Suri’s Scalp Trading Rule #2
February 8, 2010 11:15 PM

2. While Scalping, In Faster markets, you Pay Your Price; In Slower Markets, you pay Market Price.

In plain words, Use ‘Limit’ Orders in Fast markets and Use ‘Market’ Orders in Slow markets. This rule Only applies to Short-term traders. For all other type of trading, only LIMIT orders must be used ALL the time.

Most traders exhibit impulsive behavior and are very impatient and anxious to get in/out of trades. As markets shift from low-volatility to high-volatility, traders are eager to place trades and looking for quick market movement. Some times they do this out of boredom.

When markets are trading at a faster pace, traders want to catch the momentum move and issue ‘Market’ orders. Of course, they do get into the trade. Some times they do get lucky and catch the move but many times they get-in near the last highest tick in that impulsive move. As the volatility returns to its mean, markets retreat and they end up losing the trade.

Traders must remember to trade Setups (Breakouts/Pullbacks, Patterns, Indicators) not just some jerky momentum moves. Have an Entry Level concept for every trade. It must be computed, not a randomly placed number or hyper-active mouse-click. Ignore how price got to that Entry Level (faster or slower).
Pay only ‘Your’ Price (what you want to) to get in to the TRADE, not the ‘Market’ price. If markets are moving at a faster pace than you can catch with LIMIT order or you feel you missed the trade, just leave the trade and the trade-desk for a while. You are better off not trading that trade than trade with higher price leading to a losing trade.

During the slow markets, traders have lot of time to think. Many times, slow markets show quick momentum action and fall back to its slow action. Since market is moving slow, they place ‘Limit’ orders below the current price (for long). This may be ok at-times, but slower markets have very tight spreads and move in narrow-ranges. This causes to not get a fill at the limit price. Once price moves away from your limit price, traders think it is expensive and do not feel like chasing, hence they may miss the trade. If you have a valid reason and want to be in the trade during the slow-pace markets, place a ‘market order’ but still protect your trade with a ‘Stop’ order. Also, try to understand why market is trading at slow pace. It could be some impending news/lunch hour, nearing a holiday or just overall market etc..

Comments

Comments are closed.