Tuesday, September 18, 2007

Death by a 1000 Cuts, Revisited

We already talked about this topic here. I've got another e-mail with the same question so maybe it's time to revisit the topic and give another way to look at it. Qucik reminder - this is a "scalping is a way to lose money by a thousand of papercuts" complaint.

Let me put it this way. What are your chances to win a lottery? Why, it's 100%. Don't beliee me? Think of it this way then: there are two events, A (your win) and B (your death). Of course you will win the lottery sooner or later, the real question is which of those events comes first. Now, back to trading: event A is your learning to make money in the market consistently, event B is you running out of money while on learning curve. Now, you can say that you lost money because of scalping no more than you can say that you lost because of swing trading. It's not the style of trading that leads to losses, it's trading in a wrong way that does. Trade correctly and you will make money in any style you fancy. Trade wrongly and you will lose - again, in any style you chose. By utilizing a style that accumulates losses quickly, however, you narrow your window of opportunity to learn - simply because you shorten the time till your account exhaustion and number of opportunities to enter and manage the trade. By going with style that increase both you have more time and opportunities to learn and hone your skills. Simple as that.

Oh, and in case you couldn't tell - yeah, I love scalping. Just make sure you know what I mean by it:
here and here
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