Page 333 - THE MARKET WHISPERER

THE MARKET WHISPERER 32 9

As I hope you now understand, trading with margin is extremely
dangerous, since scalpers tend to “stretch” their accounts using leverage
to the very furthest boundaries possible. They can, in fact, profit hugely
and for long periods, but it is enough that just once every few years they
encounter one single fat-finger incident or other extreme phenomenon
(such as the 9/11 tragedy) to wipe them out of trading forever.

In my experience, scalping can cause you far more harm than benefit
during your first years of trading. I wondered if I should even devote any
space to scalping activities, fearing that you may be influenced by reading
about them and be drawn to trying the method out. I chose a compromise:
to describe the activity while emphasizing the extreme dangers. A
successful trader needs a high level of self-discipline. If you have that,
read, internalize, and please stay clear of scalping until you are very far
advanced in your development as a trader.

When are Scalps Executed?

There are several ways to execute scalping. One occurs when we estimate
that a sharp price movement is about to occur. The goal will be to enter and
exit quickly. Why exit quickly, rather than stay a little longer and improve
the results? The answer depends chiefly on the timeframes, of which there
are several that are suited to very short-term scalping:

• When trading opens
During the first ten minutes of trading, most of the volatile stock prices

are seen on our screens as “going crazy,” and in most cases, this is because
of private investors who have given their brokers pre-market buy or sell
orders. These are executed at market price during the first half hour of
trading, and can agitate stock prices strongly. If you follow a particular
stock, such as Apple (AAPL), you will learn how to gauge its start-of-day
behavior and find, over time, that with a surprising degree of reliably you
can predict its behavior. Apple can go up as much as one dollar during the
first five minutes, retrace the entire price rise in the next two minutes, and
continue to any direction afterwards, regardless of those first minutes. Can
you profit from a fluctuation of one dollar in either direction? Of course, on
the condition that you have a lot of experience, the nerves of a fighter pilot,
and a lot of money to waste until you “perfect” the method.

• Lunch hours
Often enough, I encounter a winning formation during New York’s lunch