How is scalping done in stock options

Trading strategy: scalping according to Stéphane Ceaux-Dutheil

The strategy in detail

For "scalping", Ceaux-Dutheil uses four technical "tools" for technical analysis: candle chart, moving averages (MA), Bollinger bands and red and blue SCD bands.

These tools are distributed over two charts with different time windows. 5 minutes for the first and 12 seconds for the second chart (see screenshot below).

SCD work screen: a 5-minute chart on the left, a 12-second chart on the right.


The 5 minute chart is used to identify potential trading signals. The evaluation of the signals and the actual position opening result from the price analysis in the 12-second chart.

At least 3 conditions must be met to open a position:

1: Finding a signal on the 5-minute chart.

2: The intersection of the three moving averages in the 12-second chart.

3: A hedged order must be placed in order to open a position.

Condition: the detection of a signal in the 5-minute chart.

The direction of the trade is determined by the position of the prices compared to the moving averages of periods 100 and 130 in the 5-minute chart. If the prices are above the moving averages, bullish signals are on the lookout. Bearish signals are sought when prices are below the moving average.

In the 5-minute chart, the red SCD band, delimited by two exponential moving averages (EMA) 3 and 15, is used as a price channel. In a market with a strong trend, the red SCD ribbon tends to contain the movement and define the true trend. Entry opportunities occur when prices hit the 15 EMA and then bounce back in the direction of the current trend. More precisely, this means: the candle shadow must touch or cross the 15 EMA. However, the price must not close outside the red SCD band.

Examples of signals:


Bullish signal
Bullish signal
Two bearish signals

It is precisely these bullish or bearish setbacks that are scaled following a precise protocol.

The evaluation (5 minute chart) and the triggering of the signals (12 second chart) are based on the closing of the candle.

When a signal appears on the 5 minute chart, the NanoTrader Full platform warns the trader in three ways.

1: It shows a green (bullish signal) or red (bearish signal) triangle.

2: It marks the background of the candle in green (bullish signal) or red (bearish signal) that triggered the signal.

3: It triggers an acoustic signal. This acoustic alarm is very interesting in that it frees the trader from constant observation.

Potential buy signal due to a rebound of the 15 EMA in the 5-minute chart.


Condition: The crossing of the three moving averages in the 12 second chart

As soon as a signal is detected in the 5-minute chart (condition 1 is already met), the trader must concentrate on analyzing the prices in the 12-second chart. There are 25 candles of 12 seconds each for every 5 minute candle. The 12 second chart acts as a more precise representation of the 5 minute chart.

In the 12-second chart, the next 25 candles that follow the signal from the 5-minute chart are given a green (bullish signal) or a red (bearish signal) background.

The second condition is met in the 12-second chart for:

- a bullish signal when the prices cross the 3 moving averages (MA 100, MA 130, MA 160) and close above them;

- a bearish signal when the prices cross the 3 moving averages and close below them.

In this case the background is colored blue.

Examples for the 2nd condition:

Bearish Signal - downward crossing of the three moving averages
Bullish Signal - upward crossing of the three moving averages

Condition: placing a Hedged Order to take a position

- Manual and semi-automatic trading:
Stéphane Ceaux-Dutheil recommends placing a limit buy order (bullish signal) or a limit sell order (bearish signal) in order to open a position as soon as the 1st and 2nd conditions are met. This order does not have to be valid longer than the next 15 candles. The limit order is placed at the level of the crossed moving averages (condition 2). A position is opened if the prices touch the limit within the next 15 candles.

With the NanoTrader Full, this procedure can be applied manually. A warning tone alerts the trader as soon as a potential signal is detected in the 5-minute chart. The trader must now look for the occurrence of the 2nd condition. If this occurs, a limit order and a "time stop" order are placed for a period of 15 candles.

- Fully automated trading:
It is also possible to use the Stéphane Ceaux-Dutheil strategy for fully automated trading. The entry conditions are slightly modified to enable the platform to open the position in the form of a market order in fully automated mode.

Accordingly, a position is opened at the market price if:

- Condition 1 is confirmed
- Condition 2 is confirmed
- When closing, prices touch or exceed the thresholds of the three moving averages
- These points take place before the 15th candle expires and after the second condition.

The background is then pink and a position has been opened at the market price.

If the 3rd condition was not met, the 15th candle has a pale gray background. There has been no entry.

Examples:

Bullish signal - 2nd condition is immediately followed by the 3rd condition
Bearish signal - 2nd condition is immediately followed by the 3rd condition
Bearish signal - 3rd condition is not fulfilled