How to Profit from Scalping: A Winning Futures Trading Strategy
Digitex CEO Adam Todd has made his career on the back of a trading technique called scalping. It’s a highly successful futures trading strategy for short-term traders - under the right conditions. However, when the conditions are right, you can learn to win at scalping in any market. Here, Adam shares his tips and insights for how to implement your own winning scalping trading strategy.
As a successful futures and sports betting trader, my trading style was always focused more on avoiding losing trades than on riding the winners. And the way I did that was to make my trades as short-term as possible. I discovered that the longer I held a position, the bigger the risk that my position would turn into a loser.
There seemed to be a direct link between my success, and how little time I held a position before going flat again. The shorter the amount of time in a position, the better chance I had of that trade not being a loser. This was most likely due to the nature of my trade selection process which was to be flat for most of the time, occasionally darting in and out of the market stealing single tick profits from larger moves when momentum picked up.
My scalping strategy basically involved judging when the momentum is high enough to keep the move going for another 30 seconds. If I didn’t get at least a single tick profit within that timeframe there was no reason to stay in that trade.
Successful Scalpers Don’t Get Tied Up in Learning About the Asset
As a young pit trader, I had no idea what a Bund futures contract actually was or why it moved around so much. Later, as a sports betting trader, I wouldn’t even know the name of the horse on which I was placing and laying hundreds of bets. Yet, I would go weeks and sometimes months of full-time trading as a scalper without having a single losing day.
Short-term scalping requires no fundamental knowledge of the underlying instrument on which you’re trading. As soon as you have entered a position you’re looking to exit it, hopefully with a one or two tick profit but willing to scratch it or lose a tick without any emotional attachment to the trade.
This style of ultra short term, manual trading is labor-intensive and requires the full concentration and attention of the trader. You can’t be checking emails and looking on Facebook and reading random crypto trading articles while you’re scalping to win.
Besides, you don’t need to know what’s going on out there. It doesn’t matter why a price is moving when you’re a scalp trader because whichever way it goes you’re going to be following it.
Scalping shouldn’t be a contrary style of trading because the active approach means you can get yourself in a huge mess very quickly. The safest style of scalping is simply following the price, jumping in when momentum is at its highest and then getting out quickly.
It’s actually better to have no opinion or knowledge of the long term price direction of the underlying instrument so that it doesn’t affect your ability to go against that opinion in these short term scalp trades.
How Fees Ravage Profits
The scalping style of trading described here is the easiest to learn, requires no specialized knowledge about the underlying instrument and will give you steadier, less volatile results. But the big problem is that this style of trading is particularly susceptible to the ravages of the maker and taker fee model of crypto futures exchanges.
It was possible for me to successfully scalp trade traditional futures markets in this manner because the futures tick value of one tick on the Bund was 25 Deutsch Marks and the commission to buy and sell one futures contract was less than 3 Deutsch Marks and I got a scratch trade rebate every time I bought and sold at the same price.
All I had to do was make one tick for every 10 round turns to break even, and anything I made over that was profit. It was a lot harder than it sounds. But it was possible because the commission fee to buy and sell one futures contract was one-tenth of the value of one tick.
However, the taker fee model used on every other crypto futures exchange has established commissions that are astronomically high. Currently, my style of short term scalping to win is literally impossible. The commission cost of buying and selling one futures contract with a taker order is more like ten times the value of one tick.
That’s absolutely crazy. It’s literally impossible to beat odds like that running against you. At the exact moment you enter a trade, you’re ten ticks offside already. There’s a built-in mechanical edge that you cannot beat, and which guarantees you will lose over the long run.
On Bitmex, the taker fee is 0.075% of the notional value of the underlying instrument. That may look small, but if you’re trading with 100x leverage that's actually 7.5% of the margin you put down to enter the trade. If you exit the trade with a Taker order then your trading fees are 15% of the order value!
For example, total fees on a $1,000 trade with 100x leverage are $150 [100 x $1,000 x 0.00075 x 2]. How can you ever expect to beat a 15% edge working against you?
A typical trade for a short term scalper might go like this: the price starts moving fast so I enter a trade quickly with a taker order that either smash the bid or lifts the offer. Then I immediately place a maker order to join the bid or offer to get out. If it’s not filled within seconds then I’ll cancel that and lift the offer or hit the bid with another taker order to exit the trade.
I entered the trade with a taker order so now I need to make ten ticks just to break even. And if I exit the trade with a taker order I’ve got to make 20 ticks profit just to break even. That’s just impossible for a short-term scalp trade.
I can still place trades as maker orders only but it's impossible to trade profitably when you’re limited to only maker orders. This is especially true in very volatile markets - like crypto - and you will constantly not be getting filled on the good moves.
Simply put, the maker fee and taker fee model generate large commissions for the exchange and makes it impossible for profitable short-term scalping. A huge number of traders are unable to participate and the massive liquidity they would provide is suffocated by the exchange’s need to charge high fees on turnover.
As a scalper, I shouldn’t be paying a percentage of the notional value of the underlying instrument. I’m providing liquidity and should be encouraged, not squeezed out of the market entirely.
How Digitex Enables Profitable Scalp Trading
The Digitex Futures exchange will be a short-term trader’s paradise. With absolutely no trading fees of any kind on taker orders, traders will be free to pursue day trading futures strategies like scalping that are not viable anywhere else, creating massive liquidity in the process.
That liquidity won’t be constantly drained by the exchange in the form of commissions. Instead, it will continue to churn around in the trading ecosystem until it is won by the better traders. As a result, the chances of becoming a winning scalp trader on Digitex will be far higher because we’re not siphoning off commission fees as percentages of the notional value of traded contracts.
The viral marketing potential of a futures exchange that doesn’t have any built-in mechanical edge working against its traders is massive. The effective deployment of user-generated content combined with viral marketing techniques will create a very large and active userbase, further increasing liquidity. As a result, the DGTX token will efficiently capture the full value of this large network of active DGTX users.
This trading nirvana will be governed and controlled by the Digitex DAO, which is in turn controlled by the exchange’s traders. Instead of being a profit center being run for the benefit of its stakeholders, the Digitex Futures exchange will be run by its traders for the benefit of its traders.
Living a Traders Dream
Successful trading is a dream of many millions of people and Digitex wants to help make many of those dreams come true. When the Digitex Futures exchange launches I hope that many thousands of people will experience the unbridled freedom and excitement of becoming a profitable short-term trader who gets to live a lifestyle that most people will only dream of.
Imagine if you can consistently make $50 a day or $200 a day or $500 a day from trading? How much would that change your life and the lives of everyone around you for the better?
Soon there will exist a mainstream futures exchange whose mission statement is not to maximize profits but to create more winning traders. A trading environment with absolutely no trading fees is coming soon - don’t miss this opportunity to transform your life by finally enjoying a level playing field where the odds aren’t automatically stacked against you from the start.
If you want to start implementing your own successful scalp trading strategy with zero fees from the point that Digitex launches, then you’ll need to be holding some DGTX tokens. The best way to get yours is to buy from the Digitex Treasury, which is now open. Purchases are instant and trustless, so your DGTX will be in your wallet, ready and waiting for when we launch our zero-commission exchange.