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jjrvat
Registered: Oct 2006
Posts: 359 |
01-05-08 03:02 PM
I,
More than scalping in the direction of a trend is trading in the direction of the current wave... It seems kind of a vague "academic" difference but let my try to explain you in the next posts...
a. The direction for the current time (“macro” direction)
I read this somewhere else but if you can’t “see” the current “macro direction” in the first couple of minutes you see a chart you better turn off your computer and come back later.
1. The importance of establishing the current time direction is not because you are going to trade its signals but because you want to know in which side you will have the best probabilities for a good trade.
2. Therefore a scalper shouldn’t need to overanalyze it, or perfectly understand every single S/R and potential entry or exit in the “macro”. Common sense is the key.
3. If you have experience you should be able to see the general direction at a glance of the price in a naked chart. Otherwise, simply use visual aids:
a. The “spine”. In reality you just need a 240 WMA (changing color according to the slope is even better). It doesn’t mean that you only must look for shorts if the slope is going down, it means that in the CURRENT TIME you will have better probabilities if you go short. (even if the price is really close to the 240 WMA, the important issue is its slope)
b. Plot Pivot Points (I really like PP). Again you are not going to trade PP and you don’t need to know PP by heart you just looking for factors that help you with your probability analysis. Two simple and easy guides.
i. Look if the price is above or below its PP. If it’s above/below, only means that you would have better probabilities of going long/shorts.
ii. Once you have done that look where the current price is in relation with this next Support pivot (S1, S2, S3) or Resistance pivot (R1,R2,R3). For example if the price crossed above PP and it hasn’t touch next R1, means that you will have A LOT of probabilities if you look for longs (as long as it hasn’t touched or breached).
iii. A scalper is not interested in taking the whole move to the next pivot point, neither is trying to forecast when its going to happen. A scalper is only looking for the “macro” direction in the current time for increasing his probabilities of making a good round of scalps.
c. Of course, the best case scenario (in terms of probabilities) is when the 240 WMA slope is up, price is above PP and it hasn’t touch the next pivot resistance level.
4. Conclusion: Because of waves you know where not to place a trade (low probability trades) and because of the “macro direction” you know that you would have much better probabilities if you trade in its direction.
jjrvat
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jjrvat
Registered: Oct 2006
Posts: 359 |
01-05-08 03:11 PM
b. The direction of the current move (“wave” direction)
The macro direction is showing that you should look for shorts and u know that price moves in waves, therefore a scalper must establish which exactly the direction on the current move is (only the last few bars).
1. With experience (“screen time”) a scalper should be able to recognize the direction of the current move just looking at price, or max using the Horizontal grid (Its amazing how good round numbers H lines work… i.e every 10 pips 1.3440, 13450, 13460, etc)
2. Otherwise, you can always use visual aids:
a. “The flame”. In reality you just need price. However, if you want to make the waves look clearer and smoother you just need a fast WMA (i.e 6) (changing color according to its slope will be even better).
b. Look at the deep of the last wave.
c. Basic Price Analysis. Look if the last wave low was lower than the previous, and the opposite with highs. Common sense, if they are making new lows you have more probabilities to trade shorts (or the opposite for longs)
3. Look at today BP scalp again but this time with the 6 WMA. This analysis is still not complete because you need the last two factors: timing and momentum but nevertheless are still valid trades because the probabilities although not the best are in your favor….
a. The “macro direction” was telling that you may have a high probability round of scalps if u trade shorts.(look previous chart)
b. +/-9:12 a new wave starts (1st Blue Arrow). Notice how it coincide with the Middle S2.5 pivot point (Dash green line) and also is exactly match with the break of a round number 2.0450 but its going against our supposedly high probability direction.
c. So you need to wait until the next wave (that you know is going to be in your direction)
d.Because price moves in waves we know that we should try to get in as soon as we realize the formation of the next wave.
e.+/- 9:15 the new wave starts the one you already know you are going to trade. Go Short 2.0464 1 contract only with a predefined TP of 6 ticks which is pretty “healthy” for scalping BP and a SL 1 tick above the previous high (2.0474). (1st Orange Arrow)
f. +/- 9:16 …40 seconds later you target is hit. (2nd Orange Arrow)
g. +/- 9:18 … 3 minutes after a new wave start (moving against your direction) (2nd Blue Arrow). Theoretically we should trade the next wave BUT because BASIC PRICE ANALISIS, the last low (the one we traded) was higher than the one before …. Meaning be careful ‘cause the probability of the next wave making a new low is lower.
h. +/- 9:22. A new wave in your direction starts but you already know that previous low was higher than the one before but at this time u also know that the current high is higher than the one before … SO this a NO NO situation for me
i. …but let’s say you are stubborn and blind and decide to take the scalp. Short at 2.0467 (3rd orange arrow) … few minutes after your 6 tick target is hit (4th orange arrow) … Done for the day 12 pips 20 minutes…
4. Conclusion: When scalping, the order of analysis change everything. If you know how to recognize waves and where not to place trades and if you follow the “macro” direction and the current move direction even a mistake like the second scalp can turn out to be good. Why? Because you are trading high probability scenarios…
jjrvat
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Joab
Registered: Jul 2006
Posts: 2221 |
01-05-08 03:37 PM
ALL FOREX TRADERS NEED TO UNDERSTAND THIS
Your missing "the most important" piece to your puzzle.
The forex market (Brokers charting platforms) are NOT real but manufactured, therefor you are basing patterns of human behavior on NOTHING but a computers algorithm... not reality.
It's the equivalent of trying to understand love by having sex with a rubber doll.
Your wasting your time !
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jjrvat
Registered: Oct 2006
Posts: 359 |
01-05-08 03:48 PM
Quote from Joab:
ALL FOREX TRADERS NEED TO UNDERSTAND THIS
Your missing "the most important" piece to your puzzle.
The forex market (Brokers charting platforms) are NOT real but manufactured therefor, you are basing patterns of human behavior on NOTHING but a computers algorithm not reality.
It's the equivalent of trying to understand love by having sex with a rubber doll.
Your wasting your time !
Joab,
1. I do agree with you and thats why I only trade Futures (The examples above are FX futures and I used only for explicative purposes... it also works for stocks).
2. My central point is not the exact timeframe and instrument you should trade but that any SMALL DAY-TRADER should understand basic price analysis before anything else ...
jjrvat
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Joab
Registered: Jul 2006
Posts: 2221 |
01-05-08 04:03 PM
Quote from jjrvat:
Joab,
1. I do agree with you and thats why I only trade Futures
jjrvat
That makes all the difference in the world.
Now this thread has some value 
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jjrvat
Registered: Oct 2006
Posts: 359 |
01-05-08 04:12 PM
"Execute the basics; master the basics,...When you master and execute the basics, the rest comes naturally”
The last two factors in the analysis are use just to improve the quality of a set of scalps.
1. Momentum. There are many momentum plays, however one that is simple, efficient and with high probabilities of becoming a great set of scalping opportunities will automatically appear if you have properly done your “homework” and have respected the order of analysis of the previous steps. If “macro” direction (240 WMA and Pivot Points) and current move direction (H lines, 6 WMA) are aligned and if you have established the direction of the next wave you will have THE TEXTBOOK DEFINION for a HIGH PROBABILITY SCALP.
2. TIMING. This is where the majority of struggling traders get stuck, confused, lose perspective, start plotting indicators, etc, etc, etc.
a. For me timing is the last factor a scalper should analyze. I am not saying that is not important (if you don’t pull the trigger or you do it late you are out) but if you understand the basics of trading and you have follow consistently you analysis of the previous steps, establishing when to pull the trigger is just the final formality.
b. Timing is more important when you are trying to reduce whipsaws
c. If you base your scalping strategy only in this part of the analysis you will lose money. When u have a high probability trade it doesn’t matter what do you use for timing ( LT Rainbow, Stoch, MACD, MA Crossovers, CCI, BB or any other) because the results are going to be +/- the same . (I will try to demonstrate this in my next post…)
3. Same BP chart as before but a few minutes after.
a. After the stubborn scalp you decide to wait because the waves are making higher highs and higher lows. Until when do u wait? … Obviously until the waves align with the macro direction.
b. +/- 9:36 The height of the waves are very short and barely perceivable until they fail to make higher highs (Blue Arrows and Green Square) which is an ALARM to get ready for a new set of scalps to begin, this time within a high probabilty scenario.
c. By +/- 9:39 a new wave starts pointing at your “macro” direction (1st green arrow). Everything is aligned now except that you are still waiting for the wave to make a new low. So either you wait until a close below the low for extra security, or a cross below the H line, or you can put a limit order 1 tick below the last low or you can be really conservative and wait until a next wave pointing at your macro direction starts (but this time already 100% that it has made lower lows and lower highs).
d. +/- 9:40 If you didn’t choose the really conservative entry you get filled either at 2.0471, 2.0470 or 2.0468 (1st orange arrow). This time you trade 2 contracts because is a high probability setup. Both trades have a SL 1 tick above the last high (2.0477…notice is only 6 pips) or you will close the position as soon as you have a close above (a new wave against you) whatever come first. The first has a safe” TP of 6. If hit the SL for the 2nd contract will be automatically trailed to a breakeven, from then on you are in a 0 risk free ride mode. Either you close your 2nd contract on a close above (a new wave) or a close above the last high….
e. 30 seconds after +/- 9:41. You 1st TP is fill for a 6 pips profit… you leave the rest of the position open …
f. +/- 9:44 A new wave is formed so you close the rest of the position for +/- 10 pips for a grand total of 16 pips in 5 mins…
g. +/- 9:47 Everything is still aligned (notice that the next pivot S3 is still far away so you can have a long set of scalps to the short side…). A new wave in you direction is formed, same strategy as before …
h. The rest is self-explanatory … JACKPOT (you can scalp more than 80 high probability pips in the next 20 mins) … enjoy the ride!!!
4. Conclusion: Like people in Spanish say “Una imagen vale más que 100 palabras” “a picture is worth more than thousand words”
jjrvat
“Trading is just a probability game based on pattern recognition”
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