Scalping and Trading Framework

20180928 HSI scalping

2 minute holding period on 2018-09-28 Friday morning on the Hang Seng Index Futures using the Structured Warrant HSI28600MBeCW181030. Position size 15,000 shares only.

Setup+Trigger+Target Profit+Stop Loss+Time Horizon (STTST) Framework

Framework is distilled from the higher order framework. The details within can be customised according to the method and style specifics. Formulate your own secret sauce but you will need the above components for sure so the framework is robust. It can be used for your investment plan and portfolio management process.

Setup. There has to be something you are looking out for, be it a technical indicator, candlestick pattern or a fundamental criterion. It can be a combination of factors too.

Trigger. You have to take action. If you dare not pull the trigger, it is another issue altogether. Like the setup, it can be a technical indicator, price level trigger, or a fundamental confirmation. It is an affirmation signal to take action.

Target Profit. Begin with the end in mind. There has to be a reasonable basis for that target. Again, it can be technical analysis assessment level or a fundamental analysis projection.

Stop Loss. It can be a hard one or a soft one. A hard one is when you auto-close out the position. A soft one is when you use discretion. There are pros and cons to both. Setting a stop loss is also a craft with various considerations. But that is for another day. You must have a stop loss. Capital preservation is more important than your pride. Remember this phrase.

Time Horizon. This can even be a risk management tool, for if within an expected time frame, you do not see the necessary price action, why expose to risk. No position, no risk. That said, within the time horizon, the trade is to be managed, meaning that if new information gets assimilated and the forward expectations have changed, adjust the trade plan accordingly.

Forward Statistics are not stable. Scalping is akin to picking nickels in the path of steam rollers.

Scalping is a valid approach to the markets. It is the other extreme of portfolio management involving longer time horizons and buying to hold. With ownership so transient like 2 minutes, fundamentals take lesser precedence.

Did I bother to note when the warrant expires (181030)? No. I just know it is a call warrant (CW).

Did I bother about the strike level (28600)? No. I know I am using this instrument for a mean reversion trade and will not be carrying the position over lunch (gap risk).

This is not for faint hearts. In fact, scalping involves derivatives with leverage such that the MAS deems them Specified Investment Products (SIPs) and you got to meet some criteria before access to them can be granted.

If you would like to discuss an approach to the markets, please do not hesitate to arrange an appointment with me.

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