Scalping futures is a technique which can provide a steady revenue stream to talented traders. This course explains the basics of the techniques involved in short term trading of index futures and what is involved in becoming a successful day trader.

1. SCALPING FUTURES
A PRIMER ON SCALPING FUTURES MANUALLY

2. AN INTRODUCTION TO DAY TRADING
FUTURES AND THE BUSINESS OF SCALPING.
PRESENTED BY ONLINE FINANCE ACADEMY
INC.
AUTHOR: GARY NORDEN
2017 ©

3. In the beginning...
 First wave of futures day traders were former pit traders
 Many struggled with computerized trading; they couldn’t see
the markets as they used to
 Screen trading provided (larger) traders with new
opportunities to fake orders/iceberg etc that weren’t
available in pits. Scalpers needed to work out ways to combat
these
 Some turned to technical analysis and chart based trading
(which they couldn’t use in the pits) but still struggled
 Result= many pit traders gave up trading online

4. New breed of traders
 Prop shops opened up; aggressive recruiting; large
training programs; traders given very limited risk limits
 With dozens of traders making thousands of trades per
day/week, prop shops were able to quickly learn some
of the new aspects of computerized trading
 These ideas spread

5. Then came the retail traders
 As platforms and commissions became cheaper, an increasing
number of retail traders came into the futures markets
 As always they brought with them various poorly performing
techniques and other forms of noise.
 The fact that their techniques are unreliable does not
necessarily mean they won’t be popular. They are
aggressively (and misleadingly) marketed and often appeal to
poor traders looking for a quick route to success.
 In my book “An End to the Bull” I call these techniques
‘financial junk food” – people swallow them because they are
cheap and appealing but they are not good for you!

6. HFTs (high frequency trading)
 Increasing activity since mid-2000s
 Employ a range of strategies; not all are successful
 Add a different dynamic
 But we should not fear them – if we use the right
techniques we will either be on the same side as them
or avoid them altogether

7. Where does that leave manual
scalping?
 Some believe that manual scalping is dead. Not true.
 Scalpers have had to adapt but this should not be news to
traders. Traders will always need to adapt to changing
conditions. If you are using a style of trading that has had the
same basis for years or decades then it is likely to be
misguided.
 Scalpers have had to develop some more defensive
techniques and disciplines to protect themselves.
 They need to be aware of many more issues than just price
and volume. These are no longer as important as they were
in the old pit trading days.

8. What do scalpers need to
consider?
 Electronic futures markets are very different from the old pit
trading types. Therefore philosophies and techniques that
were used by floor scalpers may no longer be appropriate:
https://www.youtube.com/watch?v=rbBOyRB4T4Q
 The first question that scalpers (and any trader needs to ask)
is, ‘How does this market work?’
 We must learn how participants send their orders and what
opportunities this may create.

9. Developing a scalping career
 Scalpers need to understand how they get filled – again
working out the mechanics of how the market works
 We need to work out who we can beat with consistency;
who do we have edge over? If you can’t answer this basic
question then you shouldn’t trade
 Scalpers need to understand their strengths and weaknesses.
They are small, quick traders – they do not necessarily need
huge volumes/liquidity nor do they have the resources to
hold trades for too long and risk running into some odd
action

10. Developing a scalping career
 So look for opportunities that get you in and out quickly.
Identify the circumstances that will provide those
opportunities.
 The longer you hold a trade the more chance you have of
running into a big trader or some odd action.
 Trying the traditional methods of identifying larger trades and
jumping with them became more and more difficult as large
traders utilize an increasing range of spoiler strategies. Some
scalpers still try to do this but results are mixed.

11. Identifying different orders/large
volume
 There are many reasons why trying to follow large orders is
not as straight forward as it used to be.
 In the pit days it was easy to see what each bank etc was
doing and so following large orders and changes to open
interest was quite straight forward for a good trader or
broker.
 Now we don’t see who is doing what – we just see volumes. It
is far more difficult to follow the trail.

12. Identifying different orders/large
volume
 Just seeing volume isn’t enough in my opinion.
 For example, even if you can identify that there is a large
buyer; what if that trader is covering a short position (i.e.
exiting a trade)? What if that short trade had been losing
money (they have been stopped out)? Would you still want to
follow them? What happens when they finish buying (answer
=nothing)
 This is just one of the issues associated with trying to follow
large orders on screen traded markets.

13. Identifying Different Traders
 So, while some scalpers still try to identify various orders, I prefer to
identify different types of traders and trade against those I have an
edge over.
 Retail traders are easy to identify based on a number of factors,
including: trading size, the price levels they trade at, and the way
they input orders.
 I learn ways to identify larger traders but then try to avoid them
because I believe that I don’t have an edge over them (and because
trading against retail traders is easier!).
 Chances are that if you have been trading futures, you have been
using retail techniques and have been easy prey for professional
traders.

14. Scalping
 Some scalpers prefer to trade only a small number of times per
day but increase their trading size.
 My preference is for far more trades per session. I prefer my
yearly P+L to be the result of many small things compounded
rather than a few larger ones. This enables me to make small
adjustments to my trading but with great effect over a longer
period.
 For example, if a 30Year Bond Futures trader can just improve
a 1 tick losing trade to a scratch trade he would be better off
by around $30. But if he can implement this every day, it is
worth around $7,500 per year.

15. Scalping
 I prefer not to use charts, indicators, volume profile etc. Why?
Because I want to trade ‘the moment’. I look for a quick scalp
opportunity and then move on to the next moment
 Charts present data on a time basis (minute by minute/hour by
hour etc) but markets don’t work that way. Markets work on a
trade by trade basis so I want to watch the market trade by
trade
 As with all trading, I believe it is best for a trader to be as
objective as possible. Indicators etc can cause traders to view
markets through a subjective filter.
 A scalper who understands how a market works, how orders
come in and out and understands how to watch markets trade
by trade does not need charts or indicators.

16. Market-making
 The style that I choose is a market-maker style. I’m not
looking for direction, just trying to work out ‘value’ and pick
off traders who trade away from that. (Note that value does
not refer to volume profile or market profile).
 Some of the bond yield curve spread trading techniques (see
OFA’s Spread Trading course by Mark Shlaes) can also be
characterised as a market making style.
 These market-making styles of trading require good
background knowledge and high level of skill. But they are
more professional styles of trading than simply trying to pick
market direction.

17. Market-making
 Market-makers are highly skilled traders who use a
combination of techniques and information.
 Futures scalpers do not need all the skills of a dedicated
market-maker but if they can learn some of the basic
techniques they will have edge over many traders.
 Their aim is to act in a bookmaking type role – not trying to
predict the outcome (direction) but instead moving in and out
of the flow of business, picking off poorly placed orders.
 It can take longer to learn this style but for if you are serious
about a career as a trader, the skills are well worth it.

18. Which market to trade?
 A key question for all traders. The answer will depend on
many factors including your time zone and personality. Some
traders prefer faster moving markets but most professional
futures day traders prefer slower moving contracts and trade
somewhere along the bond curve.
 Liquidity is less of an issue for scalpers because we typically
trade in small sizes. So the fact that a contract has say 1000
contracts on each side of the spread is less relevant for us if
we are trading 2 or 5 lots.

19. Scaling Up
 Successful scalpers will face the decision on whether to scale
up their trading size
 A key issue to bear in mind is that the more contracts we
trade the more opportunities there are for partial fills which
can make exits more difficult. Some aspects of exit trades can
be automated particularly in slower markets.
 So it is not always beneficial to scale up particularly if you
trade a fast moving market. However, these markets tend to
provide dozens of trading opportunities per session.

20. Losses
 Losses must be kept small and exited quickly – i.e. 1 or 2 ticks.
 Larger losses not only hurt our P+L but holding losing trades
prevents us from entering new, better trades
 Scalpers need to understand a.s.a.p. whether their trade is
good, bad or average so they can calculate their exit strategy
accordingly.
 I do this by identifying as soon as the entry trade is filled
whether it meets certain criteria. So I know as soon as the
entry trade is filled whether it is a good, bad or average setup
and I can act accordingly.

21. The business side of scalping
 We need to remember that scalping is a business and so we
must treat it that way.
 Professional level scalpers need to use a professional level
trading platform.
 Select a broker that offers discounts for higher volumes as
scalpers will be high volume traders.
 Select a broker who offers smaller margins for intraday traders
and keep the minimum needed in the account (broker risk).

22. The business side of scalping
 Use the best internet connection you can get.
 A good, high specification computer is also essential.
 Continually look for small improvements in these
aspects of your scalping business (for example, can you
negotiate cheaper commissions?)

23. Practice
 Be prepared to practice hard in a practice account
environment. Don’t practice with real money (professional
golfers don’t practice new techniques in a tournament – they
practice on the practice ground).
 So find a practice environment that is realistic (unfortunately
not all practice platforms are realistic).
 Practice as if it is real (don’t trade as if it isn’t real because you
will not be able to learn the right lessons and improve).

24. Win rate
 Aim for a high win rate-over 70% for most markets.
 I look for 1-3 ticks per trade (depending on the market
conditions) and cut losses at 1-2 ticks. However, I look to
scratch bad trades rather than lose on them.
 Low win rates but good money management (which many
trading styles rely on) can lead to more random rewards which
are addictive. We want a clearer correlation between cause
and effect (trade and win). For more information on this
psychological aspect of trading see my book “An End to the
Bull”).

25. Mentoring
 All traders need someone they can refer back to for help
from time to time.
 Experience as well as a fresh perspective can be of significant
help.
 The traders associated with onlinefinanceacademy.com are
all available for ongoing mentoring.
 I work with all my scalping students for some months after
the initial course to help them through the practice and
transition to real money.

26. Biography Gary Norden
 Gary Norden began his trading career at a major Japanese
Investment Bank at the age of 18. He was given control of a
derivative trading book just a few months after leaving high
school. He was the youngest ever trader at the firm
 By the age of 20, Gary was already teaching new and
experienced traders at his firm in addition to running the
largest trading book on his desk

27. Biography Gary Norden
 Aged 22, Gary moved to the options trading pits on the
London futures exchange (LIFFE) and became an options
market maker.
 At 23 he was appointed Head of LIFFE Options for NatWest
who were then the largest bank in the UK.
 Gary then spent several more years on LIFFE as an options
market maker, as well as heading an options trading desk for
Credit Lyonnais Rouse and a role as senior Convertible Bond
Trader for ING.
 Gary ran trader education courses at every bank for which he
worked.

28. Biography Gary Norden
 Gary’s LIFFE trading badge

29. Biography Gary Norden
 Since moving to Australia, Gary has established an international
reputation as a trader, educator and writer and has been trading
for over 27 years.
 He has written two books, ‘Technical Analysis and the Active
Trader’ and ‘An End to the Bull.’
 More information can be found at www.scalpfutures.com or
www.organicfinancialgroup.com and at Gary’s YouTube page -
https://www.youtube.com/channel/UCyhuEif33w7uZd48lG66qEQ

30. How to register for Gary’s course: Day
Trading Futures - Scalping
Gary personally interviews each prospective student and only accepts
a minority of applicants. His classes are either one-on-one or in
groups of 2. Every class Gary teaches is supported by ongoing
mentoring.
To apply for this exclusive course, send an email to:
info@onlinefinanceacademy.com and indicate your time of
availability, your trading experience - if any - and an email or number
where he can reach you.
If you have not taken the OFA Master in Trading core course, you
should contact us for a brief interview to ensure suitability to the
Scalping Futures course.