GREEN & GONE, WITH THEGREATRIVER (VOL 2)
Ride The Lightning



12/8/21



Welcome class! If you are new to the world of scalping options, I hope you are progressing slowly and with success. Let’s try to increase that win rate together. Today we will be focusing on a practical scalping exercise that can help beginning scalpers gain real confidence. I’ll also analyze one of these scalps I took in the market in early December. So, gather round…let’s get on the road. Let’s learn about what I call “Lightning Scalps.”





When you’re new to scalping, it can be a disorienting experience. If you have mainly bought-and-held or taken longer swing trades, the notion of the ultra-short-term time horizon can be jarring. And, since scalps that immediately go the wrong way are mercilessly cut, positions tend to be large. In fact, it is the large position sizing of scalping that helps experienced scalpers make big returns in very short time frames, especially if you are utilizing the leverage of near-expiry options. But, let me be clear. Let me be very clear. When you are learning option scalping, your position is to be small…very small. In fact, new option scalpers should paper trade for a good while before going live. Then, they should simply buy one contract at a time. Just one.
The focus shouldn’t be about making money it should be about learning a new strategy.
And that one lonely contract should be very reasonably priced. Traders learn by making mistakes, reflecting on those mistakes, refining actions based on that reflection, and doing it all over again. That is called “iterative learning,” and it is a very powerful way to learn. So, if you are going to learn how to scalp options by examining your mistakes…you must keep your positions small. Big losses feel like kicks in the teeth. So if you have small positions, they just aren’t big enough to kick you in the teeth…they are kind of cute when they are mad.


One way to get practical experience is to plan out and employ what I call “Lightning Scalps.” So pull up a chair.


WHAT ARE LIGHTNING SCALPS?

The basic approach to this tactic is to seek out a high-probability entry, enter an option scalp position, and sell when the position takes very small greens that make the trader happy. The exit is not technical you simply take the profit when you are up, sometimes only a small amount. I do this from time to time it provides various benefits to the learning scalper. The monetary gain will be modest. Perhaps you will take a contract from 1.30 to 1.42 with a successful “Lightning.” For only one contract, that is only twelve dollars minus commission (always consider your commission). It may even be less. Keep the focus on the benefits this tactic provides more than the money.
However, let’s not dismiss that too quickly. Sure, a twelve dollar is not the equivalency of “Now Lambo,” but that mindset is nonsense. A scalp of this nature may occupy ten minutes or so if the price action is moving. Where else can you (legally) make twelve dollars in just a few minutes? However, let’s refocus on what the technique provides beyond the modest monetary gains.


LIGHTNING SCALPS DEVELOP ENTRY SKILLS

Several of your trading skills, and your psychology, are tested by Lightning Scalps. First, you must be able to locate a proper entry that provides a profitable move. This might involve you being aware of a news item, observing chart patterns, or correctly interpreting your indicators of choice. Regardless, your entry skills must be good.

LIGHTNING SCALPS DEVELOP EXIT SKILLS
Secondly, once you find a good entry and buy a contract, your resolve to kill a trade that immediately reverses might be tested. Hopefully your entry will be data-driven and solid, but sometimes the tide just turns. Such is life such is trading. It is difficult for new traders, or traders new to scalping, to kill a trade that is immediately invalidated.

Eventually, scalping positions tend to be pretty large it is IMPERATIVE you can kill the trade that goes against you as not to risk a relatively big position. Even though Lightnings have small positions and are meant for learning, you must have a stop-out plan before you enter. Maybe you will kill the trade at a percentage loss, a number of contrary candles opening-and-closing, or something else. These are all things to work out well before you enter a fast-moving scalp. Regardless of what metric you use as an exit trigger, you must be able to exit. You have to be able to keep your losses small as an options scalper. Lightning Scalps are great practice for that.

LIGHTNING SCALPS TEST TRADING PSYCHOLOGY
It is a great thing if you succeeded in 1) finding a good entry and 2) not having to stop out immediately. That means you are in the trade, and it is moving your way. This is where the Lightning Scalp differs from regular scalps. Typically, you want a well-defined exit plan that is based on chart data. Support and resistance should usually be your guide in scalping…that is one of the golden rules of scalping (to be discussed in an upcoming volume of Scalp U!). But, that is not the point of the Lightning Scalp. The point is to practice your ability to enter at the right place and, if needed, to be able to stop out immediately and without regret. And if the trade progresses correctly, then when are you going to exit the Lightning?

You will immediately have the practical and tangible emotions that accompany a trade that is intended to only last a few minutes. As you focus on the price action and volume, you get great experience dealing with the psychological forces at play in such a fast-moving trade. That can’t be overstated…scalps move quickly. As you look for your Lightning exit ramp, you will have tangible practice navigating your unique inner headspace…it is a time for controlled breathing, deep calm, and staying centered. When the Fear Monster rises up, smack it in its stupid face. Stay focused you are making money here.

WHEN TO EXIT?
The exit criteria for a Lightning Scalp might be the oddest bit. It isn’t based on a chart at all. I encourage you to let the trade grow green, and attempt to use your intuition to take profit. NEVER do this if the trade goes against you…stop out quickly and immediately if you have to. However, the goal is to not let it go red. Take small green when it feels right. If the trade immediately profits and never heads downward, just take profit when you are happy with the gain. Be Green and Gone, friends. In fact, the whole point of this particular scalping exercise is to exit with a Win. Even if it is only a few dollars, you want to end this trade green. It might last anywhere from several minutes to, literally, a few seconds. I’ve placed Lighting Scalps into outrageous amounts of volatility and upward price action and sold to close mere seconds later when I wanted the benefits of a winning scalp.

So, take the green…don’t let it go red. The point is not to ride the Lightning to maximum gains. The point is definitely not to time the top, and the point is not to achieve some sort of risk/reward ratio, whatever that is.

Lightning Scalps are powerful scalping exercises to help you 1) find good entries, 2) practice your immediate stop-loss resolve if needed, 3) consciously experience your trading psychology forces at work in the live market, and 4) to provide the positive benefits of opening and closing a successful trade.

I highly recommend it for people new to option scalping. So, let’s take a look at a successful Lightning Scalp I made several trading sessions ago.

THE TRADE
On this fine day in the market, I made two Lightning Scalps. One was a 0dte SPY 458p that I took from .29 to .55. The one analyzed here happened earlier in the day. It was a 0dte 457 call from 2.10 to 2.42. That’s a 32$ gain per contract in about seven minutes. Let’s look at how it went down.

I was feeling scalpy that day, so I was watching SPY for entries. I noticed some larger green volume bars as the day progressed (see image). You can see how these green buying bars (highlighted in image) are larger relative to the red selling bars. That was noteworthy.





You also see the 34 EMA on the chart. The price action was dipping above and below the 34 EMA for a bit, and it looked to me as if price was rising to breach the 34. As the intent for this was a very quick scalp, the 34 even briefly looking like support is what I was looking for. And, at 12:15, a candle wicked off the 34 and bounced, and I bought to open at 2.10.





I didn’t expect a reversal at that point but of course it could happen. So, it was high alert time for a candle or two. Candles receded away from the 34, and a big up happened after the almost-doji at 12:18 and I felt confident about this for a Lightning Scalp. The Deep Breathing began.

ENTER THE FEAR MONSTER
Even though this trade looked good at that point, that inner voice that wants to tell you that you aren’t smart enough to trade…you will be poor again…you will fail…it always rears its head. The Fear Monster really loved it when the red candle closed it thought that was a blast. However, I slapped it right down into the dirt because first, I like to see two candles form before I entertain it too deeply. Secondly…and this is a key point to this trade… you will notice that this red candle was accompanied by low volume compared to the last green candles since I entered the trade (see image below).




Price action needs good volume to be compelling, generally speaking.

So I kept cool and another couple candles went my way. At the point of this exit, I wasn’t really focused on the chart…I was simply happy with the gain per contract that I had the chance to realize. So, 12:23 pm, seven minutes after entering, I sold to close at 2.42 per contract and stuffed 32 bucks times X contracts into my account. That was that. The Lightning Scalp concluded successfully.

AND FINALLY
So, let’s review. First off, remember that the Lightning Scalp is a great practical exercise for learning to scalp options. NO--this is not the only type of trading you should do. NO--this is not going to make enough money to let you quit your job. This is an exercise this is a practical live trading exercise to help you gain confidence and develop skill. I highly recommend it for people new to options scalping. In fact, class, consider this your homework: Sometime in the next two weeks, plan and execute a Lightning Scalp in your ticker of choice. Try it out let me know how it goes!

BUT: if you do so, here are the rules….Read them very carefully, and remember you trade at your own peril:

1) If you are not yet confident to go live in the market, do this in a paper trade. This is important!
2) Be sure to use a ticker with sufficient liquidity and tight spreads. $SPY calls are always good.
3) Be sure to only buy one single contract.
4) Have an exit plan in place, and only risk a very small amount.
5) Be sure to immediately stop out according to your plan. Do not lose this entire premium. If contrary momentum immediately triggers your exit, don’t hang on hoping it will go your way. Stop out. Shoot it. Kill it Graveyard Dead. You might lose a few dollars, but you are gaining the ability to stop out of a Scalp Gone Bad. This skill is worth a few dollars to hone and develop. In fact, it is one the main skills that will make you money, not too far down the road.
6) Once the trade is green and going your way, be sure to close it profitably and soon. Don’t get greedy.

So, I hope you have some success in this endeavor. In fact, hit me up on Twitter and let me know how it went. I hope you get some great experience and the positive feeling of making a few dollars in no time at all.

Watch out world. Class dismissed don’t party too hard.

Follow River on Twitter @GreatRvr