Scalping seems like an advanced way to trade, something that not many traders have fully mastered. Is scalping difficult to learn? Is it even recommended for traders who are just beginning their journey?

Today, Alex sits down with Jeff Holden from SMB Capital to understand how Jeff turns beginning traders into great scalpers. Jeff joined SMB several years ago and has since been passionate about recruiting and developing top talents at their proprietary trading desk in NYC.

According to Jeff, “the biggest challenge for scalpers is seeing price movement as price action”.  In other words, new traders usually look at the tape and assume that they should trade price action according to the tape. While there are a few traders who do that exceptionally well, Jeff suggests that most traders should rather focus on recognizing patterns – specific price action set-ups that occur on very short time periods. It’s not trading a particular stock because it’s moving, but understanding the fundamental reason why this movement occurs and anticipating how the patterns will consequently play out.

While there are good scalping probabilities and opportunities within well-known trading patterns (such as the ascending wedge pattern, for example), most traders should be scalping at distinct moments to develop their own edge and strategy. Put differently, even if there is a good chance that the trade works in your favor within certain parameters, explore and strategize how you can optimize the outcome. Scalping is also a good opportunity for new traders to develop a “baseline” and branch out to different set-ups afterwards. If one of your go-to patterns stops working in a certain market, you can always come back to scalping. New traders also get a lot of exposure to the markets by getting a lot of reps through scalping and by doing the right thing. Thus, scalping is a way to develop an edge for better entries, exits, and risk control in any set-up.

But how do you make discretionary trading systematic? How does a trader step away if the patterns don’t work? How do you not get pulled into a trade that might not fit your exact pattern?

According to Jeff, experienced traders know when their patterns occur and size up on an A+ set-up. For newer traders, step away from trades that don’t work. Be critical and make sure that you focus on your ideal set-ups only. Focus on what is helping you – not on what hurts you – as a trader in the long term. Moreover, don’t make the same mistakes over and over; rather, wait patiently for the best set-ups and opportunities to occur.

Jeff, for example, might look at 50 trades during a trading day, but then only analyzes 25 trades as the other set-ups don’t match his criteria. Once he finishes analyzing those 25 trade opportunities, he might end up with only 7 or 8 stocks that he considers trading. According to Jeff, just being engaged in the markets doesn’t mean that you must trade all day. Be meticulous! Have a mindset of elimination and focus only on the best set-ups. Train yourself to back off when your trades are not there.

Pro tips from Jeff:

1. Develop repeatable patterns.
2. Research the catalyst and rate it accordingly.
3. Not every trade is for scalpers – develop an edge through price action and discretionary thought process.
4. Once you have an edge: focus on psychology and commit fully to your edge!

In Jeff’s experience, it will take at least 2 years in the beginning to learn and to be consistent.

The biggest challenge for scalpers is seeing price movement as price action, which are two separate things. In other words, price can move anywhere: if a trader looks at a single candle – that’s price movement. Price action is the combination of many candles that tell the story of what’s really happening.

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