Here's an example of something that I could have taken a bit further.

Now add these types of trades 8 or 10 times per day and we can easily see commissions adding up.

@arnie, it's also the slippage that is the killer. Some people forget about slippage altogether. Every time you hit that market button prematurely it's costing you money. If you have time a good idea is keep a track of this in your journal. For example detailing trades you prematurely exit, whether the decision to exit would have resulted in a win or a loss and the various transaction costs. That's is how I identified the issue.

I have a complete record of commissions and slippage on all of my trades. Once I started to really focus on expenses and started to optimize my transaction costs with my targets the improvement in my trading results was profound.

Part of this process was to put a complete stop to exiting prematurely as it was affecting my return from higher transaction costs and also lost opportunity (ie. after I exited price would turn around and hit my original target).

All of my entries are based on signals but once in the trade it is managed by an ATM strategy which will manage the exit criteria automatically. Having said that the trade is only exited in very rare circumstances.

Cheers
DJ

Thank you your continuing support of this thread, also one should be aware of flipping, even if you are a scalper and you are wrong and flip there is a 2 tick slippage incurred on top of the amount you went to prove you were wrong. This is my personal experience through 3 different brokers when I reversed my position. I dont think most traders realize this when they flip until they see their PnL displayed when trade is over.

I don't think anyone can say who makes more money. There are scalpers who do very well, day traders with higher point targets that do very well, swing traders that do very well. There are also a whole lot of people who lose quite a bit of money using any of these styles.

There are so many ways to make money in the market and so many ways to lose it. I don't think anyone style can be classified as making more than another especially since that is a metric that would be hard to measure. I don't scalp and make money but just because I do well with my style does not mean it makes more than another style. A great read is the Market Wizard series which I am sure many have read here. If there is anything to learn in those books is people make money in the markets in diverse ways.

@monpere

The posted example merely shows the differences between scalping and day/swing trading using multiple instruments. It was not based on factual numbers. Thanks for pointing out this post as it enables me to use real life numbers into the model to compare scalping with day/swing trades.

Probability 101 Funny! I think some of us do seem to think like that here ;) Ok, about the probability part, those are a lot of lofty words. Here's my answer in the form of cold hard candles. Here's yesterday's CL chart, with my 'dumb' indicator …

Your post implies you typically use a 6 tick stop 12 tick target and place about 41 trades per day with 59% probability and 2/1 risk reward ratio. If this is not representative let me know and I will update the numbers. I've put these assumptions in the model in the scalp 1 column

The first observation is your 59% and 2/1 risk reward is only 1% less than Case 6 in Anagami's model shown here.

Why 7% is the Difference between Failure and Success in Trading 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 …

If this is your level of expectancy over a longer timeframe then you are operating at a level few can or ever achieve. In fact you are excelling in spite of the deck being heavily stacked against you.

What we need to find out is can the average aspiring scalper achieve profitability given the huge hurdle they face with commissions and transactions costs?

1. CL Scalp Trades

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To answer this question I've also included other scenarios, labeled scalps 2 - 6. These scenarios are the same except they include a reduction in the expectancy from your 60% to 30% in row 19 in 5% increments. This enables us to see the changes in net profitability as the expectancy reduces.

To get a feel of trader expectancy lets look again at Anagami's model. He points out with a 2/1 risk/reward case 3: 40% expectancy is a likely scenario suggesting improved traders and Case 4: 45% for expert traders.

So even if a scalper is classified as improved/competent and achieves 40% expectancy as shown in Scalp 5 he will still make a loss of $12k (Cell I46) mainly because he is getting whacked with significant trading expenses.

He would make $73,800 (Cell I35) in pre-expense margin then get whacked with $86,100 (Cell I43) in trading expenses. This is primarily because of the increased slippage from the increase in losers. Commissions are fixed at $31k per year based on 41 trades per day.

Even an expert trader achieving Case 4: 45% would be whacked with 25% trading expenses. His whack is $81k trading expenses resulting in a measly $48k in return for all his hard work.

Note the above numbers are actual numbers of exactly what you will earn based on the numbers presented and merely changing the expectancy. It is simple math.

2. Day/Swing trading

For the day/swing trader I'm going to use my own budgeted expectancies. Recently I've doubled my contracts per trade from 2 to 4 and am now averaging 2 trades per day compared to a single trade before.

My budgeted expectancy is 60% achievement of the first target and 35% the second target. These assumptions are shown in the Swing 1 column.

Here is a chart example using my 30 tick stop/30 tick first target and 60 tick second target based on front-running the swing pullback and using volume profile and cumulative delta as an overlay in the final decision. These target numbers have been optimized to take into account transaction costs.

It should be noted setting wider targets can still result in a sufficient number of trades. The chart shows 9 trading opportunities (red arrows for shorts and blue for longs) over 4 days for CL. The 30 tick stop is in red, and first 30 tick target at the first yellow bar and 2nd 60 tick target at the second yellow bar.

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On Anagami's scale my budgeted performance would approximate Case 3:40% improved trader i.e. nothing spectacular. It's hard to categorize it accurately as he is only using 2:1 risk reward in the model whereas my 1st target is based on 1:1 risk reward and 2nd target 2:1.

Now, if you look at the Swing 1 column if I'm able continue to achieve by budgeted expectancy of 60% and 35% over the course of a year then this should result in a net profit of $153,000 (Cell M46) after all expenses. So even with my mediocre expectancy I'm able to achieve solid returns and easily cover my transaction costs without operating at a super high competence level. The point is I don't need to be a spectacular trader because I don't have to cover the significant overhead of commissions and slippage like the scalper.

Furthermore, my expenses shown in Swing 1 are only $26k (Cell M43) or 6% of revenues. Compare this to a similarly competent scalper achieving Scalp 5 - 40% expectancy where his expenses are $86k, plunging the trader into a loss situation of $12.3k.

My longer term goal is to periodically add 2 additional contracts (See row 9) providing minimum performance benchmarks are met. By scaling up the corresponding improvement in the post expense margin is shown in row 46.

The overall point is for traders to review their cost structures and take action where appropriate to optimize their targets/stops and transaction costs. If you are a struggling scalper and cannot figure out where you are going wrong this is a good area to start.

I will tidy up this spreadsheet and include a copy so people can play around with it themselves as I think it's a critical part of money management which is pretty much overlooked.

Cheers
DJ

Ok, let's get back to reality. Firstly, when you mention 30%, 60% etc, I think you are talking about win ratio, not expectancy, so I'm going to assume that to be the case. With the original spreadsheet, in real life, if you are a scalper and you are trading 7 different instruments at the same time, not only you need to re-evaluate your trading approach, you possibly need to have your head examined. Numbers derived from such an approach is not based on reality.

To be successful as a scalper you need to have a higher win ratio then a swing trader because your risk reward ratio will be smaller, so why are we calculating numbers for scalping methods with 30%, 40% win ratio? Given typical 1:1, 1.5:1, 2:1 real life scalping risk rewards? That is a futile exercise, and conclusions drawn from that have little value.

Also, in your second spreadsheet, is the scalper trading 1 contract, and the swinger trading multiple contracts (given that he has multiple targets)? Is that a worthwhile comparison when looking at profit numbers? But, I may be looking at the spread sheet layout wrong.

I'm glad you showed a chart with theoretical trades. That's good, but I'm assuming that like most you are a discretionary trader. So my question is, how likely is it that you would have traded these theoretical trades optimally enough to even approach the theoretical numbers you are relying on? If you chicken out on any of the targets, or move your stop too soon, etc. etc. Those numbers that you so painstakingly crafted, go right out the window, because reality just caught up to you.

I'm not questioning who makes more money, I just think the relevance of determining these numbers like this is misleading. I think that can only be determined realistically by comparing 2 real life specific methods, and it can go either way depending on the specific systems. Here's a suggestion, choose a trading day, any trading day, and determine the profitability for that trading if you were to trade absolutely perfectly with your chosen swing method, then we'll compare that to a scalping method trading the exact same day. Or, just apply your day/swing method to the charts that I posted in the other thread.

@monpere
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All this shows is an optimized swing strategy v an unoptimized scalping strategy
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