Scalping the E-Mini Contracts: Some Odds and Ends

Most e-mini scalpers are traders who hold contacts for a short period of time in hopes the price will move in the direction they are trading, either long or short. The average scalper is looking to carve out two or three points in a normal trend or countertrend movement. And e-mini scalper typically is in a trade less than 15 minutes, and usually trades with relatively tight stop-loss settings which are roughly equal to the profit targets he or she sets up as the trade parameters.

Scalping sounds pretty easy, and it looks pretty easy when viewing a historical trading chart. As in the scalper will tell you, scalping is anything but easy. Scalpers are usually, but not always, smaller capitalized traders with accounts as small as $2500 and up to $100,000 or more. There are any number of e-mini contracts on which scalpers typically trade, but the most common are the ES (e-mini S&P 500), YM (e-mini Dow), NQ (e-mini NASDAQ), and a host of other contracts ranging from crude oil to the Russell contracts. The only real requirement to effectively scalp is that the contract have a sufficient number of trading contracts so as to have sufficient liquidity to enter and exit without suffering slippage.

As a trading educator, I get to see a wide variety of scalpers and their trading styles, successful and unsuccessful. There is a certain pattern to most of the unsuccessful scalpers and most share some common mistakes;

1. it’s important to trade with the trend, especially when scalping. Since scalping usually requires fairly tight stop-loss limits, trading against the trend often finds the countertrend traders stopped out.
2. Many unsuccessful scalpers trade too many contracts for their account size. It’s generally a good idea not to risk more than 3 to 6% of your trading account balance on any given trade.
3. Many unsuccessful scalpers over trade. If a scalper is trading more than 10 trades on a given day, he or she is probably over trading. Generally speaking, there are not 10 high probability scalping setups on the average day. Of course, there are odd days when many scalping opportunities arise; but on the whole, I find that the average day yields 4 to 6 high probability scalping setups.
4. Unsuccessful scalpers often develop an emotional attachment to their trading positions. That is to say that they become convinced their trade is predestined to be successful. Unfortunately, the market is without a soul and moves according to the number of contracts being traded in either direction and cares little about an individual trader’s attachment to their trade.

Successful scalpers generally exhibit traits exactly opposite of the characteristics enumerated above. They seldom develop emotional attachments to a position and are quick to dump a trade that looks unsuccessful. Good scalpers don’t over trade and trade the correct number of contracts relative to their trading account size.

One of the most disturbing characteristics of unsuccessful scalpers is the desire to ascertain the exact peak or trough of a given move and attempt a countertrend trade from those points. One of the most difficult feats in trading is to identify a peak or trough, as many peaks or troughs often turn out to be little more than retracements and the trades taken in these misguided attempts to identify the peaks and troughs become disastrous.

Why not just trade with the trend? Trend trading is one of the easiest trade setups to identify and even a poor set up can be salvaged because of the markets tendency to move in the direction of the trend. I cannot count how many times I have taken trade with the trend that was a poor set up only to be saved by the market resuming the trend. Surprisingly, I watch trader after trader take countertrend trades with the same result, yet are excited when the next enticing countertrend trade setup presents itself. It’s absolutely baffling.

In summary, we have looked at some odds and ends that make successful scalpers profitable. Most successful scalpers trade with the trend. I think every trader should repeat this mantra 50 times before he or she goes to bed. We also took the time to identify for traits unsuccessful scalpers exhibit; they tend to trade against the trend, they tend to trade too many contracts, they tend to over trade, and they develop emotional attachments to their trading positions.