In recent weeks we have seen a good deal of volatility in the markets. I suppose I should point out that it is not uncommon to see volatility at any price level. Volatility is part of the environment in which we work. Knowing the market is volatile, I would assume most traders want to be entering trades at the earliest possible time, once the trade setup is confirmed. Further, I suspect most traders seek to exit before the market backs up and reduces your profit or moves fast enough to have the trade go into negative territory. These ideas only make sense.
So why in the world does the trading world insist on e-mini scalping with tools that lag the price action by several bars?
I am the first to admit that lagging indicators may have a place when swing trading as you are dealing with longer time periods and looking for larger market moves. Swing trading and e-mini scalping are polar opposites when it comes to trading technique. Swing trading takes patience and discipline where scalping is like hitting a fastball at 90 mph. There is just not the time to consider, at length, what the proper course of action might be for entering an e-mini trade. Both trading styles require plenty of trading technique and experience, but the decision process is much faster when considering scalping. You make decisions in seconds, not minutes.
Okay, okay… I will get off the soapbox, but let’s talk about the tools needed to make proper scalping decisions.
This brings me to the crux of my dilemma as someone who is an e-mini scalper most of the time. I often have a swing trade running if the market is in a trending mode, but that is the exception, not the rule. When I am scalping, I use tools that can inform me of potential trades in real-time. I don’t want to know what has already happened; I can see that on the chart. I want to know what is happening right now and only real-time indicators can provide me with that information along with a good deal of experience reading charts. I don’t use a whole battery of indicators to make my decisions, but the things that I find useful are:
· Order flow software
· Better volume indicator
· Volume ladder software
· Volume profile
· Reversion to the mean software
· Darvas boxes or any dynamic support and resistance software
· Chart reading skills, which are the most important component of e-mini scalping
Trading in real-time is not some phenomena that I dreamed up. I was taught the skill at a variety of institutions. To try to scalp with lagging indicators will put you well behind in your entries and exits. Since most new traders tend to begin as e-mini scalpers, I firmly believe that they should learn to trade in real time. They should not be taught to trade with lagging indicators. Want proof to justify my point? Have a look at the failure rate of new traders; it is astronomical and I lay a good deal of blame upon the archaic methodology that is standard practice in the majority of trading education programs.
You don’t start a sprinting competition 20 feet behind the other competitors, but trading well behind the price action equates to saddling yourself with starting well behind your competition. Look into real-time trading, there are more than a few books and individuals that espouse my point of view on this topic.