Finding Your Optimal Scalp Size
Scalping is all about precision – entering and exiting positions to profit from small intraday price breakouts. To capitalize, scalpers must align trade share size to their timeframes and mentality to maximize gains while controlling risk. While struggling for a good analogy, all I could only think of a pro golfer gauging distance precisely with each club and situation. Similarly, the best scalpers have a particular number of shares ideal for specific stock setups and market volatility, much as the pro golfer selects clubs based on conditions. Just as the golf pro develops confidence through experience reading courses, the seasoned scalper gets a feel for ideal share amounts by reading market price action and flow. Finding your trading tempo this way optimizes your sizing and precision.
Renowned trader Jesse Livermore used impeccable timing trading in and out of hundreds to several thousand shares in early 20th century bucket shops. He scaled share size minute to minute to match his judgment of upcoming order flow. Tim Sykes also pays close attention to aligning entry and exit timing with position scale.
Scalpers need to determine share totals meshing with their reaction capability under fast market conditions. A study in the Journal of Trading found scalpers often adjust share scale according to technical indicator signal duration. Signals lasting 30 seconds up to 2 minutes aligned to optimal share amounts totaling 300 to 2,000 shares for tested scalping approaches. Study authors emphasized that fixed share scaling per trade proved far less profitable than employing flexibility as timing adjusted.
Just as golfers need to adjust swing tempo, scalpers have to sense when to stay small or size up share amounts based on perceived change in a stock’s trading velocity. Mark Minervini, wrote Think and Trade Like a Champion, said that proper share scaling relies on core ability to read market action properly in the first place. Your trading clock starts ticking after mastering when to enter. From there, use share size to best express your timing skill.
In scalping, perfect position scale works with your individual capability to enter and exit in moment to moment action. Not only that you need to weigh your emotional fortitude. Know beforehand that you may not be happy unless $1000+ in profits, but your trade isn't set up for that forcing you into a loss from trying to push the boundaries. Knowing your personal satisfaction (and disappointment) levels are critical.
To think of another way.. if you see a $.25 move are your going to put 300 shares to work or 1000. One with max profit of $75 vs. $250. Some of us lose $75 simply from spreads, but a quick $250 isn't too bad for quick work. BUT.. trying to make those 300 shares do the work of 1000 shares is where you go wrong. Keep it in mind.
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