Is There Still Money in Scalping the Markets?

The trading landscape is constantly changing and probably one of the most affected groups is day traders who actively participate in the markets each day. In a relatively short period of time we have seen spreads shrink, volatility increase, fully electronic markets, fee structure changes and the demise of the specialists and market makers traditional roles on the stock exchanges. It is likely day traders who have been involved in the markets for some time adapted their strategies to current conditions or where forced out of the market. New traders coming into the market face a choice of becoming a scalper or choosing another method of trading. This article will look at some of the benefits and down falls of scalping.

What is Scalping?

Scalping is the process of capturing small price moves in the markets, normally repeatable each day. A scalper may make several to several thousand trades each day. Scalping techniques are executed by individual traders, entire trading firms and also by algorithmic black box systems. With the amount of movement that occurs in the markets each day there are ample opportunities to grab small profits, but stops and losses must be kept extremely tight. Since profits are small stops must also be kept small so that a loss does not erase the profitable trades.

Oh the Joys of Scalping

There are benefits to scalping, but scalping often requires a certain personality type. While anyone can learn to scalp, the people who will enjoy scalping are the ones who generally don’t mind stress, can focus on the task at hand and often spend hours of intense concentration during their selected trading time. The traits among scalpers will of course vary, but since many trades are often made every single day, the trader needs to be disciplined and emotionally strong. Making many trades in a day can be wearing and many traders burn out before finding their groove.

The burn out issue can be avoided by knowing what scalping will entail both technically and psychologically. Once we know what to expect we can prepare and develop our strategies for profiting, remaining disciplined and focused. Let’s first look at the advantage of scalping:

– No overnight positions, which means much uncertainty is removed.

– Positions are not (and should not) be taken prior to major news announcement or economic events. This means scalpers do not gamble on direction.

– Losses are kept small and gains run until there is a trigger for exit. ยท Many trades can capitalize on small gains over and over which take advantage of “inefficiencies” on short timeframes (and these do exist).

– The trader can find almost endless trades (not all are worth trading though) as the markets are constantly moving.

– No real need for researching (although it doesn’t hurt) as the trades can be made on very short-term pops or drops.

– Scalping strategies can be created for almost any market – fast moving, slow moving, trending or range bound.

So there are some definite advantages to scalping…and there are probably many others, but now we need to look at the downside.

Oh the Horror

Scalping is definitely not for everyone. Some will take to it immediately (enjoying it, but profits will still take time to materialize) while others will feel there is no way they could ever trade like this. Let’s look at some of the potential downsides to scalping (remember both the advantage and disadvantages are subjective, and not all people will view the following as negatives).

– Scalping often involves waiting and watching a stock or other instrument, waiting for the right opportunity – patience.

– Fees can be high if the trader often removes liquidity (in the stock market fees can be reduced by adding liquidity, ie. Bidding on the bid side instead of buying at the offer).

– While traders capitalize on quick moves, unexpected quick moves in the opposite direction can be painful.

– Intra-day swings can be volatile and may seem chaotic…although this is also possible on longer time frames.

– To scalp effectively the trader needs access to high end trade execution software (trading platform), very low fees, and have a high speed internet connection and computer to keep up with quotes.

– Scalpers often take larger positions than they might for a longer term trade because the stops and profits are smaller, therefore to maximize capital use larger trades are taken. This can mean that if the trader loses their internet connection or their computer crashes they could be in for a very high stress time.

– Since trades are entered and exited generally very quickly, it is often impossible to set stop orders. Mental or soft stops are used.

The Verdict… In Today’s Market

The day trading boom of the late 90′s has come and gone and only the best day traders have survived through to the writing of this article. Those traders, and the new ones coming in, must be nimble and adaptable. But the real question is: Should someone scalp in today’s volatile markets?

Increased volatility has hurt many traders, but it also has created advantages. It has really become an issue of “the more the market changes, the more it stays the same.” Things still go too high, and then fall too far and there is always room for the scalper to jump in and take advantage of these opportunities intra-day. There are also the stocks which barely move at all, and a scalper can step in adding liquidity and trading the small range.

While some may argue that algorithms, black boxes and automated trades eliminate the arbitrage opportunities in the stock market, this really could not be further from the truth. If anything the abundance of computer orders allows for short term traders to capitalize on computer orders coming into the market. Just as humans push things too far, often algorithms do too, and then everyone turns and switches direction. Nothing has changed; it is just how we view the market that has changed. But the market does not care how it is viewed. As long as the market is there, scalpers can capitalize on its movements if they have the right personality for it.

Classic Debate – Why Direct Response Is Better Than Brand Marketing

If your offline business is at a stage where you’re contemplating closing up shop, I think you should reconsider doing that because you can turn your business around. Now it won’t be a walk in the park, but turning your business around is something that is very possible to happen.

I’m pretty sure that you’ve done a number of things to try to keep your business open and busy. Perhaps you’ve used newspaper advertising, new walk-ins due to your location, direct mail, or even brand advertising. All of these techniques except brand advertising can help to keep your business open.

I’m not a big fan of brand advertising for a number of reasons. For one, it’s not trackable. You have no idea if whether or not your ad is successful – and I have a big problem with that. If you don’t have the business funds like the iconic Trump Tower, McDonalds, Burger King, Microsoft, or any other Fortune 500 company… you will find that your days in business will be cut short very quickly.

Instead of following these folks, implement a direct response marketing campaign where your techniques are testable, trackable, and accountable. Direct response allows you to make changes on the fly – especially if you also market your business on the internet. The internet is a great tool to get more new customers, and to test out new headlines or campaigns that you have in store for your business.

You never want to stick with a strategy that doesn’t make money for you right away. If you do, you’ll find yourself wasting a lot of time and energy on concepts that simply don’t work. How much money is it going to take for you to lose in order to see that the current ways of marketing you are doing is totally ineffective?

I think you should take a deep assessment at how well your advertising and marketing campaigns are doing for you. If you’re using brand advertising, stop doing that and start using direct response marketing. Take your knowledge to another level about direct response, and you will find that there’s a clear difference between your old ways of marketing, and this new way with direct response.

Remember, if you’re at the brink of just totally giving up, don’t do so. There are still some great ways to build up your business that doesn’t cost you a lot of money to do so. Maybe you should consider hiring a marketing consultant who can turn your business around.

I don’t recommend much advertising and marketing agencies because even a lot of these places have a hard time staying in business. Ironic huh? Lol… I know, and that’s why you need to learn how to do direct response marketing yourself – or simply hire a consultant who has a track record of turning businesses around.

Use these tips to have the kind of business success that you dream of in your business. The more you use direct response, the more money your will make, and the more you will see which campaigns are making the most money for you.

Good luck with using these techniques to have the kind of business success that you desire.

New Direct Marketing Trends to Grow Your Business

Earlier, Direct marketing simply involved sending a mail or brochure to a list of people. But with the emergence of social media platforms like Facebook and Twitter, rules for direct marketing services have changed. Your existing and potential customers expect a more personal conversation. The technology used today makes this new type of direct marketing possible in ways you may have never imagined.

Now-a-days, it is possible to rent lists that have much more personal information about your potential customers like their profession, interests, etc., rather than simply knowing their name and address. You can shortlist people who are looking out for your products and interested in buying them.

You can develop direct marketing campaigns where individuals that you are interested in are targeted specifically and the content is completely personalized to reflect the preferences of the targeted individuals. Once you have created a direct marketing campaign, it is easier to push your marketing message out to your potential customers through their preferred network. For people preferring electronic communication, you can send a personalized email that drives them to a Personalized URL (PURL) where a compelling offer will allow them to subscribe to future marketing communications from you.

For those who prefer print communication, you can print a direct mail package using variable on-demand printing that contains a personalized letter and the information about the products in which they have expressed their interest. This direct mail package can drive them to a PURL to sign up for ongoing marketing communications. These new direct marketing tools are very successful in helping you to have a relevant conversation with your potential and existing customers, and in driving them to action.