I'm here for your scalps!

Beginner Questions
1

Hi all,

Been lurking for some time now. Different individuals have different trading styles, and after a period of trial and error, I seem to be more comfortable with scalping. Fast in, fast out, with a target of about 3-4pips each time. I’m using the 4 range chart on NinjaTrader, with MACD, Stochs, 14 and 200 EMA, in addition to S&R levels and Fibo. I attempt to trade based on price action though I don’t claim to be any good at reading it. Indicators are only used for confirmation.

Problem is, my win:loss ratio has been approximately 50:50 thus far, but losses tend to be larger than wins. Average losses tend to be 8-10pips while wins often are in the 3-5pips range. So, my demo account has been bleeding gradually. Have tried to improve the R:R ratio but to no avail.

I hope scalpers here can provide some insight on what I’m doing wrong, or share other scalping techniques.

Cheers!

2

Check out the “mad scalper” topic on Free Forex system, it’s a pretty good system.

3

  1. Are you trading EUR/USD? (should have one of the narrowest spreads)

  2. What is the spread with your broker for the pair you’re trading?

  3. Why is your stop so wide if you’re scalping? If you’re trading 1min chart you should be able to get your stops below a candle low/above a candle high without risking more than 5pips tops. The skill component is knowing which candles are going to hold back the market flow, so your position can escape the other way!

  4. Track your winning trades to see which ones could’ve been held for longer, beyond your normal target. You’ll see that some of your scalp trades can be held for 10+ pip profits, and if you can learn to catch a few of those a day, your average win should be well above your average loss.

  5. Kind of related to (4.) but learn to trail your stops, so that you can be confident in holding out for those 10+pip wins

  6. Ditch all the indicators, learn to draw USEFUL support/resistance lines, and watch how prices reacts around these levels. Watch it til you get a very good idea of what happens around these levels.

  7. Track your higher TF’s so that you can pick out potential large or fast moves. It’s the fast moves that you are going to want to focus on scalping (single directional flow) and the potential for large moves can help you know when to hold on for the big wins.

That’s all I got, good luck!

BONUS:

  1. Take your risk per trade way way down (below 0.5%) so that you can enter multiple lots. (ie. 4x0.25% for 1% max. position) Using multiple lots learn to scale into and out of trades. My rule of thumb is accumulate during low volatility and distribute during high volatility. So when the candles are tight, I’ll be building my position, and then when they start stretching out (in my direction obviously) I’ll start taking lots off and trailing stops up.
4

Hey akeakamai, thanks for your inputs, I’ll be sure to take note of them!

5

No problem, and I want to say a few more things based on your responses.

Scalping requires a lot of focus and familiarity with what you are trading, so you might be better off just trading one pair. Of course I’d recommend EUR/USD, but I bet you could work with GBP/USD, or perhaps EUR/JPY, USD/JPY. IMO USD/CAD is a terrible scalping pair, the spread is generally the widest of the majors.

2.5 pips is HIGHWAY ROBBERY for EUR/USD. I won’t even trade EUR/USD if my spread widens past 1.5, and am trading at 0.9 spread for the vast majority of my trades. If we both took 30 scalp trades in a trading day, I’d be about 45pips ahead of you JUST from the pips I saved from the spread! I hope that opens your eyes a bit.

I think your broker is a barrier to your success, as well as your general lack of experience. You can fix one of those problems right away, and the other can be solved with some diligent studying! I can’t stress enough how helpful it will be to your long-term success for you to drop ALL indicators. You want all your focus to be on the lines that you draw yourself.

At that point you will have accepted the fact that your S/R lines and how you read the reactions at these levels is a SKILL. It is something you aren’t very good at now, but with experience at drawing them and trading them, you will get better at it.

If you want to take a bit of pressure off, don’t even bother trying to make money right away. Just practice that skill of drawing significant levels and learning the POTENTIAL reactions to that line. Your goal is to understand the potential reactions at these levels. The general categories of reaction are a REVERSAL or a CONTINUATION move.

So if you want a “learning exercise” of sorts, just draw a S/R line that you think has strong reversal/continuation potential. Then based on the price action at this line, guess whether you think price is going to reverse from that line, or continue on past it. I think you’ll find that more often than not, you’ll be ABSOLUTELY sure that the market is going to react a certain way, and then it will end up doing the other at the last possible minute.

Just remember, the goal of your lines is to peg a location on your chart that has a STRONG REACTION POTENTIAL. What you don’t know beforehand is whether the reaction will be a continuation or a reversal. Of course you can focus on only trading a certain reaction, but be careful because if you are only willing to trade a Reversal for instance, you will SEE the reversal, and the differences can be very very subtle. Subtle enough for your denial mechanisms to override the reality of the situation, so be extremely aware of this pitfall.

But hey, I could go on all day about this crap, I’ll see what you make of this latest block before moving on.

6

And I’ve always thought 2.5pips was the norm. Sheesh. Which broker are you trading with?

And yes I had the same idea of sticking to 1 or at most 2 pairs for now. Most likely I’d be working with the EURUSD and GBPUSD since they seem to see the most movement.

Dropping all indicators and trading naked is the end goal in mind, but it does make me a little uncomfortable. I usually like to seek confirmation from my indicators before making a trade. One problem though is that more often than not, I’m usually late for the move. Not to mention the fact that my indicators sometimes paint a very different picture between themselves. Analysis paralysis I’d say.

I’ll definitely be practicing drawing S/R lines, but one problem I face is determining SIGNIFICANT S/R levels. What I currently do is to take note of levels where prices tend to hover and plot a line in the middle of the zone, since I know that S/R levels are not strictly a single price level but rather a region that may span a couple of pips. What else would you suggest I do to brush up my skill in this area?

Finally, about seeing what you want to see, yes I’ve been guilty of it most of the time. Over time I’ve realised entering the market with a bias tends to narrow the vision such that you only see what you wish would confirm your decision that you’ve already made subconsciously. But its something I would think is impossibly hard to eliminate. Even by telling myself to look out for signs that point the other way presents another set of problems I mentioned above - that of seeing conflicting signals and hence sitting out of the trade due to indecision. I’d be really interested to see how others have gotten around this pain-in-the-butt.

7

That’s all for now. What times of the day are you focusing on trading? That might be a good place to steer the discussion next…

8

I have been mainly scalping since I started a couple months ago & have done quite well so far, My personal most important rule is that once I see profit, I close the order. I don’t pay attention to ‘it just went up 20 pips, I could have made more’, once I see it is in the positive, cut it off.

Also I pay attention to previous highs & lows/trends for same day.

Then I use indicators to show over bought or oversold for the moment,

last but not least, I check out the volume traded.

All basic & I try not to follow the indicators to much, just price action.

9

How do you get beyond 1 pip of profit then? Poor reaction time?

Everyone says they follow price action mainly, but in reality they are heavily dependent on having that indicator there for “confirmation”. Icarium described the newbie mindset perfectly if you read his words. If you aren’t using them “that much” why not just get rid of them and focus 100% on that price action?

and since you stated your Most important rule in trading, I’ll lay mine out on the table too…
Most important rule in trading: Stop trading for the day as soon as losses exceed 2% of the opening balance.

10

To answer your question, I don’t look for ‘pips’ when scalping, I look for any profit at all. I guess I should mention that I have developed a ‘2 second’ rule for myself with scalping.

My 2-second rule, when scalping & I see a profit that keeps creeping up on tick chart, I will count to ‘2-mississippi’ & if it doesn’t move, I close it out.

Reading other’s scalping methods, I think greed gets in the way, and then it ends up going negative & they ride that neg. out for a 1/2 hour, hour, longer when they could have made a small profit + 5 more trades in that time period.

To answer about indicators, i guess instead of paying attention to indicators … I don’t pay attention to them for the same reason others do, i wait for them to show ‘good signs’ of a upcoming deal.

For example, I don’t pay any attention really to indicators, but when the indicators is showing above or below the 80’ mark for being overbought or oversold, then I will look at the 15 minute chart to look and compare to a previous high/low area and it is just a system after that to where it might lead me to a decent trade.

So in turn, indicators lead to a portion of my trades, but I am not dependent off them, pay attention to my words in the way I mean them.

I don’t use indicators for research, I let certain indicators lead me to research if there is a good opportunity for a trade.

You have to factor in my unique situation though as I am able to trade from Sunday night to Friday night, all day, every day so i have plenty of time to look for opportunities.

I hope that cleared up what you were asking from my perspective.

11

Okay, fair enough with the indicators. If it’s working for you, there’s really nothing to argue from my point of view.

and Thanks for the clarification on your scalping method, I think I can outline the main differences in our methods.

for you, I’m assuming you are going for a very high win rate, with your average losses being larger than your average wins.

for me, I’m going for average wins to be larger than average losses, while paying for it with a less-than-stellar win rate.

pretty much night and day as far as risk management strategies go, so again I’ll have to step back and trust that your model is working for you, and I hope it continues to do so into the future

Let me add this too:
I would have to say that your method is much closer to the classical definition of “scalping”. Perhaps I’m not even scalping by definition :stuck_out_tongue:
What I do share with scalpers however is having little to no tolerance for drawdown on a trade. If it goes more than a few pips against me, I’m out! Because of that, I still think a lot of people would call me a “scalper”

12

No I scalp to the definition for the most part, I guess to clarify, I have a SL of 10 and a TP of 10pips, I watch constantly and have traded at about 70-90% positive, depending on the day, but the profits are only .1-10 for the most part & my losses are never more then 10 pips, it just takes a long time to execute. I have been using forex for about 60-70 hours a week atleast and I am just gradually increasing the value of my pips in bets.

I think the biggest lesson that I DIDN’T learn but applied before I started trading was the emotional aspect of it, I don’t get emotional, if it goes down, its gone, if it goes up, then I sell without trying to ride out {getting greedy} a profit for max profit.

To me I don’t see ’ max profits’ I just see ‘profit’.

I guess another thing that helps is having 3 monitors. Literally, having a tick chart, 1m, 5m, 10m & 15m with whatever else I need has done wonders for instant comparison across all maps.

13

Sorry for the late reply, been swamped with work the whole week. I mainly trade from EST 12am til 12pm, spanning half of the Asian, the entire London and the first few hours of the US session. Usually prices are pretty sluggish for the first few hours, at least until the London session opens.

About your point on indicators, I fully concur. I believe that my experience is sufficient to enable me to paint a picture in my mind as the candles form and project what would the most likely outcome the next move would be. But more often than not, prices behave entirely opposite from what I’ve hypothesized, even when there are a host of reasons why my theory should have worked. Eg. prices failed to break a resistance, thus leading me to expect a fall; the next candle then breaks the resistance and rockets upwards and stopping me out of my trade. It is incredibly frustrating and sometimes I begin to doubt if my understanding of price action is even correct.

14

An overload of indicators isn’t helpful, but a careful select few can defo help.

15

Hey mj2009, appreciate your thoughts. I must say I also adhere (as much as possible) to the principle of taking any profits I see rather than a specific target. But I suppose my main problem now as akeakamai pointed out is my broker. Honestly, many times I’ve seen prices move 1-2pips in my direction after entry and I would have been content to take that, if not for the fact that my spreads have yet to be covered. I doubt a 2-second rule or something along the lines would work for me for the same reason; if after the specified time has passed and prices have not yet moved, closing the trade would mean paying my broker the spread for nothing. Solution? Find a new broker with lower spreads (looking around for other options besides Oanda).

From what you have described, my system is pretty similar to yours. I have a fixed SL and TP of 8pips and 10pips respectively, but I actively manage all my trades. I usually TP much much earlier, between 3-5pips but I may hold out to my original TP if momentum looks good. I do not cut losses early since I have a plan and I’m willing to risk that amount to see if I’m right. About your point on greed, it is a good reminder to all traders to always keep your emotions in check. I’ve been guilty of it myself. There are times when I see a 4pips profit, but rather than taking it, I tell myself it looks like it may hit 5pips. And so I hold, wait and curse myself as I watch prices reverse and hit my SL.

In the end, I would say that my approach to trading is to enter and get out fast with small or even minuscule profits, as long as the system I’m using has a high win:loss ratio and a decent R:R. Some may say I’m working too hard for that amount of pips or paying too much spreads to the broker, but honestly I’m totally fine with that.

16

Did you know that big operators name this “capturing the spread”.

So, if you have not a fast DMA, you should forget doing this.

Many brokers and especially market makers will hunt your stop loss.

17

Yes, your broker is something you MUST change. If you don’t like Oanda, I think Dukascopy has pretty tight spreads on the EUR/USD as well. Hunt around, just look for 1.5 or less. Just as important as the spread, is order execution. If your broker is giving you slippage on your entries (frequently) and worse, if there is slippage of more than 0.5pips on your stops you will not be able to trade this way without losing all your profits to slippage. Some brokers will even give you “requotes” which is a joke and of course you will not make money if your broker does this.

Maybe I didn’t make this clear on my first response, but your 8pip stop is MASSIVE for what you are trying to achieve.

Before I continue, let me ask you what path you want to go down. I discussed this earlier with mj2009:

1)do you want to have a high win rate with your average win being equal/less than your average loss? (This is the classic scalper setup, but keep in mind they are going for just a few pips and risking just a few, not the 8/10 mix you got going on, that isn’t scalping)

2)or do you want your average wins to be larger than your average losses, but have your win rate likely below 50%.

Like you, I enjoy trading the small timeframes, knowing whether a trade is good or bad in just a few minutes. But I feel the only reason I can trade those timeframes is because of the risk:reward setup described in 2)

I don’t trade setup 1) because I believe I’m outclassed by bank traders and trading robots, with superior execution and price feeds. Plus, the psychology of having to win a lot more often than you lose is a real burden, and can lead to “forced trades” and other desperation-based mistakes.

So if you want to stick with setup 1), I can’t help you figure out why you’re losing because I would fully expect you to lose with that setup.

18

If you want to scalp you definitely want the lowest spread possible. GU and EU are closely correlated so trading both isn’t really worth it. Since your scalping I would say stick to EU because GU has a larger spread however GU also moves more. Important levels to watch daily are previous days high and low, open price of the currentday, pivots and fibs. If you want you can also watch previous week/month high and lows.

Edit:
You may also want to set some of your trades to break even if they get close to your target. Also don’t be afraid to hold a trade if you see price rapidly moving in your favor. Look at GU on a 15min chart when price hit the daily pivot (also the open of the day + a .50 fib retrace) later in the day. Price hit the point and in the same 15min candle moved very far south. I watched price touch it and reverse some 20pips in the same candle. You could’ve taken 3-5 pips or you coudlve waited until price stopped racing south at about +20.

19

Great example here of what I’m hoping you’ll eventually see as “the light”.
Price does bounce around S/R levels like a little rubber ball more often than not, and if there ain’t nothing stopping that ball (like an identifiable support/resistance level) it will generally continue on its way until it finds one. No reason to get out because of some random target you made up when the next level ain’t for 15pips down the chart!

Highs/Lows are always a great place to start when mapping out the levels for your current session. When your nose is right down to the ground in the 1min charts, even the HOURLY highs and lows will be of great use to you.

20

Well I’m kinda stuck on the problem of reducing the amount of pips incurred in my losses, and my reasoning is that if I could get more wins than losses, I’d still be in the green somewhat. Do correct me if my reasoning is flawed.

On the other hand, if I could successfully reduce my losses or hold my trades out for larger profits at more or less the same amount of risk I’m taking on currently, I’m definitely going for setup (2).

As for S/R levels, I’m pretty comfortable with reading price action around key levels such as daily highs/lows, pivot points etc (granted I’m wrong about 4 out of 10 times typically). But maybe what I’m not getting is price action between these significant levels. There could be a hundred pretty important levels in between this defined range, especially when scaling down to a lower TF. And I’m absolutely atrocious at reading what price would do in such instances. One might say why not wait for prices to approach the key levels before making a trade then, and my argument is that this would severely limit the number of trades I can make in a day.

I understand nothing beats screen time when it comes to learning price action, but maybe you guys could point me to some reference material to shorten the process? :o