My idea for a beginner's scalping system

Beginner Questions
1

Hi everyone,

I’m new to the forum and new to trading. I’ve been reading up on forex trading and working my way through the school of pipsology. I’ve opened up a demo account and have started to attempt to learn how to trade and come up with a trading plan.

Here’s the basic outline of a trading plan I’ve come up with that I would like to start testing in my demo account on Monday. I’ll be keeping a trading log to track my results. I’d like to get some feedback from some of the more experienced forex traders to hear if this is a workable plan. The idea of this system is to have many winning trades with a small profit in each of them, rather than a few winning trades with a large profit in each of them.

Trading goals:

  • break even
  • have a win/loss ratio of greater than 50%.

Instrument:

  • EUR/USD

Timeframe:

  • 15M to determine trend, 1M for entry and exits. Charts will have the 5 period EMA and 10 period EMA plotted on them to assist in determining the trend direction.

Risk management:

  • risk/reward ratio will be 1 to 1

Money management:

  • trades will be micro sized (each trade will be 10000 units.)

Entry/Exit strategy:

  • look at the 15 minute chart to determine the trend. Then switch to the 1 minute chart and observe the price action. Assess the range that the instrument is trading in and add lines of support and resistance to the chart. Assess the volatility of the price (how rapidly is it changing?) Note the spread that the instrument is currently trading at.

  • if the 15M trend is up, wait until the price is down near the support line. Place a long trade of 10000 units. (Vice Versa if the 15M trend is down.) Place a take profit point and stop loss point an equal distance from the trade entry to keep the risk/reward ratio at 1:1. Base the distance on the volatility of the market. (In a stable, non-volatile market, set the take profit and stop loss fairly close, EG. take profit at 3 pips higher, stop loss at 3 pips lower. In a more volatile market, increase the distance to 5, 10, or 20 pips, to give the market room to move before triggering the stop loss.) Make sure the take profit point is more than double the spread. (EG. if the spread is 3 pips, set the take profit at a minimum of 6 pips.)

  • if the trade is successful and the take profit point is reached, repeat the process. Wait for a pullback when the price has come down towards the support line and place another long trade using the same criteria as above.

  • if the trade was unsuccessful and the stop loss point was reached, go short for the next trade. Wait until the price is near the resistance level, and sell 10000 units. Use the same system for setting take profit and stop loss points

  • continue repeating the process. Continue with long trades until the stop loss is hit on one of them. Then start trading short trades until the stop loss is hit, etc.

That’s all there is to it. As I said, I will be testing this in my demo account starting on Monday and will post the results.

Any comments? Do you see any big problems or areas that I could improve the system?

Thanks in advance.

2

The spread will slowly eat your account up.

Improvements?
Don’t automatically sell if price breaks support, and don’t automatically buy if it goes through resistance.
And try to find a way to stay in a positive trade past your 1:1 goal. That’s the only way to make a consistent profit.

Having a 5:1 winner will save you 4 extra spread costs…

3

I’m an inexperienced trader, but I’d gently suggest scaling your trade size to be in proportion to your account, perhaps 1% or less. Maybe that is your intent, I’m not sure.

I’ve been trying something vaguely similar and the hard part to explain is that it took several months of chart time to get a feel for price action. On such short time scales there isn’t much time to think, it’s kind of like a ‘bicycle riding’ skill, people can explain it but until you ride a bicycle for yourself, try, try, try again and crash and get up and try some more… anything beyond the rock bottom basics didn’t help me much until I could waffle along on my own.

The upside of trading on really short time scales is that you’ll find out in a hurry if you are doing things wrong. Doing say, 200 legitimate ultra short trade setups (not overtrading, I mean legitimate ones) over say, a month or so will inform greatly about your actual skill level. Sometimes it can be seen in even a week, or one evening if you aren’t doing well… this was really important to me. It’s more important to know if you are bad, than good!

I’m not a good trader. But even I can do okay if there’s a humongous, inexorable, ripping strong trend. On the order of maybe a pip per minute (on average!) for an hour or two. Volatility’s a huge factor also, if the candle wicks on the 1 minute are bigger than 4 or 5 pips frequently I know to stay out. My favourite times are when there is a bit of a pip gap between supply and demand zones, and there’s a fair chance of a ten or fifteen pip breakout inbetween. I’m also a huge fan of volume spread analysis because it makes the most sense to me, but haven’t been very good at making it work (yet).

This isn’t ‘expert advice’ it’s just personal experience so far. And even ‘scalping’ I have times where there are maybe two, or zero trades throughout the entire London Open. Other days, there can be ten or more. It’s got a lot less to do with me really, than what the market is doing and if it’s safe to jump in the pool… I suspect even a total idiot could trade successfully some of the time, and that’s when I try to get in. And yes the spread eats up a lot. I want to be a swing trader, but haven’t done that well with it; in time that’s the goal though. For now, the only reason short timeframes work, is that they give immediate feedback with regard to skill level and it’s more easy to tease out what your actual probabilities are as a beginner (at least for me).

Another thing I’ve noticed, other beginners are often easier to understand than experts. There are a lot of subtle things the experts say and do, and it’s not always apparent or obvious; they may be explaining something on a college level when some of us are still learning our letters. The audience is really varied here; think of a room with top experts and incredibly new beginners. If you are trying to get an idea across, it’s very hard to communicate to everyone effectively at once because their skill levels are so different. Some people are blessed with teaching ability but most of us are not (me included). All I have to say is, is that yes, there is such a thing as forex skill and yes it can be learned. That is possibly the most important tidbit that kept me going for months when nothing seemed to be working. And then… it started to work out.

Best of luck!

4

Thanks for the feedback, Master Tang. I agree with your statement that I should to find a way to let the winners run a little farther. With regards to your other point, my plan isn’t to sell if price breaks support, it is to buy when the price is near support, if the longer term trend is up.

I’ll try the plan as is for the time being, and think about ways to stay in a positive trade past 1:1. Maybe if the trade is going my way, I will stay in it until the 5 EMA crosses the 10 EMA in the opposite direction.

Thanks for your feedback too, Desmond. I realize I’ve got a lot of learning ahead of me. It’s kind of intimidating when I hear statistics like 90% of people who trade Forex aren’t profitable. It’s nice to hear from guys like you who are learning as well.

Thanks again.

5

Hey fellow Alberta Trader, where do you hail from??

Personally, I don’t think you will find any kind of long term consistent success with this system.

New traders seem to think that scalping the lower timeframes for low targets with high win rates is a good place to start. Well sorry to break it to you, but it ain’t. It’s actually an arena ruled by brokers because the bid/ask spread is the only real edge you can acquire.

Do yourself a favour and start with core concepts like Support/Resistance on Daily charts. It’s a huge concept, but if you start there, you can actually start off successful and build your strategies on top of that solid base. Do your research, on this forum and around the web. Some basics for S/R are Daily/Weekly/Monthly Highs and Lows. Price levels such as these are defined, objective and every trader in the world will be watching the exact same level… that is meaningful in the market.

If you want a more comprehensive strategy that builds on S/R concepts, I highly recommend the following thread here in babypips:

ICT Methodology

I’m not a good teacher, that’s why I refer you there, but I am experienced enough to recognize a failing system. Makes me sound condescending, critiquing your ideas before you even had the chance to give it a run, but that’s the insight experience gives you. In 4-5 years, if you’re still around, you’ll know how it feels to watch new traders so eager to smash their accounts into the proverbial Brick Wall. You know you can’t really stop it, but sometimes it feels good to try :slight_smile:

6

Thanks for the candid reply, akeakamai, I appreciate your honesty. I don’t take it as condescending.

I live in Sylvan Lake, but work in northern Alberta near Ft. Mcmurray (Conklin to be exact.)

I will check out the thread you suggested and will consider revising my plan to trade on the daily timeframe, and will continue to learn as much as I can about trading.

Thanks again for your comments.

7

Based on the above advice, I decided to abandon my scalping strategy, and spend some time learning the ICT strategy mention above. I watched some of the initial videos and have been trying to put what I’ve learned in to practice.

8

remember how experience is everything in this game? and how noobies dont have any? I think its important for new traders to explore and mess up to learn stuff. The key thing is to not be discouraged when you are losing, use that as an opportunity to learn. An experienced learned live is taken differently than one you read about, so although the other guys are correct in pointing out the flaws of your scalping strategy, I think it is equally important that you try out your strategy before abandoning it. Who knows, you might find more flaws that are not mentioned by these other posters, which will in turn give more more experience than if you just tried something else before you had even started.