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In this article we highlight Scalp Trader - SCALP, authored by Chief Market Strategist Damon Southward, who provides special situations and industry relative value commentary and includes intra-day setups and specific trading recommendations. SCALP coverage can be found on our Briefing Trader service.

Almost every experienced trader I speak to talks about the impact high frequency trading and Black Box trading has had on the market. Some have been unable to adjust and have been pushed out of the business. From my perspective, opportunity continues to exist in spades, but individuals must adapt their style to reflect the new conditions.

Here are some of the adjustments I've made:

• Positioning for smaller moves: Instead of focusing on the 0.75-2.00 moves, I'm now seeing more consistent success trading for 0.25-1.00. Because I'm positioning for smaller moves, I've had to increase my size. With this change comes the need to increase my knowledge on the names I trade and to use tighter stops. I use Briefing.com columns such as Liquid Momentum and Emerging Growth to help me stay on top of the fundamental/technical developments in some of the names I trade. I've also found that by focusing on 0.25-1.00 moves, I am seeing far more opportunities over the course of the day.
• Don't swim against the sharks: Before putting on a trade these days, I pause for a moment to consider what the computer jockeys might be doing. I frequently find myself attempting to anticipate their strategies and then joining in. For example, instead of buying a relative strength stock for an extension on a market pop, now I might wait for the stock to jump 0.25-0.30 then actually get short into the pop for a quick 0.20-0.40 pullback/shakeout. If I still like the market, I'll then flip back to the long side in the same name and hold for 0.40-1.00. This strategy has been working pretty well for me.
• Alternative Strategies: Have been talking about the Preferred Stock market for about a year now. It has been providing consistent opportunity for me as I arbitrage yield/credit rating, take advantage of the high yields being offered in new deals to secure instant capital appreciation (deals have been pricing at par, then quickly trading up 1-1.50 pts in the after market), and collect dividend/interest payments. Another nice thing about the Preferred offerings is that I can usually get as much stock as I want. Also starting to see some opportunity picking up common stock secondary offerings in select names (has to be an accretive purpose for the offering and appropriate discount to get my interest).

The business of trading has certainly undergone some dramatic changes over the past year. That said, think I might actually prefer these new conditions. Because I'm looking for smaller moves, I spend less time watching/babysitting a position. The change in conditions also led me to pursue these Alternative Strategies, which have provided me some of the lowest stress money I've made in my 15 year career.

If I were to send you away with one word of advice it would be to understand what you are trading. Many individuals have abandoned trading individual stocks because the technicals no longer work nearly as consistently. These days, I spend a great deal of time studying individual stories, locating and understanding industry rotations and tracking down the names that institutions are buying/selling. Understanding the trading games that go on these days is what allows me to consistently clip 0.25-0.40. Understanding the story is what allows me to stick around for the +1.00 pt move.

--Damon Southward, Chief Market Strategist