Will This Get Me Into Trouble? EUR/USD Scalping

Trading Systems
1

Hi Everyone,

I have been around here for a long time. I don’t post much and I haven’t done much in the markets until recently.

So, I have been scalping EUR/USD from 2AM-6AM EST; Sometimes I am on more. I use 1 minute, 5 minute and 15 minute charts to evaluate what the market looks like. I also look at the volume. I like to enter during higher volume periods when a trade is going the direction I want. I feel volume is a good indicator of things continuing the direction I think it should. I basically try to get 5+ pips around support and resistance areas. The thing is, I don’t use stop losses. I know the majority of traders gasp when you say such a thing, but I don’t think I need it during this quiet time in the market. For example, the other day, the high and low was only 37 pips apart. The times I thought about putting in stops, or manually stopping the trades, I would’ve lost my position and the market turned around just a short time after. I haven’t lost out since going live about 2 weeks ago.

Am I going to run into a really nasty market in the future that will take me for a ride? What if, instead of closing the losing position, I let it ride until the market corrected itself? I only trade 1 pair and I am not risking much. I feel the market will eventually correct itself and I lose nothing, except time in the markets.

By the way, I look over financial news before I ever enter the market. If I think it is going to be turbulent and unpredictable, I will not trade for the day.

Thanks in advance.

2

Having a manual stop and no stop are two different things. If you have a manual stop you’re almost always fine. if you have no stop, you’re asking for trouble (most of the time).

Having no stop will increase your win rate massively with the obvious downside of killing your account when you are wrong. I never use a stop, but I watch current action to dictate whether or not my position is doomed and get out accordingly. If you just sit on the position and hope for the market to correct itself you will lose in the long run almost certainly. I’ve seen accounts run well over 50-70 trades with 0 losses, but they always end up broke if they sit on losses. 2 weeks is not much time, but if you run this for 3-6 months with the current result, you’re probably doing something right. However more than likely you’ll end up trapped in a position. If you can manage to hedge the loss that’s fine, but be cautious.

3

I use similar methods and have been caught out three times so far. Each time a good understanding of hedging has helped me through it. Study hedging hard and the biggest thing I can say, is if you don’t want to take a loser then hedge early. Leave plenty in your account before you hedge so that, if you have to wait or adjust then you don’t get the stress of nearing a margin call. The stress simply is not there if you hedge early and stay in control.
I really do not want to discuss hedging or the drawbacks of no stops and change this discussion. Some will be flabbergasted and some will know it works. We all have different mindsets and as such different methods and approaches to risk abound .

Happy trading

4

Stops are used for several different reasons. I understand your approach in that you are saying that if the market is going to turn around anyway why take an interim loss. And often that is the case. But what interests me here is that you are actually only looking for 5-10 pips per trade. This is entirely out of proportion with the loss that could accrue from a sudden surge in the market against you. This not only means you are likely to wipe out a lot of previous wins but also that you are losing out on other trades in the other direction in the meantime while you are waiting for the return - of course, you can always hedge one for one and still add one for a position, but in a tight ranging market you could end up with a big clumsy position to have to unwind via future trades and which also adds to your broker costs.

I guess that with your kind of scalping (which is actually very close to my own intraday trading:) ) you do not keep anything open overnight unless you have hedged them, but what do you then do if the market has started a major long term move in one direction - as it occasionally does? You may not see a return to the same levels for literally months - do you try to carry the hedge throughout this time?

Another risk has nothing to do direction analysis. Communications with brokers are generally very reliable but sometimes problems can happen and a system will be down for a long time and you are unable to cover your position. You have open risk. To cover this type of risk it is perhaps good to have a “safety net” or “airbag” stop beyond your perceived trading range for the day just as a precaution in the event of a major gap up or down in the price. In other words, disaster insurance.

BTW, even quiet times are not totally immune to sudden spikes - suppose a central bank suddenly announced an interest rate change or there was a sudden, unexpected international event that seriously affected an economy or country? the impact could be even more acute in a thin market than otherwise. Safety stops do not normally get hit in normal trading conditions but can certainly help you when the unexpected hits - and when negotiating with your broker about the ensuing margin demands :smiley:

5

Thank you all for your replies. I have changed my strategy, after the market took me for a ride! At the the end of last week there was U.S. news report that put me at -80 pips. I held onto the position until it rebounded to -8 pips and closed it there. I decided to start using a stop loss and limit to control things. I feel very lucky to recover that much from such a huge swing and refuse to let that happen again.

I’m now using a strategy that takes advantage of range-bound areas on the 5M chart. I set the R/R at 1/1; 10 pips stop and 10 pips limit. I place a trade once it breaks the range it has been in for at least the last 15-20 minutes. I have been doing well predicting when and where the trade will go, but some of the trades come up just a little short on the 10 pip profit. About 75% of my losses have been up 8-9 pips and then reverse to hit my stop. So, right now, I am break-even with the strategy. Very few of the trades I placed went the opposite direction before going into a nice profit. I have been using this strategy for about 4 days now. I think I just need to work on my entry a little more.

Any advice on this strategy?

I have also thought about doing a 5 pips stop and 5 pips limit, but it seems unrealistic since that is a very small amount of room to work.

Advice is welcome.

6

Hmmmm, I don’t ever give advice on actual trading systems or methods, but since you trade the same timeframes as I do on my intraday stuff then I will offer you at least some thoughts relating to this type of trading. But firstly, may I say that it was a good experience for you with last Friday’s NFP. It is perhaps the most volatile of all data releases and even if you have a stop of say 5-10 pips, you may not actually get filled until 20+ when the reactive move is so fast. I am so pleased for you that there was a retrenchment that allowed you to get out at a reasonable level. In the past, the reaction to NFP has initiated a new, longer trends that can last for days and move 100’s of pips. Perhaps another lesson for you last Friday was to experience the psychological stress of watching intensively a position that is dramatically under water relative to your usual trading size!

My first thought is that you are probably right to be relying quite heavily on your own discretion with these 15M/5M/1M timeframes instead of seeking a mechanical technical system. Price movements are, as you have already seen, quite erratic and change direction frequently without any observable reason. which leads to my second thought:

It is wise to keep commonsense about your decision-making regarding entry and exits and not chase the market whenever there is a sudden surge in price - it can return right back to where it was during the very next bar and leave you with an immediate minus or even stop-out.

Third thought, the typical trade distances in these TFs is about 5-25 pips if you are using the 1M to enter and exit. Therefore your stop-loss has to also be fairly close in order to be relative to your gains. This means that your entry levels are extremely critical to your overall success otherwise you will be getting stopped out too often by jittery price action. For this purpose I think it is good to use a technical analysis setup as a job aid (not as a system in itself). Personally, I think a 5-pip stoploss is far too tight. I would get stopped a lot if I used that level. I tend to set 10-15 pips and only enter positions when they are close to my exit criteria.

Fourth thought: In these TFs, the price often returns to the level that triggered the move after having moved maybe 8-10 pips in the right direction. Often, it is useful to wait for this pull-back before actually entering on a bounce-back from this level. The second move often has greater momentum and a quicker, longer move than the first leg, presumably because there is more interest from other participants with this confirmation.

Fifth point: These TFs are notoriously erratic and demand extreme concentration. They miss the longer moves and are expensive in broker costs. You will not make a lot of money from these trades but it is a brilliant training field for a trader to watch and learn price action and try out all kinds of technical analysis tool before moving onto longer term TFs and positions. In order to make meaningful money in these TF’s you would need to take large positions which would also mean that a series of losses would eat your equity VERY quickly AND add a lot of frustration to your trading.

Sixth point: It is worth watching the general level of activity on the 15M and 5M(e.g. bar lengths) before even deciding to trade on 1M signals otherwise you will be whipsawing around in a tight market going nowhere.

I am probably only stating the obvious here and sorry if it is boring for you, but maybe there are some points that may help you in developing your trading approach - Good Luck :slight_smile:

Actually, I just noticed that you joined this site already in 2010 so I guess this is all kid’s stuff that I am talking about - I am sorry about that, I didn’t mean to appear to be belittling you at all!