THE INCREDIBLE SCALP
The following technique, which is an adaptation of what was mentioned in the
eBook “Forex Scalping” (in section titled “Pattern Breakouts”) can be a
HUGE OPPORTUNITY!!! Definitely familiarize yourself with this
technique as it could score you some unbelievable profits once in a while
(certainly not everyday, not even every week, but often enough). Properly
executed this one trade could potentially DOUBLE, TRIPLE, or even
QUATRUPLE your account IN A SINGLE TRADE!!! I can’t even begin
to tell you of the immense joy you’ll feel when you pull this off! Doing
this a few times a year can completely set you nicely financially. If you
could only trade one technique at all (thank God we don’t need to be
restricted like this though) then make this be the trading technique you
engage in. It is that powerful!!!
If you haven’t yet read the eBook “Forex Scalping” then stop before you read
any more of this section. Reading that eBook is a prerequisite before reading
this section for the sake of your understanding.
Furthermore, this section was written as a continuation of the discussion in
that eBook, so go reread that section (titled “Pattern Breakouts”) so you can
follow along the thought process started there.
Something to watch for (and this happens a few times a year) is for when the
S.E.X. lines bunch together (the end of the previous trend), and then when
they start to separate again (the start of a new trend). Usually when the S.E.X.
lines bunch on daily charts you’ll see a consolidation pattern (a humongous
one mind you) with some really big bounces (good trading opportunities for
within range trading as will be discussed later (in the “Forex Scalping”
eBook). When the market starts to move in a particular direction, the S.E.X.
lines will begin to open up, and when you see a breakout from the
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consolidation pattern then definitely engage in the following
technique. Furthermore, when the daily charts are trending you can also
engage into this technique on the breakout of the wave top (or bottom in a
down trend) but this is often not as good as the major breakout of when your
S.E.X. lines on a daily chart open up.
It is noteworthy to mention that when your S.E.X. lines bunch up on the daily
charts that there are often a few “fake outs”, meaning that you’ll often
encounter a series of unsuccessful attempts (yet still profitable) before you
score the BIG trade. Keep trying this daily (when the setup occurs) and
sooner or later you’ll get a trade that sticks without you getting stopped out in
a fake out.
To reiterate, you wait for the S.E.X. lines on your daily chart to bunch
together (a large consolidation), then when the market appears to break out
from the pattern (you can actually start this when it is still inside the pattern
but moving in the direction of the pattern’s boundary) you then start to
attempt to do the following. A secondary way of implementing this technique
is whenever the price crossed over your 60 period S.E.X. pair. This secondary
method will have even more “fake outs”, but even the “fake outs” are usually
profitable, so it is still worth doing, especially if it happens to be the attempt
that results in your BIG score (which you never know when it’ll be).
Earlier in this eBook I also explained the common concept of paying attention
to the 50, 100, and 200 SMA line on daily charts. This is another indicator to
watch for opportunities to implement the “Incredible Scalp” method. When
the price crosses one of these important MA lines (particularly the 100 and
200 period lines) then keep attempting the “Incredible Scalp” method until it
sticks – you might have a number of failed attempts but it is worth being
persistent for. Alternatively you could also use EMA instead of SMA. The
following chart shows EUR/USD daily candles with 50 (black), 100 (yellow),
and 200 (green) SMA lines. Notice that even these lines bunch together from
time to time. You can’t really see the details of the candles on this picture so
go to your live charts to be able to zoom in for a closer look. What you are
looking for are the times when the price crosses one of these MA lines and a
candle appears that would be an excellent candidate for the “Incredible
Scalp”. You’ll find a few fake-outs but sooner or later there will be a candle
that would have resulted in a trade for hundreds of pips, even over a thousand.
forex sato forex life
You simply scalp an entry at the breakout of the previous day’s high (if
uptrending or the previous day’s low if downtrending). As soon as you can
you replace your stop order to lock in a 10 pip profit. Then you simply wait.
You might see something that looks like this (these represent day candles):
point, and when this happens you are happy. Often near a breakout from your
bunched S.E.X. lines you’ll see a “shoot” lasting a few candles, and if you are
in a trade when this happens then you are really happy.
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occurs. It may be somewhat hard to see clearly on this image so go to your
charts and look up EUR/USD daily candles in late 2004 to have a better
look. While you are at it scan through the past 10 years looking for this setup
on EUR/USD, and a few other currency pairs you might like to scalp.
What you then do, once you’ve been entered into a successful attempt is you
later replace your stop to be at the low (assuming an uptrend) of the second
day’s candle after the end of that day, or better yet, end of the next day. In the
illustration above (of the four blue candles) it would be the low of the third
candle once the fourth candle either started (once the third candle was
completed) or at the end of the day of the fourth candle. By replacing your
stop even higher you will at least secure a significantly (usually) larger profit
incase the market should soon after turn around. Usually this will be around
(plus/minus) 100 pips, which is certainly not bad if this is the price at which
you get stopped out at.
Another way to get your stop moved up out of the risk zone is to wait for a
day that the entire candle (body & wick) is beyond the range the candle you
entered in on. At the very least replace your stop to your entry price for a
break even, then later trail your stop as appropriate to start securing more and
more profits.
Once you have done the above stages then you simply relax and wait to see
what happens. You’ll either get stopped out (oh well, at least by now you’ve
secured a decent profit) or you’ll see a nice trend develop, which is the
scenario you hope will happen. When EUR/USD trends on a daily chart
you’ll see that it will trend for hundreds of pips, and often well over a
thousand pips.
What you do is you simply check your trade on a daily basis (actually
checking it once a week is fine too) and all you do is you trail your stops to
the lows (for an uptrend) once the price has crossed over the top of the
swing. Reread the eBook “Forex Surfing” as there I explain how to trail your
stop on previous lows.forex sato
When you eventually catch a successful run (after a series of “fake outs”) your
trade could last for several months. Sooner or later you’ll get stopped out for
a handsome profit. Note that by using such a trailing stop you’ll often get
stopped a few hundred pips from the very top of the trend, but that’s ok as
you’re not trying to scalp an exit at the tops; you’re using a standard trading
exit technique that most traders would use in a similar situation.
In the above chart you would have gotten stopped out for a little over 800
pips. Remember the example I explained earlier (in the “Forex Scalping”
eBook)? If you had $10,000 in your account and you entered trading 200K
(two regular lots or 20 mini lots) risking only 2% on the trade then your net
profit (more or less) would be about $16,000. Your account would have thus
grown 160% (to $26,000) in a little less than two months!
Here is another variation of the “Incredible Scalp” that you could also be
trying. Often times the market is already trending (as seen on a daily chart)
and it could be months before the next setup occurs to trade as mentioned
above. This gives you something to do while you are waiting for the next big
setup, particularly if you’ve missed the last one.
Earlier (in the eBook “Forex Scalping” in the section titled “Micro Trends &
Trends”) I discussed the concept of trading along trends. As stated there, it is
best to scalp an entry at the strategically significant entry points (i.e. trendline
bounces, fibs, etc…) but there is another way to attempt trades on the daily
charts when you see a trend in progress.
This technique is intended for daily charts, as stated above, during a trend
seen on your daily charts. A trend, for the purposes of this technique, can be
what would normally be considered to be a trend, but it can also be shorter
daily chart trends within a consolidation/pattern range or in a market reversal
(even just a Fibonacci retracement). These smaller trends are still trends, and
they only appear to be “small” in contrast to the relatively larger trends seen
on the daily charts; remember that these smaller trends are often hundreds of
pips tall so don’t discriminate against them because they can make for some
excellent trades.
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One more thing before I explain the technique. When employing this strategy
(or the one mentioned above) you need to keep in mind what your objective
for the trade is. If you are scalping with the intention of taking the maximum
profits TODAY (getting in & out within minutes or a few hours) then you are
“day trading”, and that is a perfectly suitable objective. You can however use
scalping methods as an entry method for larger and longer trades. If you enter
a scalp with the intention of holding the position for a days, weeks, or even
months then you are engaging in “Position Trading”. When you start a scalp
trade with this objective in mind then your exit strategy will change, and you
won’t be trying to scalp an exit at the best price possible at the end of a “Petit
Trend”, but will have far more relaxed stops in order to give the trade room
for fluctuations so that you can potentially score significantly larger gains. So
keep these concepts in mind when doing these techniques – you are using a
scalp for entry into a larger position which you’ll then use another style of
trading methodology to later exit your trade with.
Ok, here is the technique.
What you do is you first search for some kind of a trend on your daily
chart. It can be a regular trend (the daily charts are trending as you would
normally define a trend), or it can be a trend within a consolidation/pattern
range, or during a regular trend where you see a reversal (could be a reversal
or just starting a Fibonacci retracement).
You only employ this technique in the direction of the trend you are looking
at. When the market is micro-trending in the opposite direction of the larger
trend you are looking at on your daily charts the simply don’t use this
method. Smaller micro-trends going in the contrary direction are normal (the
markets always bounce), and so it is better to use other techniques during such
times (i.e. scalping or surfing for just a short-term trade).
So when the market is micro-trending in the same direction as the larger trend
you are observing then enter a scalp as appropriate. The scalp does not have
to be at the breakout of the previous day’s high/low (as described above), but
at any time convenient to you (preferably early during a market overlap
time). As soon as you can then of course bring up your stop to secure a
breakeven, and then as soon as you can bring it up to secure a 10 pip
profit. Once you have done this then just forget about this trade for the rest of
the day.
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Remember that the “objective” of this trade isn’t to catch as many pips as you
can today, but rather you are engaging into a “position” trade. Chances are
(hopefully) that soon after you’ve set your trade that the market will continue
moving in your favor, and soon you might have 20, 50, 100 or even more pips
just sitting there. You might be tempted to close your trade for those profits,
but just relax and resist any such temptations. You have your stop already set
securing 10 pips of profit, so don’t worry, you are now in a “free trade”,
meaning that you can’t loose, but only stand to gain. The objective of this
strategy is to allow your profits to run, and chances are (hopefully) that by
letting it run for several days, or longer, that you might catch significantly
more pips than the pips you’ve already gained thus far today. Yes, the market
could reverse and you’ll loose all those extra pips, but you’ll still have your 10
pip profit. If the market however moves in your anticipated direction then you
could potentially gain many more pips.
So now you have a trade entered and (hopefully) the market has trended in
your anticipated direction. What you do now is every day you simply increase
your stop by 20 pips. If the market is indeed trending then increasing by 20
pips is still small enough to avoid getting stopped out by market fluctuations,
but for every day you are in the trade at least you are securing additional
profits (or you can simply increase by 10 pips if you are concerned that the
market is slow thus increasing your chances of getting stopped out
early). Those additional profits secured each day also compensate for the
overnight interest you’ll be charged (which is typically around 1 pip per
day). Every day that you are in the trade you keep on securing more and more
profits. If the markets were to reverse and stop you out then you’ll at least
have left with a respectable profit. Say your trade lasted 5 days before you got
stopped out then you might have left with over 100 pips, which is certainly
good. This would represent a 1:10 risk/reward ratio, and if you risked 2%
then you’ve gained 20% on your account.
What you ALSO do everyday is you watch your charts for swings in your
trend. You watch both the hourly charts and the daily charts. At some point
you should see a swing (a.k.a. a wave) that retraces and then extends past thpeak of the wave. This is extra significant if the retracement came down to a
trendline bounce or a key Fibonacci level. Once you’ve witnessed a wave on
your hourly charts (but preferably the daily charts), and the price has already
extended past the peak of the wave then you simply replace your stop to that
swing’s low (for an uptrend, just reverse what I say for a downtrend). This is
standard “trailing your stop” along a trend using the retracements as your stop
points.
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After you’ve replaced your stop to a swing retracement low then you continue
with increasing your stop by 20 pips everyday. You keep watching for new
swing retracements to replace your stop to, and when it happens then you do,
but on all other days you just keep trailing your stop by 20 pips.
Sooner or later your trend will come to an end. If you’ve engaged your trades
within a consolidation range then at the first sign of a reversal at the boundary
of the range you may just manually exit your trade to take a profit. If you’ve
been trading along a regular trend then it too will eventually reverse. If
you’ve replaced your stop to the most recent retracement and trailed daily by
20 pips then sooner or later you’ll get stopped out. The wonderful thing about
doing a daily 20 pip trail is that you’ll ultimately capture more profits then just
waiting for it to fully come back to the retracement bottom.
Doing this you could potentially catch hundreds of pips, or at least far more
than you normally would by just scalping for a day trade. This is a strategy
that can be implemented on most days (when the conditions are right), so it is
a strategy you could be looking to potentially engage into everyday.
Here is one more tip applying to that strategy. Since it is something you can
possibly engage into daily (or every few days – depending on when the
conditions are right) you can keep adding more and more trades. If your
previous trades from prior days are still profitable, and the conditions look
good to implement another trade using this strategy then do so. Essentially
you are now “compounding” your gains. If you have multiple trades entered
along the trend then you are compounding how much profits you secure each
day by trailing by 20 pips. If you have 5 active trades then each day you are
securing about 100 pips!
Treat each trade separately, trailing each trade according to the rules explained
above. As you’ll likely have multiple trades each with different stops then
some of your later trades might get stopped (for profit of course) during a
retracement, but some of the older trades might still remain active. After the
retracement, and once it starts doing an extension (while still in the
retracement area) try to pick up some more trades.
Remember that once you’ve entered a scalp and have secured the initial 10 pip
profit you can happily wait to see what happens over the next days (while still
trailing daily by 20 pips). Sure you’ll get stopped out (for profit), but just
keep adding more trades in the direction of the trend at every chance you
get. Some of the trades will last for a long time (weeks, even months), and if
you have a compounded series of trades you can score some HUGE
gains! Done properly you could potentially net hundreds of percents of net
profits along a trend seen on your daily charts in a relatively short time period.
To illustrate a hypothetical example, let’s say you’ve jumped into a trailing
market with five positions (five trades) and you’ve eventually gotten stopped
out with 500, 400, 300, 200, and 100 pips for the five trades (in real life it
never works out to such perfect numbers, but this is a hypothetical
example). Cumulatively you would have netted 1500 pips (assuming you’ve
traded an equal amount of lots for each trade, and if your initial risk was 2%)
then you would have made about 300% profit on that series of trades. To
translate this for you into dollars this would have meant that if you started
with $10,000 your ending balance would have been around $40,000 – on a
series of trades that might have lasted just a few weeks (and relatively little
effort on your part).
Let me summarize this concept for you. So that we have a convenient label to
call this technique for future discussions we’ll simply call this the “Scalp &
Run Technique”. Enter a trade using a “scalp” in the direction of the
predominant trend seen on your daily charts, and quickly secure a meager 10
pip profit. Trail the stop daily by 20 pips (or 10 pips for a slower moving
market). After a retracement, and after the market has extended above the top
of the wave then replace your stop to the retracement low. Continue trailing
your stop daily by 20 pips from that point. Whenever you can (attempt daily
when micro-trending in the direction of the larger trend) add another trade to
“compound” your gains along the trend. Some of the newer trades added will
get stopped out soon (short lived), and some of the newer trades added will
run for quite a distance – so keep trying often (almost daily). Either exit the
trade by tightening your stops to secure maximum profits if the trend
approaches a likely reversal level (like a range boundary), or if in a regular
trend then simply allow yourself to get stopped out by simply following the
above mentioned rules. Once all your positions have been closed (from being
stopped out) then reevaluate the current market direction and start all over
again. forex sato
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