Some of the short term trading opportunities presented using the 12 Points Signals only last a day or two and result in very small returns per trade. This type of trading is only suitable for those who are nimble and use smart money management.
The trader has to be quite aware that markets often turn quickly. Factors like economic news or short squeezes can cause significant moves up or down while regular session stock trading is closed. One must be aware of this and trade accordingly. In addition to stops; position size, not using margin, and diversification are ways to defend yourself against significant losses.
Note: since this article was written, the major online brokers have reduced commissions to $0.00. This makes scalp trading even more worthwhile.
You don’t have to make a lot of money on each trade if consistency can be achieved. Let’s look at a hypothetical trade. We buy 100 shares of a stock at $50 per share for $5000 plus a $6 broker commission. 3 days later we sell at 50.35 for $5035 minus a $6 broker commission for a net of $5029. That doesn’t seem like much, but it is a 0.58% return in 3 days. There are about 200 trading days per year, so annualized that comes to about 38.7% per year. That kind of consistent performance would be the envy of Wall Street.
It is apparent that a trader going for small scalp trades like that must keep commissions low. In the hypothetical trade above, a trader with an online discount broker might pay $5 to $7 per side on a trade, for a total of $10 to $14 for the round trip buying and selling.
Now we start to see that due to commission costs, the amount of money used for each trade becomes crucial. If a trader is making $1000 trades, he is going to have to make a larger percent profit on each trade to make it profitable than if he made $5000 trades. The smaller trade would have to make over 1% just to break even. On the other hand, trading $5K, $10K, $25K or more per trade makes the commission shrink to an insignificant factor even when making small scalp trades.
Some people will be more comfortable focusing on long term trades. For those who want to only invest on weekly and monthly time frames, our long term signals help you identify which markets are moving up. The signals table is designed to take just a few seconds to see what a variety of markets are doing on a short term and long term basis.
Gains are made during the infrequent bullish legs up. Our signals help the longer term investor as well as the nimble trader identify those moves. The professionals do not try to catch every tick of a bull leg, just a large percentage of it. The idea is to buy when the up move has started and sell when it starts going down. Get out when the trade is going against you. Make the money, then keep it.