question, it would depend on info and how I felt it would be beneficial to me.
The basic premise was not stated in a way that makes a useful response that easy. The OP suggests scalping is a function of R:R – it is not.
When scalping you don’t work with R:R. You’re in large size, for relatively short periods of time (typically sub 1 minute) and with no to low transaction overheads. (An earlier poster on this thread alluded to the transaction skew issue.) You’ll typically be flipping trades in the hundreds per day. Algos have all but taken over this end on the wedge as the opps for manually spotting a price arb or time delta have been flattened by the algos themselves.
Previously, unless you are a pro with advantageous trading execution edge in terms of your costs, you could not hope to scalp profitably over the long term. These days, you cannot hope to scalp profitably unless you’ve got a quant team modelling for you as well.
If the real question was “What’s more profitable – short duration small R:R or longer duration wider R:R?” then the answer is, that’s still not the question. There are only three factors which determine the relative profitability of your trading endeavours. (1) Expectancy of your system (2) number of trades taken and (3) consistent risk management (which for me means risking the same relative percentage of trading capital on every trade) – YMMV. Doesn’t matter if your R:R is 1:1 or 10:1, it’s the amount you expect to add to your bottom line from each and every trade and the number of trades executed per period of time that count.
As an attempt at answering Ops question, forget the R:R, optimise your expectancy (W:L & aW:aL) and take all the trades your system gives you.
If you’re operating at the spread end of the business (taking little more than 2 or 3 times your broker’s cut on each trade) you’ll go broke sooner or later as it’ll be the first long losing run (which you WILL get) that’ll be your end. On the swing end of the retail trading spectrum where you’re holding for days to months the absolute profits are comfortable, but the time-adjusted gains look a little sparse when compared with even just a reasonable intraday setup.
It’s all in the math. What am I risking per trade? How many trades will I win out of 100 placed? What will my average winning trade NET me? What will my average losing trade COST me? R:R doesn’t feature.
Whoever has the biggest trading account wins...lol
The best scalpers win in terms of points...but they are very few, so the odds are that the swing traders do better.
There are a few traders who'll take 1.20 or more out of oil a day scalping away and scratching a lot, but there are some good traders who'll trade the daily, weekly and monthly and make $8 in oil a month.....
One thing to consider too is money isn't everything
The Guy who's trading the weekly and playing golf and cruising the pch is enjoying life a lot more than the guy staring at the computer all day...
Trust me the guy on the golf coarse etc has a electronic lease to his account or someone is overseeing it, if someone is managing his funds, this does not apply to being a day trader
A scalper who trades size can be done early in the day as well, either method of trading will work.
In terms of profit alone, with all else being equal, I think a good scalper trading a 25K account taking 10 trades a day at 2:1 reward:risk, should blow away a good swing trader trading that same 25K account and taking 2 trades per week at 4:1 reward:risk, with both having typical win percentages for a successful scalper and successful swing trader respectively.
I believe that the main rules in trading valid for everyone are so general that do mean nearly nothing: risk control and its child diversification. You can do them in so many ways that can be opposite to each other.
I don't believe that cutting losses short and letting profits run is a must, actually I do the opposite.
How can you measure probabilities, win to loss ratios and all other parameters traders speak of? You measure them for the past. But you essentially trade on some characteristics of the market, and what if they change or disappear (as they normally do)?
For example,many trend following systems (Aberration for all) relied on trendiness and volatility for decades,then went broke.
You can adapt yourself to current market conditions,but then what do your "past" parameters mean?
I believe that there are tons of ways for making money in the market,but you have to be good at the ways you use.
If I could be able to put in practice the ways I see, I'd have sucked all world money into my account. But this is like asking a musician to play all the music styles (s)he can listen to: very very few people in the world can do that.
Actually, I can use (not so well) just one or two ways that fit my fears,emotions,rigidity and other "demons" I have.
I also believe that is very very difficult to understand why a trader is making the money (s)he makes: (s)he will tell the method, but you won't see how much subtleties, subjectiveness and intuition come into play - even for system traders -. And I think these play a major role, that's why when you copy a method you get different results.
That's why I agree with BigMike: the only way to make money in trading is OWN way,and our job is to find it.
Read somewhere that mixing R:R and scalping is the same thing as mixing olive oil and water. They just can't be mixed.
I tend to agree with this.
The mere fact of me thinking of a price target for a scalp is ridiculous. I have no idea what the market is going to do, so I basically limit myself with what the market's able to give me or what I can get from the market.
I get in a trade, set my initial stop loss at... 8 ticks and that's it.
90% of the time I see prices coming against me between 2 and 4 ticks before seeing 1 tick my favor, so 90% of the time I have a negative R:R.
I might get out at +1, +2, +3, +4, +5... but my R:R is always negative.
You just need to put things in perspective.
When scalping you get what the market is offering you and not looking for that perfect R:R trade that will end up making you lose money.
Having said this, you need to be prepared for the trade you are taking.
Like it was already said in the thread, know your risk, which is always negative and act accordingly.
If each swing on the... 1 min chart does not have more than 10 ticks range and you get in half way, you're in trouble. If on the other hand you just saw prices hit a 10 tick rallie and retrace, go for it. If the trend continues intact the past will be repeated, if not, the trend might be changing or pausing. Either way you take what you are able to take and get out.
This has nothing to do with R:R.
Overheads are indeed a huge problem but nevertheless, easyish to solve. Find a cheaper market! Trade less, which, when scalping, can be a problem...
If I become half a percent smarter each year, I'll be a genius by the time I die
Guys, this is a very interesting discussion topic. To put some flesh on the bones, I've included an example that highlights the stark differences between the retail scalper and day/small swing trader.
Scenario 1 - Scalper
Scenario1 shows a retail scalper who takes one long and one short trade each day over 200 days for each instrument listed using limit orders on entries and market on exits. Each trade has 2 targets and 2 contracts per target so a total of 4 contracts are traded. First target is 10 ticks, 14 tick second target with an 8 tick stop giving a risk reward 1.5 to 1.
The probability of achieving the first target is 60% and 35% for target two. Slippage varies by instrument.
Note this very interesting thread by @Anagami provides an analysis of expectations. The 60% for the first target and 35% for the second forms the basis of my trading budget.
I generated the following trials using a trading simulator with the following parameters:
10000 trials, each trial having 386 trades, with 1 to 2 Risk/Reward ratio.
Variable winning percentage.
The number of trials is set at 10000. This seemed like a …
Cell T49 shows average direct costs of slippage and commission of 18%. This is the equivalent of playing roulette with 6 zeros on the roulette wheel. I'm not sure even an avid roulette lover would play with these odds.
The total profit the scalper will expect to earn as shown in Cell T51 is $148,200. Not bad on the surface.
Scenario 2 - Day/Small swing trader
Scenario 2 shows a day/small swing trader, who also takes the same trades. This trader has a 30 tick first target, 60 tick second target and 30 tick stop. The same return is 60% for the first target and 35% for the second target. The same risk/reward of 1.5 to 1 is achieved.
Note there is no evidence I've seen that supports some claims by retail scalpers they achieve any better expectancy than retail day/swing traders. For this reason I'm using the same expectancy for both.
Note also the day/swing trader's second target of 60 ticks is within the daily ATR of all of the traded instruments so there is no reason the day/small swing trader will not be able to complete his daily quota of long and short trades per instrument.
In this case cell T49 shows the direct costs of slippage and commissions is now only 5% compared to 22% for the scalper.
The total profit in Cell T 51 shows $757,200 per year compared to the scalper of only $148,200 which is to be expected simply due to the higher dollar value of Scenario 2 targets.
Scenario 3 - Scalper Profit enhancement
Scenario 3 quantifies the additional size and risk the scalper needs to undertake just to equal the profit of the day/small swing trader. The impact of direct overhead can be clearly seen. The only variable changed is row 8 which has increased from 1 trade per day per instrument to 5. Bear in mind the scalper is now trading 20 contracts per day per instrument as opposed to 4 before.
Even with 20 contracts per trade per instrument the scalper is only expected to achieve (see cell T51) $741,000 compared to the day/swing trader of $757,200 in Scenario 2.
In other works the scalper is taking on much more risk and working much harder to pay the middlemen i.e. the broker and market maker.
Furthermore the scalper is spending much more time in front of the screen to earn his $741,000+ than the day/small swing trader to earn the same amount. The day/swing trader is done after this first trade and on the golf course while the scalper still needs to grind out another 4 trades for the day.
This requires additional concentration which can lead to fatigue which may affect the consistency of returns over the longer term.
