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How to Set Scalping Levels

December 22, 2021 by Frank Kaberna| Futures 101

Standard deviations are as essential to measuring opportunity in markets as batting averages are to gauging talent in baseball – both stats find their way into almost all facets of these respective processes, knowingly or unknowingly.

Stock pickers enter new positions in “beat up” equities subconsciously using standard deviations to inform them on whether that looks like -5%, -10%, or -30%. Buyers and sellers of options monitor volatilities that heavily depend on the standard deviation, and they even place put and call strikes in accordance with the metric. Futures traders compare standard deviations to real-time net changes of a given market to assess the viability of a long or short day trade.

Gain exposure to popular markets with standardized tick values and expiration dates on the Small Exchange. See why the smalls are making a big splash. >>

What is a Standard Deviation?

Standard deviations (SDs) summarize a dataset into clean ranges where most of the data points exist. 1, 2, and 3 SDs reflect the boundaries for 68%, 95%, and 99% of the entire set.

S10Y \ Standard Deviations

In trading, SDs allow you to quickly see if any of the markets on your watchlist are in the midst of an outlier move, and their tiered manner tells you how much of an outlier it is. Market up or down more than 1 SD? Only happens 32% of the time. 2 SDs? 5% of the time. 3 SDs? <1% of the time.

Entering Orders with Standard Deviations

While SDs can be a solid companion for combing through your watchlist in the time-sensitive search for trades, many will enter orders around these markers even when the market isn’t close.

S10Y \ Small 10YR Treasury Yield Index

Source: dxFeed Index Services (https://indexit.dxfeed.com)

This is often done prior to an event like last week’s Fed Meeting in the hopes that the entire ecosystem of stocks, bonds, and commodities will be momentarily pushed out of whack as algorithms and institutions digest the news.

Does the market always come back? Of course not, and some of the best traders have mechanics for closing lowing positions at the ready before they even enter. But most would probably rather strike out using advanced statistics than a gut feeling.

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To learn more about how the Small Exchange is merging the efficiency of futures with the clarity of stocks, make sure to subscribe to their YouTube channel and follow them on Twitter so you never miss an update.

© 2021 Small Exchange, Inc. All rights reserved. Small Exchange, Inc. is a Designated Contract Market registered with the U.S. Commodity Futures Trading Commission. The information in this advertisement is current as of the date noted, is for informational purposes only, and does not contend to address the financial objectives, situation, or specific needs of any individual investor. Trading futures involves the risk of loss, including the possibility of loss greater than your initial investment.

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Filed Under: Futures 101

About Frank Kaberna

Frank Kaberna is the head content strategist at the Small Exchange. He produces everything from brochures to videos that inform on the Small Exchange’s products. After earning a mathematics degree from the University of Michigan, Frank traded interest rates at the Chicago Board of Trade. He then worked on the tastytrade Network as a content producer and on-air talent before landing at the Small Exchange.

Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

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Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

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