Question: Do scalpers always use fixed profit target and stop? Time stop also seems to be quite common. But if the market goes in your favour, is it better to break the rules?
No and yes.
No, scalpers don't always use fixed profit targets or stops. More flexibility is a good idea. I hardly use fixed parameters, I try to go with the flow and take what the market is willing to give me. As you can see in that log, at times I would take only a couple of ticks, at other times I would take several points. I think this flexibility is required to do really well, because it gives you opportunity to make large extra profits when time comes. I see no reason to sell a long just because a "target" is hit. I sell a long because it's time to sell. Vice versa for short.
I suppose the essence of my current trading approach is to hold onto things as long as possible. If I can let a scalp turn into a longer, "swing" trade, I will. Quite often, when I've got enough wiggle room to start with, I'll hold on and ride a move for 10, 20 or more points. Then I might pat myself on the back, call it quits and party. But to the downside, I hardly have any tolerance. Most of the time, I will get out if the trade only goes 1-3T against me. It has to be right from the beginning. As I get "wiggle room", I will trail to breakeven ASAP. Essentially, this approach works so well for me because all my losing trades close out at a tiny loss, while winners are being let run until I decide that it's time to reverse, not earlier. If you do this for any amount of time, you must make profits. Another edge I have is a high hitrate, because of the momentum and inefficiences which only scalping offers. My hitrate is currently around 70-90% most days. If my hit rate drops below 70% for 3 days in a row, I will have a "crisis control brainstorming session", which basically means I'll sit down, tearing the market into a million pieces and putting it all together again, until I have a higher rate and expectancy than before. Think of it as a kind of renaissance of trading approach. Sometimes, this session may last 3 days and 3 nights, but this is what keeps me ahead. It is not recommended for elderly traders.
As for time stops - Yes, but kind of instinctively. And "breaking rules" if market goes in your favor - Yes. And no, because breaking "rules", such as targets, when the market really walks in my favor is my main rule. But my loss-rules are iron clad and unviolatable. Letting losses run is the greatest blunder any trader can commit. I would rather screw up my hit rate than increase my average loss-per-trade. Just look at that silly bund trade I did today. It cost me EUR 340, because I let it run 2T more against me. Assuming that something will "come back" is stupid, because the more it goes against you, the more that direction is confirmed and your original direction negated.
Remember that the markets are essentially random and probabilities aside, you simply can't know what's going to happen. So trading isn't about being right. It's about being profitable. Or at best, being "wrong" small, and being "right" big. High-performance trading isn't about being a good winner, it's about being a really good loser.
Only when you fully accept and literally expect with every trade that it will probably lose, only then can you be fully proficient. When I enter a trade, I expect it to be wrong from the very beginning - until I'm proven wrong.
Scientist.
29 dec 2003
https://www.elitetrader.com/et/threads/the-ultimate-dax-scalping-discussion-thread.26299/
