uploaded image

Scalping in a High Volatility Market | Scalp Trading

By:Josh Fabian

Scalp Trading

Scalping, day trading, call it what you will. We call it engagement. Scalp trading is buying and selling the same stock or future, usually over a few hours. Most often, we use futures contracts when scalping mainly because of their liquidity.

Sometimes scalping is the only game in town and saves us from Sudden Onset Narcolepsy or SON. Other times, scalps are what we do against a core position. Scalping vs. the core is a mix of short-term vs long-term. How do we decide which one it is and how do we decide how long to stay in a scalp? In a word: volatility.

If you’ve been playing at home, you know volatility can be used to approximate a one standard deviation move in an underlying. Lower volatility equates to smaller ranges. Higher volatility means wider trading ranges. For the sake of argument, let’s assume we’re trading S&P futures (/ES). One tick in /ES is equal to $12.50 per contract. There are four ticks to a single /ES point, which means a one point move in /ES is equal to $50.

When market volatility is low and a one standard deviation move is only say, twelve points, which was fairly common over the past couple years, we might look to scalp around four points (0.25 standard deviation move) or $200 per contract.  Think smaller, quick profits.  

In a market like the one we’re in now, a one standard deviation move is around 30 points. Because the expected range is wider, so too are the number of points we’re after. If we remain consistent trying to capture that 0.25 standard deviation move, we might look for eight points.

This is why during times of higher volatility, scalp trading can offer interesting opportunities and we might be more aggressive in pursuing them. Why? That same higher volatility might be hurting our longer-term core positions. The scalps, then, can act as a sort-of hedge against the core position.

These are just some general guidelines we here at tastylive use. At the end of the day, scalping is an engagement tool but not our core portfolio. But when you see /ES moving up and down 20, 30 or 40 points in a day, you may want to think about how scalping could take advantage of that volatility.

If you want to see more on scalping, go to the Scalping series on the tastylive network here. And if you have any questions/comments/thoughts, leave a comment below or reach out to support@tastylive.com. 


Josh Fabian has been trading futures and derivatives for more than 25 years.
 

For more on this topic see:

Scalping Recap - December 15, 2015

Confirm and Send - January 11th, 2016


Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Related Posts

tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer.  Options, futures, and futures options are not suitable for all investors.  Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.

tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.

tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.

tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.

© copyright 2013 - 2024 tastylive, Inc. All Rights Reserved.  Applicable portions of the Terms of Use on tastylive.com apply.  Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.