Scalping and coin tossing

[LeTiss]

If I lose 10 ticks in 10% of my trades, then my trading has suffered a drastic reverse in fortunes.

However, the point you're making is valid, in the sense that novice scalpers will often tread water by winning 7 consecutive trades, but then having that profit wiped out by a bad one.

[Iron]

If the mad bomber was around then you'd use your skill and judgment (or just bloody common sense!) to realise that you shouldn't be offering money to the lay side

All sorts of things can cause the market to spike, and I'd say that spikes aren't really predictable unless the Mad Bomber is clearly on a mission!

Most scalpers probably only lose 1 or 2 ticks most of the time when it goes against them.

I'm approaching this from a theoretical basis, and I'm assuming a market that's random. It may be that the market spikes less than a random model would predict. But if we're establishing whether there's a mathematical edge over a billion trades, don't we need more to go on than a general impression that you lose 1 or 2 ticks most of the time?

An analogy. There used to be a hedge fund called Long Term Capital Management. They had sophisticated mathematical models that left them in little doubt that they had an edge. Investment banks lined up to be their clients. A few years after starting, they lost over $4 billion. Before risking my money, I want to be confident I have an edge, as I've been fooled by randomness too often in the past!

Here's another consideration. Let's say that, when we arrive at the market, most of the money has been matched at 4 prices. I used to think that that meant that the market had decided that the horse's true price was represented by those prices. But now I'm not so sure. It could be that, due to randomness, the market happened to have settled on those prices rather than going wandering off. If that is the case, then surely we can't assume that the market won't go careering off at any moment.

Jeff

[Iron]

When I refer to high probability it is in terms of overall profitability, not a simple win/loss strike rate.

Me too - although that wasn't clear from your earlier message, hence by 'bloody obvious' comments.

A 90% strike rate with an edge would be great. But to get back to the original question, I don't see how you can be confident of achieving that over a billion trades using reverse book scalping...

Jeff

[Iron]

You're probably made enough trades over the years to be confident beyond reasonable doubt that you have an edge. I say 'probably' because I'm not a statistician - that's not a dig.

If I'm simply offering money to the market and taking the available price when the market has run its course, then I have a limited downside and an unlimited upside. The market will spike against me sometimes, but overall it will spike just as often in my favour. But when you have an unlimited upside and an unlimited downside, you're relying having a high enough strike rate to compensate for the times when the market goes against you. And I think that whether you do have that edge can be established only through a large number of trades - I think the market is too random for it to be modelled theoretically (at least not without lots of empirical data).

Jeff

If I lose 10 ticks in 10% of my trades, then my trading has suffered a drastic reverse in fortunes.

[LeTiss]

Jeff, you are full of enough hot air to blow a balloon to France!

You keep coming out with various trading analysis, even offering advice to newbies looking for help, yet by all accounts you still play around in training mode

Listen to your own advice, stop making a lot of noise, and start making money instead!

[Iron]

I would find it quite hard to lose 10 ticks 10% of the time.

I'm not saying 10 tick spikes are common.

In fact, if the chances of the spread moving one tick in either direction are 1 in 2, are the chances of it moving 10 ticks simultaneously in one direction not 1/2 to the power of 10, or 0.1%?

If I scalp, I want to be systematic, and know that what I'm doing is based on solid assumptions. The fact that other people might have a long-term edge when scalping doesn't help me construct a methodology of my own!

In a purely random market, I wouldn't profit from reverse book scalping. So I assume that the edge comes from:

A. People taking money when it would be more rational to offer it

And/or

B. The market is more likely to remain in a particular price range than randomness would predict

My concern is just that the potential downside might outweigh the benefit the above offers.

Jeff

[enzabella2009]

Hi, Jeff
If you manage to make 90% of the time 1 tick profit then I want you to became my teacher. Scalping does not work with every markets. On some markets even if the mad bomber is around or even if you get spikes you won`t lose 10 ticks for sure. the price will probably back where it spiked within seconds unless you have a stop loss setting. I don`t offer money each sides, only one side. If i placed 1000 in the queue only the ammount matched will start to appear on the other side in automat. However I scratch a very low number of markets. If the market is going against me I start to do the opposite very quickly on the same horse but, I am already trading on the next available horse. Sometimes I have the ladder opened with 6 horses. Sometimes when all horses have high odds and the horses are not playing up I lay all using the bookmaking feuture but, only on a precise time of the clock . When I think a favorite will steam or drift sometimes I place my clousure 20 ticks from my entry and place a stop and loss with 10 ticks. Lose 10 ticks or win 20 ticks. Obviously If the horses steamed only 10 ticks I manually close my position. On each race I am on I also add a lay selection and a back selection but, not alwyas. There are multiple strategys in my head and I use them all in order of accumulating more favorite situations. I may be not the right person to ask about scalping even though I know how it works but, I dont use it that often. In total fairness I think in the sport trading using the same strategy is not ideal....If you wanted to use only one strategy then you need a very accurate selection of the markets you are trading on...But, as I said in private you have an aknoledge far greater then you think you have. You can find your self an edge in football, it is probably the best place to achieve that. It is all in slow motion. It may take half hour to get matched but, you defenately have an edge over billion trades...

[Iron]

I would love nothing more (and I'm not far off that point), particularly as the alternative is for me to return to the world of traditional work!

Would you a drink with your fries, Sir?

Jeff

Listen to your own advice, stop making a lot of noise, and start making money instead!

[Euler]

In my experiance people overthink scalping too much. All you are doing is offering money to both sides and dumping the order if it doesn't work.

[Euler]

Jeff, treat yourself at Christmas come down to London for some shopping then pop over to our offices and I guarantee you the penny will drop with less than 15 minutes on the whiteboard.

[Iron]

Thanks Peter

Are there any circumstances in which you would recommend against reverse book scalping?

For example, would you restrict the technique to ranging markets?

Jeff

In my experiance people overthink scalping too much. All you are doing is offering money to both sides and dumping the order if it doesn't work.

[Iron]

Thanks Peter - I might just take you up on that!

Jeff

Jeff, treat yourself at Christmas come down to London for some shopping then pop over to our offices and I guarantee you the penny will drop with less than 15 minutes on the whiteboard.

[SpikeyBob]

Hi Jeff,

I consider myself to be a scalper and have been since I started trading horses over 2 years ago. If you asked me to define if I had an edge, I couldn’t tell you what it was (if there is one). I could tell you my strike rate over a given period as BF allow me to download such data. But if there is one, my edge is hidden within my subconscious and I am unable to articulate it.

If I were forced to describe my scalping method, I would call it ‘panic scalping’ as even after 2 years I still get edgy when my orders are matched and I’m waiting to be filled. This is possibly the nature of scalping though because as you have pointed out you are only looking for a tick or two and spikes are always a concern. Plus scalping as far as I know it is supposed to be nipping in and out of the market quickly anyway, unlike swing or trend trading.

I don’t offer money on both sides of the market at the same time as much these days as I have found this to be more effective tbh.

I started out using very low stakes, never paid myself and adjusted my stakes on a daily basis by just compounding my bank. I also started nearer the back of the field and have gradually worked my way forward to the favourites as my stakes have increased over the months.

I don’t claim to be good at this game, some of the screenshots people put on here match what I make in an average month, but have managed to make a 5 figure profit over the last 2 years through scalping.

So my advice would be to get stuck in and have a go, you don’t have to go big initially, build up your stakes at a pace that is comfortable to you. At minimum stakes you will either make or lose a couple of quid per day, I treated the early losses as tuition fees.

Oh and good luck with that ‘billion’ trades thing.

SB

[Iron]

Hi SB

Thanks for your advice.

Re: the billion trades thing, the global economy might not be in such a mess if, a few years ago, traders had listened to the party poopers who questioned the wisdom of buying and selling apparently lucrative AAA rated instruments that were extremely unlikely to fail...

In financials trading, there's a term called 'repeatable alpha'. It basically means that you have an edge that's clearly defined and established beyond reasonable doubt. If someone is trading without such an edge, they're gambling, and it's probably just a matter of time before the odds catch up with them... I'm not saying that applies to scalpers, btw!

Jeff

Oh and good luck with that ‘billion’ trades thing.

[CaerMyrddin]

Well Jeff, my advice to you would be 'keep it simple'. Don't overcomplicate.

Try to think out of the box! Do you really need to know what your edge is, if you are doing something and it's working?

You don't