Passive Income for Life

This counter surged yesterday but dipped a little today. Made a pretty neat profit still. The good thing is that it has spillover to other constructions counters too, of which i have CSC in my holdings. I am just mulling whether i ought to have dumped the stock at an all time high of $0.425 because there was no news. Could have bought it back a lot cheaper today. Well, you can never know.

I have switched my ‘churning’ trading strategy to a more volatile and higher volume counter, Banjoo. So far so good. Made some unrealised gains of $200 plus. Small amount for a huge contra capital put in. Have to take profit asap cos of the T+3 and just in case it drops drastically. Banjoo is quite a steady uptrending stock for short-mid term. Some M&A coming up. Hope i will be holding on to it when news breaks.

It’s funny to note that my ‘churning’ strategy has a name actually. Was posted on the CNA forum so i guess i cut and paste here. I acknowledge the author who wrote this.

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Small Quick Profits Can Add Up

Scalping is a trading style specializing in taking profits on small price changes, generally soon after a trade has been entered and has become profitable. It requires a trader to have a strict exit strategy because one large loss could eliminate the many small gains that the trader has worked to obtain. Having the right tools such as a live feed, a direct-access broker and the stamina to place many trades is required for this strategy to be successful.

Scalping is based on an assumption that most stocks will complete the first stage of a movement (a stock will move in the desired direction for a brief time but where it goes from there is uncertain); some of the stocks will cease to advance and others will continue. A scalper intends to take as many small profits as possible, not allowing them to evaporate. Such an approach is the opposite of the “let your profits run” mindset, which attempts to optimize positive trading results by increasing the size of winning trades while letting others reverse. Scalping achieves results by increasing the number of winners and sacrificing the size of the wins. It’s not uncommon for a trader of a longer time frame to achieve positive results by winning only half or even less of his or her trades – it’s just that the wins are much bigger than the losses. A successful scalper, however, will have a much higher ratio of winning trades versus losing ones while keeping profits roughly equal or slightly bigger than losses.

The main premises of scalping are:

Lessened exposure limits risk – A brief exposure to the market diminishes the probability of running into an adverse event.
Smaller moves are easier to obtain – A bigger imbalance of supply and demand is needed to warrant bigger price changes. It is easier for a stock to make a 10 cent move than it is to make a $1 move.
Smaller moves are more frequent than larger ones – Even during relatively quiet markets there are many small movements that a scalper can exploit.
Scalping can be adopted as a primary or supplementary style of trading.

Primary Style
A pure scalper will make a number of trades a day, between five and 10 to hundreds. A scalper will mostly utilize one-minute charts since the time frame is small and he or she needs to see the setups as they shape up as close to real time as possible. Quote systems Nasdaq Level II, TotalView and/or Times and Sales are essential tools for this type of trading. Automatic instant execution of orders is crucial to a scalper, so a direct-access broker is the favored weapon of choice.

Supplementary Style
Traders of other time frames can use scalping as a supplementary approach in several ways. The most obvious way is to use it when the market is choppy or locked in a narrow range. When there are no trends in a longer time frame, going to a shorter time frame can reveal visible and exploitable trends, which can lead a trader to scalp.

Another way to add scalping to longer time-frame trades is through the so-called “umbrella” concept. This approach allows a trader to improve his or her cost basis and maximize a profit. Umbrella trades are done in the following way:

A trader initiates a position for a longer time-frame trade.
While the main trade develops, a trader identifies new setups in a shorter time frame in the direction of the main trade, entering and exiting them by the principles of scalping.

Practically any trading system, based on particular setups, can be used for the purposes of scalping. In this regard, scalping can be seen as a kind of method of risk management. Basically any trade can be turned into a scalp by taking a profit near the 1:1 risk/reward ratio. This means that the size of profit taken equals the size of a stop dictated by the setup. If, for instance, a trader enters his or her position for a scalp trade at $20 with an initial stop at $19.90, then the risk is 10 cents; this means a 1:1 risk/reward ratio will be reached at $20.10.

Scalp trades can be executed on both long and short sides. They can be done on breakouts or in range-bound trading. Many traditional chart formations, such as a cup and handle or triangle, can be used for scalping. The same can be said about technical indicators if a trader bases decisions on them.

By Vadym Graifer