A Sobering Look at Very Short-Term Trading

It was quite a trading day, illustrating a number of the principles recently discussed on the Trading Psychology Weblog. I'll summarize in tonight's Weblog entry.

Here's an interesting finding regarding very short-term intraday opportunity. I went back to March 1, 2006 for the ES futures using one-minute data (N = 9311). When the one-minute volume was greater than 6000 (N = 622), the average range over the next three minutes was 4.82 ticks. When the one-minute volume was less than 2000 (N = 5271), the average range over the next three minutes was 3.53 ticks.

Notice that almost 60% of all one-minute periods fell into this low volume category. Notice also that a range of 3.53 ticks, when little volume likely trades at the top and bottom ticks, means that it is almost impossible to successfully scalp the market over 60% of the time. This has greatly changed the trading game for very short-term traders.