Scalping and coin tossing

[Iron]

I toss a coin.

If it comes up heads, I give you a pound. If it comes up tails, we get a computer to generate a random number between 1 and 10, and you give me that number in pounds.

If you lose a pound on the first bet, you have the option of another bite at the cherry. The upside is that you'll break even over the two coin tosses, and the downside is the same as before.

If the coin was unbiased, there's no way you'd take that bet!

But let's say that the coin is biased. If you win (say) 70% of the time, you might come out ahead overall. Or you might not. I don't know...

This is why I'm not convinced that scalping where you simultaneously offer money on both sides of the book works.

Can anyone prove that it does offer a long-term edge?

That's not a rhetorical question, btw. I'm writing this post because I want to make money from reverse book scalping, not to knock it!

Thanks

Jeff

[superfrank]

This is why I'm not convinced that scalping where you simultaneously offer money on both sides of the book works.

Assuming you are talking of a single tick apart then you're right, it doesn't work (except in certain situations). It's not what scalpers do.

[Iron]

It doesn't, except in certain situations.

In what situations, and how can you be confident that the upside will, over thousands of trades, more than compensate for the downside in those situations?

It's not what scalpers do.

Some scalpers do offer money simultaneously on both sides of the book. I've seen it in videos! Or have I misunderstood you?

Jeff

[superfrank]

a few years ago (when I started) Sam Wilson in one of his v.good youtube vids (now removed) described his approach as "hybrid scalping". that's how I'd describe my approach in horse racing markets. it doesn't really matter what you call it (and approaches have to vary depending on the type of market).

[Iron]

What does hybrid scalping entail?

Thanks

Jeff

[hgodden]

You use skill and judgement to determine exactly when you could do that, no one is going to tell you when you could do it on a public forum.

I remember there was a trader who used to run another bf trading sofware company years ago that showed a few videos where he was basically doing that... but if I recall correctly he found it harder and harder to make money as the years went on and in the end couldnt make it work. In most of the videos he spent half the time shouting and swearing! It's all a matter of skill and judgment

[Iron]

No amount of skill and judgement can tell you whether the market is going to spike against you (unless you have the ability to read the Mad Bomber's mind!).

Skill and judgement might give you a high strike rate. But how can you be confident that, over a billion trades, that would more than compensate for the times when the market moves against you.

I'm not saying that 'limited upside/unlimited downside' doesn't work, but I am sceptical about how viable it is long-term (but keep an open mind)...

Jeff

You use skill and judgement to determine exactly when you could do that

[superfrank]

What does hybrid scalping entail?

It's just a flexible approach. High probability trades are different in each type of market/situation.

[Iron]

But is high probability necessarily a good thing?

If I make 1 tick 90% of the time, but lose ten ticks 10% of the time, I'll lose money.

Surely the key issue is whether you have an edge, and I can't see how having a really high strike rate will guarantee you an edge in reverse book trading.

Jeff

What does hybrid scalping entail?

It's just a flexible approach. High probability trades are different in each type of market/situation.

[superfrank]

But is high probability necessarily a good thing?

Yes.

If I make 1 tick 90% of the time, but lose ten ticks 10% of the time, I'll lose money.

Well that's not high probability then is it?!

[Euler]

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

[hgodden]

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

Most scalpers probably only lose 1 or 2 ticks most of the time when it goes against them. A 10 tick loss sounds pretty drastic to me! I remember Peter saying once how people always overestimate the chance of the market flying off in one direction and burning them for lots, doesn't seem to happen that much, at least if you're quick on the draw

[Iron]

Well that's not high probability then is it?!

Since when is a trade with a 90% strike rate not a high probability trade?!?

An analogy. Let's say you lay horses at 10.0 on Betfair. Ninety of the time, if the market is right, you'll make money. 10% of the time, you'll lose money. When you take commision into account, it's a losing proposition overall.

I know a highly successful trader who bets on reversals. He has just a 25% strike rate, but still makes very good profits.

Your success or failure is determined by your edge, not your strike rate. You could have a 1 in 10 strike rate, but if you get 20 ticks on average when your your trade does succeed, it doesn't matter...

Jeff

[Euler]

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

Most scalpers probably only lose 1 or 2 ticks most of the time when it goes against them. A 10 tick loss sounds pretty drastic to me! I remember Peter saying once how people always overestimate the chance of the market flying off in one direction and burning them for lots, doesn't seem to happen that much, at least if you're quick on the draw

Spot on!

[superfrank]

You're stating the bl00dy obvious with all these examples Jeff.

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