Forex scalping

Usually when I scalp, I use 50% of my account worth as margin, with 200:1 leverage.

My stop losses are only 5 pips though, so I cant lose more than about 4% of my account worth on each trade.

Im usually aiming at 8 pips.

 

drasfs,
I am trying to apply the same strategy you're using for scalping, for the last few month, I was collecting and trying methods for scalping 5 to 10 pips per trade. Testing these methods on demo min-accounts with low spread (2pips) mostly on EUR/USD. I am using the same money management settings as yours, 50% of my account for 200:1 leverage. I am interested to know, is it working for you? how long where you doing this? is it profitable, coz honestly I didn't see anybody yet advertising that much risk while trading, so I am happy someone is thinking the same way

cheers

 

I have been demo trading the same way using the 5 and 3 minute charts. It seems to work not too badly as long as you wait for a good trade to come along. Also i find i have to have will power to not get too greedy and wait for too many pips in my favor, and also knowing when to get out of the trade if i'm losing.

 

Hi folks!

I took a little different approach to forex scalping. In terms of Money Management, I had set a genuine rule for myself - no to be greedy. Allow me to explain, at the moment I’m spending lots of hours studying the graph (I only trade on GBP/USD) searching for things that are repeating, or that are common. Once I find something that is repeating every single day then I can think of it as something consistent, something that I am 100% sure that I can rely upon and thus build my trading strategy around it. What do I mean by all of this and how does it apply to my MM techniques? I have figured out for myself that a daily profit of 5 pips would be totally convenient for me. Why? Well, think of it this way, if I can find a time or a situation on the forex market where I know for sure that I can make 5 pips a day without a doubt, then I can put all my money and grab those 5 pips with the highest possible lot! OK, enough of the talking, let me show you an example:

1. Suppose you have an account & your deposit is $4000 (USD)

2. Your goal is to make only 5 pips a day! That’s why I have said in the beginning that my Rule #1 is not to be greedy.

3. With a deposit of $4000 you can place an order with 2 lots easily. (My observation showed that 1 Lot is roughly equal to $1300) Meaning if you have a Standard Account with a deposit of min $2000 you can trade using normal lots, not mini-lots like on a mini account. That being said moving to #4.

4. Here's the most interesting part:
You enter a trade and make your 5 pips. As soon as you are up by +5 you exit. (It shouldn't matter if the market is zooming your way allowing you to make much more than 5 pips). Even if you are 100% sure that you can profit a lot more, you still exit because there is rule #1 not to be greedy!

5. So what do we have? we just entered a trade and made only 5 pips (out of the +100 of the daily volatility), our lot size was 2, so our profit in $ will be:

5 pips x 2 lots x $10 (each lot is $10) = $100.

6. Now, you can tell me "What the hell am I going to do with $100 a day? That's only $2000 a month ($100 x 20 trading days in a month)

Now, I'll give you a second to think about what you just said.....realize it yet? No? OK let me explain, $2000 is half of your deposit! Meaning, you are doubling your account size every 2 months!!!! Is there a person on this planet who will not be happy with doubling the size of his/her account every 2 months? Personally I don’t think so!

I'll give you another example, lets fast forward in to the future and suppose that your deposit is $200,000. If we agreed that we are going to use lot size 2 with a deposit of $4000, then 1 lot = a deposit of $2000 (this is exactly what a standard account offers). So, with a deposit size of $200,000 you can place an order with a lot size = 100! Your 5 pips a day, give you $5000 a day. At the end of the month that’s again 50% of your deposit:

$5000 x 20 trading days = $100,000 a month!

The software that I use (please don't think of this as advertisement or anything, moderators can erase this part of the post if they think that it is not adequate) is Templer FX Trader which allows me to use only 100 lots. I have not tried to use any other software packages so I have no clue if you can get more than 100 lots.

Now, let's go back and re-think about all of this...

In the beginning I talked about a timeframe or a situation where I can be 100% sure that once I enter the market I can grab those 5 pips. Now, so far if you think that I have been offering you some kind of money making system or anything you were completely wrong! Believe me, if I knew a system that worked 100% I would have never posted on this forum, I would have made my millions and enjoyed myself somewhere on Canary Islands sipping on a coconut cocktail!

Why did I post all of this then? First of all to get you interested. Because, I am calling out all traders (not only on this forum, I’ve posted on other forums as well) to find that situation where we can be 100% sure that we can grab those 5 pips!

To be honest, if you are not happy with 5 pips a day, then make it 10! It all depends on you, make it 20 if you want, but then you have you understand that you are increasing your own risk! Because making 5 pips a day sounds more realistic than 20! I’m personally happy with only 5! I don’t want more, I don’t need more! Rule number 1 not to be greedy is THE rule number 1 for me. Don’t use all the lots that you can if you think/feel that it’s too risky. Any system is flexible enough so you can adapt it to fit your own goals and needs. The key is to know what you want and how much you want. I know what I want - only 5 pips a day!

You want to hear more? OK, I'll tell you more, I did half of the job for you. I’ve spent countless hours in front of the screen, looking at bunch of black & white candles. Yes, I found it interesting to some extent, but I was sacrificing those hours that I could have spent doing lots of other more pleasant things than staring at the screen in search for a repeating pattern. And yes I found it! It is not something revolutionary that I have discovered but it perfectly suits my system. I’ll post a screenshot showing exactly what I mean, but don’t expect to see anything that you haven’t seen or heard before.

The included screenshot is the latest one, it shows the price movement of GBPUSD on the 28th of April, 2006. Open it and look at it. What do you see? Some of you may immediately figure out where I’m getting at. The red vertical lines split the graph showing you the whole day (from 00:00 GMT+1, 28th of April to the time when the market closed (because it’s weekend). Notice that from 00:00 (the first red line) to the dotted purple vertical line (showing 8:00 GMT+1) there was a flat movement. That is noise, there is no activity on the market. The pattern that repeats every single day, is this. From 00:00 to 8:00 every single day there is a flat movement and the major movement only starts at 8:00 and continues to 22:00. So what exactly do we have? This flat movement in the morning creates a starting point, an origin. You know for 100% that at 8:00 the price will either go up or down. Check the history yourself. Scroll back and look at the market behaviour at this timeframe for yourself. You will see that from 00:00 to 8:00 the market is “sleeping”. That is the perfect time to set your orders and open a position, because you know for a fact that once the market “wakes up” the price will move. Now we have two things that are 100% guaranteed:

1. It’s the fact that the movement is flat, there’s only noise, from 00:00 to 8:00.
2. It’s the fact that once the market “wakes up” it is 100% guaranteed that it will either move up, or down!

There is nothing new that I have discovered, all of you traders who are familiar with the behaviour of the GBPUSD know this already.

What I need is a 3rd fact. Any of you who have studied geometry at school will know that in order to prove any theorem you can only prove it based on three axioms. Well this is no different. The simplest answer (the 3rd fact) is knowing which way the price will move. Let me explain, if we know for a fact that there wont be any major price movements from 00:00, we can wait until 8:00. At 8:00 we know for a fact that the market will move, so we decide to open a position. But which way? That’s the third fact that we base our decision on. If we know that from 8:00 the price will rise, then we buy, if we know that the price will fall, then we sell. Simple logic. When is the perfect time to exit? That’s exactly what I’ve been talking about - after “X” number of pips of profit that we make. What goes into that “X” you decide for yourself. For me that number will be 5! But here is a funny thing: nobody on this planet knows for a fact, which way the price will go! We all can only guess! We all try to simulate the way the whole world works and apply it to market movement to predict price movement. So where am I exactly stuck? Asking you all to give me the formula of price movement will be an absurd and totally destroys the concept of my system. What I really want is an answer to how we can get around the fact that the chances of the price moving up are equal to the chances of the price moving down. Let’s forget the thoughts of studying the market as a science, learning the difficult concepts that were proposed by famous traders and mathematicians (i.e. The Elliot waves, William’s strategy and etc.), we are simple people. For me, if you brake it down, spending countless resources (money, time) to learn the way Forex works just because of 5 pips is not really worth it.
Now, how can we get around the random movement of the price in order to make our 5 pips? Looking at the screenshot again, you can see the blue dashed lines that outline the border of the formed channel by market “noise”. As far as I have come, the key thing is to wisely place orders at this point with proper Money Management (MM). I can think of three well-located positions:

1. once the “noise” channel has formed, the price literally “bounces” within those borders. I place a “sell limit” at the upper border and a “buy limit” at the lower. With a respectful TP of 5 pips.
2. calculate the average price (the mid point between the upper and lower border) and place a “buy” and a “sell” at that point, again, with TP to 5 pips.
3. And finally, the third position: placing a “buy” order at the upper border and a “sell” order at the lower border. Again, with TP 5 pips.

Each of these positions have their pros and cons. An ideal combination would guarantee a 5 pip profit with two types of losses – either a 5 pip gain 5 pip loss situation or a 5 pip gain and 0 pip loss situation. So our net profit is either 5 pips or 0.

 

Conclusion
There are thousands and millions of systems created and tested every single day. Some are more complex than others. Every single one is different. Obviously my approach is not the ideal one. On the other hand people do make money on the Forex market. Thus there are systems that work! As a small research, go to any search engine and type in “Forex strategies” and what you will get is countless number of web sites each offering their own method. I’m more than sure that one out of those systems must work, they all guarantee something. However, where those systems are different from mine is in the approach. They all promise you thousands of pips a month, whereas I’m in the search of a small but consistent way of making profit. I hope all of the above made at least some sense and I hope that at least somebody will find the information useful.

Anyone who got interested in this system with the presented approach to the Forex market is more than welcome to post his/her own thoughts, criticism, observations. What I would want to read about is your own method of placing “Buy” “Sell” combinations at a time you think is more appropriate. Of course with a description and some statistical proof.

Anyone who wants to contact me personally is more than welcomed to contact me via ICQ. My number is 300-797-591.

 

Yes, the basic idea of range trading, or buying support / selling resistance on cable during the Asian session can be developed into a sound strategy. Especially in the past.

What leverage is your account? 150:1? Margin requred for 1 cable lot should not be derived through "observation", but rather is directly proportional to the current rate, via a simple formula. At, say, 1.82, minimum required margin is $3,640 / $1,820 / $910 / $455 at 50:1 / 100:1 / 200:1 / 400:1 account leverage. I see that you are using routine leverage of about 91:1 at current levels (2 cable lots on $4,000).

As I'm sure you know, both facts are far from 100% guaranteed. On any given day, a lot of directional movement, including breakouts (false or real) can happen in cable during the Asian session, and not necessarily during the European session. How do you deal with the former?

What about your stop losses, if any? Where does the "5 pip loss" come from?

In terms of expectancy... given your fixed TP of 5 pips, what's your expected win %?

 

The premise is very interesting and I thought I would post my expereince since I have done something similar in the past. I took a slightlly different approach, but the problems that you have to overcome are the same. In my case I was trading the ES and was looking for just a single measly teeny itsy bitsy 1 point per day. Just one point. My observation, looking at a daily chart, was that there seemed to be at least a 1 point movement in each direction from the open everyday (similar to your premise that we break from a trading range "every" day). So, I thought how about entering on the open...direction didn't matter, you could simply flip a coin...and then set an exit at 1 point from your entry. Once I was filled, done for the day.

Looking at the chart, this seemed to be a no-brainer and my mind went into what I call "trader-math" mode. Where you start multiplying 1 point per day by all the contracts you will be able to trade each day as your account grows.

So I decided to backtest it and see what happened. My rules were simple, buy or sell on the open, exit at 1 point or the close whichever came first. Amazingly I was getting a win rate of around 95% (almost that magical 100%...surely I was on to something!) But the problem was that on the very few days when the market opened at the high and I sold, or opened at the low and I bought, I got killed by the close of the day. So for the entire system test, I was right around break even, sometimes a little in the green, sometimes in the red, but never really making anything. It was virtually identical when I ran the test buying everyday as it was when I sold everyday...regardless of overall market direction during the test.

So the next step was to say "well if I had only used stops then I wouldn't have taken the big losers". Very logical, so I tested it. Only to find that as the stop got tighter, my win % fell and my net losses actually grew!

So then I thought, well maybe I should try and determine when to buy and when to sell. That led to a battery of tests using things like if we close up the previous day then buy or if the 10 day MA is under the 20 day MA then sell, etc etc etc. No matter what I tried, the end results was still pretty much the same. Some tests did better than others during certain periods but then another method would start performing better. In the end, it left me with a feeling that the overall idea was pretty much random in the long run no matter what inputs were used.

I don't say all of this to discourage you, because I think you are on the right track overall. But just be aware that once you start adding in rules like sell the range buy the breakout etc, then the losses will start to grow and that small target will get eaten up in a hurry. And the 200:1 leverage will definitely cut both ways.

Good luck with your system.

 

WarEagle...

Do you know ElectricSavant? I want him to read your post. Your post is the most insightful & helpful post that I have read in my short time here this weekend. I understood it! (you would not believe the number of spreadsheets that I update for Electric)


Marlene B.
Wifey

 

There is much more creativity that can be used. Cycles of MFE and MAE can be tamed with a correlated approach.

Add comparisons to the mix and discover WHY one big loss takes out your string of small winners.

If you can discover a way to tame the extreme loss....while taking out a what the market can give you, can drastically change your statistical approach to trading.

Do not necessarily go down the road to put the "market in a can", but search for the unconventional means to see where the big money is going. This is all the retail trader can do in equities.

as far as Forex...well support and resistance plays a bigger role in a countries political stance. The larger banks in the import and export business have quite a bit of control on the fixing. It would help to have the equivalent of a Stevey Cohens red phone for currencies...but that takes years to get that privilege and you will not find the "inside" here in ET.

The best thing a retail trader can pursue is to find his/her edge and lower his or her expectations...I am sorry, but this is the truth. You will not make billions in retail trading, but I know that I can not stop you from trying. I am still trying to make a million (not a billion) and trading retail is the most difficult challenge I have had in my life. I even have a devoted partner (for 18 years) helping me and Wifey has both of her feet on the ground that I so wish to escape from (the ground.... not her )

As I slowly go crazy and lose my mind, I want to be able to share here in ET, until no longer possible. (where are my Meds?)

Michael B.

 

A small edit to my post. I typed "opened at the high and I sold, or opened at the low and I bought", which of course I meant the opposite (selling at the low, buying at the high) which usually led to big red days.


As for MFE/MAE...I tried MAE as my first logical stop point in one of many many many, but for whatever reason, it gave no edge to the system. A lot of the winners came from trades that went against you 8 or 10 points and came back to hit your 1 point target. If you stop those out at the MAE, say 4 points, then you trade 1 point winners for 4 point losers. I also tried time of day stops, targets based on MFE, all kinds of things. However, its very possible I missed something. Good luck to you E (and the Mrs.)