Scalpers seek to profit from small market movements, taking advantage of a ticker tape that never stands still. For years, this fast-fingered day-trading crowd relied on Level 2 bid/ask screens to locate buy and sell signals, reading supply and demand imbalances away from the National Best Bid and Offer (NBBO)—the bid/ask price that the average person sees. They would buy when technical conditions pushed the ask price lower than normal and sell when technical conditions pushed the bid price higher than normal, booking a profit or loss minutes later as soon as balanced conditions returned to the spread.
Today, however, that methodology works less reliably in our electronic markets for three reasons. First, the order book emptied out permanently after the 2010 flash crash because deep standing orders were targeted for destruction on that chaotic day, forcing fund managers to hold them off-market or execute them in secondary venues.1
Second, high-frequency trading (HFT) now dominates intraday transactions, generating wildly fluctuating data that undermines market depth interpretation. Finally, the majority of trades now take place away from the exchanges in dark pools that don’t report in real-time.
Scalpers can meet the challenge of this era with three technical indicators custom-tuned for short-term opportunities. The signals used by these real-time tools are similar to those used for longer-term market strategies, but instead, they are applied to two-minute charts. They work best when strongly trending or strongly range-bound action controls the intraday tape; they don’t work so well during periods of conflict or confusion. You’ll know those conditions are in place when you’re getting whipsawed into losses at a greater pace than is usually present on your typical profit-and-loss curve.
KEY TAKEAWAYS
- Scalpers seek to profit from small market movements, taking advantage of the constant market activity.
- Scalpers can meet the challenge of this era with three technical indicators that are custom-tuned for short-term opportunities.
- Scalping strategies work best when strongly trending or strongly range-bound action controls the intraday tape; they don’t work so well during periods of conflict or confusion.