Suri’s Scalp Trading Rule #1

February 5, 2010 · Posted in TRADING · 2 Comments 

Here is little expansion of my Scalp Trading Rules…. I will write more about each of these rules when I get some time.

This is my way of thinking for the past 15+ years of trading full-time. Am certainly not right many times but these rules (+a lot more) made me what I am today. I also know many traders may not agree with my rules and also know they may have better rules. But again, these are my rules, and I am sincerely NOT interested in participating any debates or discussions.

Regards,
Suri

SURI’s SCALP TRADING RULES #1
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1. Avoid Counter Trend Scalps. If you have to CT, think very very SHORT term-trade.

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In future, I will write more about how to detect and how to avoid CT Trading and what type of Price-action/Tools needed to trade CT.
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Definitions:
Counter Trend trading is trading against the main under-lying trend.
Scalp trading is very very short-term trading for small small profits.

Most short-term traders think they can scalp the markets and make big profits. Most traders also think they are good at finding Tops/Bottoms and ‘THEY KNOW’ exactly how market is going to turn, hence they trade Counter Trend scalps.

Well.. Here is the shocker: The single most reason why most traders lose money (technique wise) is trading ‘Counter Trend Scalps’. You could be right 8 out of 10 CT Trades with minor scalps… But the two times you are wrong, you will wipe-off all 8 wins + more… I have seen this about a Billion times from some of the best traders. However, some seasoned traders do trade CT well with great discipline and skill.

But here are few points about CT Trading:

** CT Trading is dangerous and is very very short-term oriented and profits (if any) are very limited.
** CT Trading is unforgiving and brutal when you are wrong.
** CT Trading is more of an EGO and Discipline issue than any real trading skill.
** CT Trading is mostly based on Hunches/Intuition and speculating trend reversals. Most traders intuition is less than 50% correct.
** CT Trading also creates a negative mentality .. Like always looking for CT trades as you are always in disbelief in the rallies and sell-offs — because you are always thinking/anticipating the trend is going to reverse the next bar.

** CT Trading should be limited to less than 20% of your over-all trades. But most scalp traders do opposite. They trade 20% in Trend and wait for 80% CT Trades, thinking they know how to pick the TOPS and BOTTOMS precisely. This is the doom for many traders.

** Most beginner traders should completely avoid CT Trading. Most seasoned traders should limit to less than 20% of their traders to CT. That too, when many market conditions, market internals, setups/patterns suggest/agree to Counter-Trend setup in unison.

** The trick in CT Trading is to avoid intuition crap and trade solid Setups/patterns which suggest trend-reversals. When trend is reversed, trade the ENTIRE pattern/setups. NOT SCALPS.

** CT Trading requires that you are very very good in Trend trading FIRST. Then you can adapt to trading 20% CT Trades successfully.