MICRO TRENDS & TRENDS
This should be easy for you to understand as it was extensively written about
in my eBook “Forex Surfing” (which is prerequisite reading before reading
this eBook). Furthermore, I discussed at length the topic of “Petit Trends”
connected with “Micro Trends” in the above section of this eBook. For the
above reasons I won’t be writing too much here about this subject but will
touch upon it to discuss some of the nuances that you need to be aware of, and
to briefly review some concepts.
The concepts taught in “Forex Surfing” can be considered “scalping
techniques” in and of themselves, but as surely by now you recognize, the
techniques presented in this eBook are more specifically “scalping
techniques”. What is wonderful about the scalping techniques you have
already learned about in the previous section is that, on a “Micro Trend” (as
defined in “Forex Surfing”) you can use these scalping techniques to more
precisely enter into trades than what was taught in “Forex Surfing” to
capitalize on a few extra pips, and of course make a more precise exit to
maximize the pips. There is however a ‘trade off’ between the “Surfing”
approach versus the “scalping” approach.
The benefit of “Surfing” is that you can walk away from your computer
regularly because your entry order will automatically kick you into a trade and
you intend to get eventually stopped out of your trade (trailing your stops for
profit). “Surfing” is thus much more automatic. The downside of “Scalping”
is that you have to be paying more attention to your computer making
constant decisions about entering a trade, trailing stops (to protect your
profits) and manually exiting your trades. Thus “Scalping” is much more
‘hands-on’ and less automatic than “Surfing”. The benefit of “Scalping”
however is, as mentioned in the previous paragraph, that you can potentially
gain more profits overall from the same market movement.
Surfing = Easier & More “Automatic”
Scalping = Bigger Profits but More “Work”
In general, you won’t be entering a trade on a “Micro Trend” from the very
beginning of the trend. As with any trend following trading technique you
need to wait for a trend to have established itself, and then still early in the
trend (after it has clearly commenced) you attempt to trade in the direction of
the prevailing trend (generally don’t trade against the trend on the pull backs).
Your ideal “Micro Trends” to watch for will usually happen within a market
overlap time, though sometimes they can happen outside of the overlap
times. If they happen outside of the overlap times it is generally due to some
kind of news or FA, but generally outside of overlap times the slope is usually
shallower (note the word “usually”, meaning not always). Often you’ll also
see a “Micro Trend” on Monday morning (Monday morning for the Asian
region is Sunday evening for North Americans) after the market has reopened
from the weekend.
Most often a “Micro Trend” will develop by emerging from a familiar pattern
such as consolidations, triangles, and other such formation breakouts
(discussed more in subsequent sections). If you can catch a “Micro Trend” as
it breaks out from such patterns then you can benefit by riding the majority of
it with a price close to it’s inception (obviously good for you).
Assuming that you didn’t catch a ride on the current “Micro Trend” from its
very beginning, then you’ll of course attempt to catch a ride at any point along
it that you can by scalping an entry, preferably closer to the beginning of the
trend than the end. Watch the retracement zones (which third it retraces into)
to get a sense of the “Micro Trend’s” current strength. Watch your S.E.X.
lines to see if it is bouncing off of the 15 period pairs (good), bouncing off the
30 period pairs (hmmm… probably loosing steam), but if it crossing through
the 30 period pairs then certainly use your discretion as now the confidence in
your micro trend is waning (keep in mind that it could potentially be the start
of a larger scale retracement). Use any other indicator you like to use to get a
sense of the strength of your trend.
Remember the general rule for trends of any size is when you have three
points (highs/lows) that line up quite nicely (it is never perfect to the pip) then
you have a very nice trend. Most trend following techniques attempt to enter
around the trendline bounces (particularly if it converges with a key Fibonacci
retracement level).
Thus here is an “Opportunity” that you can regularly find on larger scales that
can be brought to a scalping level. Watch for larger trends on your Hourly
charts over 30 days, and when you see the price moving close to your larger
trendline then try to zoom into the small view (say, 5 min candles) watching
for a clear reversal of the larger trend (around the trendline bounce), and then
once you see a “Micro Trend” has established itself then try to scalp an
entry. The nice thing about doing this is that you can then secure a stop for a
profit then just leave the trade. Come back periodically to see what is
happening on the hourly charts, and over time you could be up potentially
hundreds of pips. When you see a top being formed (assuming an uptrend,
reverse for downtrend) then simply get out. Here is a tip – use the scalping
principles on the hourly charts to scalp an exit (the candles will look relatively
similar to one minute candles even though the pips can be significantly
larger).
selected the 3 hour candles to be able to show a little more detail on this chart
for you). Notice I’ve drawn several trendlines (fanned) showing several larger
trends that you could have potentially scalped an entry near the bounce
levels. The blue lines are the support lines for your trend, the red lines show
resistance to help you to gage when there might potentially be a reversal. Go
look at the Hourly charts over 30 days on your own computer now to see what
kinds of trend you can find. You’ll see after a little while of looking at your
charts that these kinds of opportunities happen quite regularly.
Many traders are quite familiar with the idea of entering around trendline
bounces, but let me explain to you how using scalping methods as an entry
technique far surpasses what most people do.
Let’s use a hypothetical situation for illustration purposes. Let’s say you have
$10,000 in your account (so we can calculate risk percentages). Let’s say you
spot a trendline bounce that looks like a potentially interesting trading
opportunity.
In scenario one (as most traders would do) you would place your trade at
about the place where a trendline bounce would occur (especially nice if the
trendline bounce converges with a Fibonacci level), and you would place your
stop at the level of the previous low (say the bottom of a Fibonacci
swing). Let’s say that this low is 200 pips away. Thus with an account size of
$10,000 you would be permitted to trade 10K (just one mini lot) based on a
2% risk. Let’s say that you exited the trade (for whatever reason) for a 300
pip profit, thus your profit would be about $300 (assuming you traded a pair
that 1 pip = $1, but also subtract overnight interest if your trade lasted more
than one day). This is certainly “not bad”. You had a risk/reward ratio of 1:2,
and most traders would have considered this to be a “good
trade”. Furthermore you’ve grown your account by 3%, which is better than
most banks would pay you interest for a whole year – but your trade might
have only lasted a few days.
In scenario two (using these “scalping methods”) you too would want to place
your trade near the trendline bounce. You watch for a clear reversal and then
enter by using a scalp. As soon as you can you’d raise your stop to breakeven,
and then to a 10 pip profit (so that if the markets were to reverse at least you
made a 100% profit against your initial risk – getting stopped when scalping is
a common experience). With an account size of $10,000 you would be
permitted to trade 100K (one full lot or 10 mini lots) for a risk representing
just 1%, or you could trade 200K (two full lots or 20 mini lots) for a risk
representing 2%. Let’s say that you also exited your trade for 300 pips as in
the scenario mentioned above. This time you would have made $3,000 (had
you risked 1%) or about $6,000 (had you risked 2%). This is a 1:30 risk to
reward ratio, and a 60% increase of the account (quite impressive by most
trader’s standards, and try to find a mutual fund or other investment than can
give you such an ROI (Return On Investment) especially in such a short time
frame!).
Obviously there is a HUGE difference between a $300 profit and a $6,000
profit! What’s the difference? The market was the same for both trading
styles, the time frame was the same, and even the pips were the same. The
difference is in the “work” you do. A standard trader might see the setup,
place the entry orders (stop & limit orders too), and leave after 5 minutes of
“work”. A scalper might see the same set up but would have to wait patiently
for the right moment to act. This might mean many hours of glancing at the
computer waiting for the right moment. It definitely isn’t “hard” work, but it
does require more involvement than the other approach… but if the end
justifies the means then certainly the extra profits justifies the extra “work”.
Perhaps I should also mention here (as might possibly have been applicable in
our hypothetical situation above) that once you’ve entered by using a scalp
and have secured a profit with your stop, then if you want you may use a limit
order set for the same reasons you might have set a limit order had you been
trading using a different trading technique. For example, if you see a
Fibonacci swing, rather than a standard entry method you could enter the
swing with a scalp, but you could still set your profit limit as you otherwise
normally would at the 162% (or 127%) extension.
I remember some years ago there was a saying (said on TV and parroted by
environmentally minded people), “think globally, act locally”, meaning think
of the whole world when you recycle your trash. I encourage you to keep this
thought in mind when you are trading by looking for standard opportunities on
larger time scales (thinking globally), but then find ways to incorporate scalp
entry methods (or “Surfing” entry methods) into those larger opportunities
(acting locally). As you’ve seen from the above examples that if properly
done (and hopefully you didn’t get stopped – for a 10 pip profit – to allow
your trade to mature) you can effectively leverage yourself into potentially
gaining substantially larger profits than you would if you follow standard
trading methodology. Sure, doing this does require more “work”, but in the
end you can grow your account far faster, and isn’t this what you really want?
Now let’s cut into a new topic.
In “Forex Surfing” (section “Compound Gains Exit Strategies”, subsection
“Exit 1 – Manual Exit”) I introduced a very important concept. Don’t let the
fact that I only wrote a couple pages on this topic fool you; it is extremely
important for you to integrate, especially with your scalping methods.
The topic was about preparing to exit your trade at 12 noon EST (go reread
that section of the eBook). This is also somewhat true for 06:00 EST (at the
end of the end of the Asian/European overlap time), but the stronger one is the
12:00 EST time (at the end of the European/N.American overlap time – when
Europeans are putting on their coats to go home, and the Americans are going
out for lunch).
If you are surfing or scalping along a micro trend, and your objective is just to
make some day trading profits then be sure to look for a suitable exit by
tightening up your stops between 11:30 EST and 13:00 EST as frequently
you’ll see a small reversal around that time if the market has been trending
during the overlap time.
That is all I will say about that reversal time for now, however there is more
that happens afterwards which I’ll explain now.
Frequently after the market has made that reversal (let’s call it the “Noon
Reversal”) you’ll see some big sideways swings (scalping
opportunities). Often afterwards, and moving into the evening hours, you’ll
see a sideways movement, often with a slant. These can potentially present
some tiny scalp opportunities (generally going for less than 10 pips
profits). Sometimes you’ll see the market actually trending rather nicely, and
on those days (it’s definitely not everyday) you could try to scalp some petit
trends in the direction of the trend. More about scalping sideways
consolidations (including slanted) will be discussed in a later section.
So here is a summary for trend related opportunities:
• Watch for “Micro Trends” (as discussed in “Forex Surfing”), looking
for scalpable trades along “petit trends”.
• You can simply trade “petit trends” going for small pip profits, and
entering multiple trades along a single “Micro Trend”
• Or you can enter a trade along a “Micro Trend” using a scalping
method for entry, and then allow that trade to run along the “Micro
Trend” with a trailing stop as learned in “Forex Surfing”.
• Watch the S.E.X. lines and the retracement zones to get a sense for
the relative strength of your “Micro Trend”. Feel free to use any other
indicator you feel comfortable with using also.
• Watch for trendline bounces along your “Micro Trend” for potential
scalp entry opportunities.
• Watch for trendline bounces along larger time frame charts, then
zoom into smaller charts to spot a clear reversal. Then scalp an entry,
secure a profit with a stop order and then allow the trade to mature
(gaining many, many pips).
• You can combine a scalp entry method with any standard trading
technique, and exit as you normally would based on the standard
trading technique. “Think globally, act locally”
• If “day trading” then watch for the noon reversal by tightening up
your stops or by scalping an exit around noon (EST). After the noon
reversal are frequent small scalping opportunities.
forex sato
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