When I look at a trading post with chart image the first thing I try to understand is what am I looking at. Helps to know symbol in the text if it is cropped out of image (yeah can figure that out most times at price axis) timeframe (same, can figure that out at time axis most of the times) as well timezone they are in if not like the majority here EST. But not necessarily the session. Having that all stated at the top of post clears things up right from the start. Just sayin'. But anyway something seems to be off to me. Here is my ES 5minute east coast time day session 415pm close only chart for yesterday, clearly with a gap fill which your chart does not show??? Wassup?
@volpri, it is very generous of you to give us a roadmap for scalping. I decided not to scalp, it is too fast for manual trades on index or stocks. I returned to trade 1 minute time frame trend following but added your roadmap for trade selection. I use a very simple scheme (@SimpleMeLike, this one is for you ). I trade every cycle from open. The only decision I have to make is whether I should go long/short at open. Quit when profit/loss target is reached or after x trades. Profit/loss depends on BO (trend vs TR) & tightly controlled stop losses. Usually I am done within an hour. This morning I tried your logic. Short answer, it seemed to work better. Long answer, jury is still out. Word of caution, I am no day trading expert, only done it with sim and live for 6 months so be careful if you copy me. Best wishes.
Here is a snippet of a trade in ES I took a few minutes ago. You should be able to see it good. I fired up the computer around 9:35 saw that there was back and forth. Channeling down slightly but in BO mode (yellow line is top channel line). I jumped in short near top of the channel as you can see. It went against me, I added (averaged down) double the contracts on the next bar. I then exited the entire position. Making money on the second averaged down entry and losing on my first entry. However, the profits on my averaged down entry made up for the loss on the first entry and printed a decent overall profit. Why did I take this trade? Well a lot of back and forth movements. 75% of BO attempts out of a channel fail. This was trading around the top of the channel. I bet that the BO would fail and within 5 bars price would head back towards or into the channel enough distance for a scalp. Now what if it was a successful BO? What would I do? I would dump my short postion - all of it and double long getting back my loss in short order and hopefully printing money too. What is a successful BO? It is a BO with at least one good FT (follow thru bar) and preferably any PB bar after the BO doesn't go back into the channel. While this was a risky trade as a lot of movement back and forth is present I took the trade not holding long at all but jumping out with a profit. Grabbing that money. The market is in a BO mode and that can come anytime.
I think you are the only one who can trade like that and make it work. If we tried averaging-in and martingale-ing like you do, the market would smile and hand us a shovel.
And here is what happened after my trade. It went right back into the channel. The BO failed. That is what I was betting on. Market is still in BO mode. Whish way we don't know yet. See the failed BO? See the failed BO attempt at the bottom of the channel as price traded down after my trade? Why did I jump out? Well it could have just as well traded up after my exit and become a successful Bull BO. So, I grabbed that profit....when the market handed it to me. I could have made a subsequent trade entering long (after my previous trade) at the bottom on that big bear bar betting that that would also be a FBO attempt at the bottom of the channel. And two bars after that would have been a profitable scalp. But I was busy taking these snippets for you guys so I missed that trade. Got other things to do so I gotta stop. May make a few comments later on if I have time.
The market doesn't know when a trader is averaging down (your broker might) but the general market doesn't know. Your broker..your trade.. isn't going to move the market with your tiny trade unless you are trading 100 contracts or more. The market cares nothing about you or I. It is mostly big institutions trying to take money from each other. I know it seems like the market is how to get us with our 3 contract ...10 contract..trade LOL but it ain't. We just got in their way when they moved the market. The market really doesn't know you or I exist. Well not completely. But we have to understand that they move the market not us. We have to jump on board. Again why did I average down on this trade? I could see bull and bear institutions are duking it out. Since the open. One side will eventually win and we will likely get a BO. But their buying and selling pressures are creating a bear channel (but not a steep one) Bear channel on a bigger TF are PBs. So, this bear channel on a 15m or 30m chart would be a PB. If the trend is strong on those two bigger TFs. then odds favor a continuation or at least a sideways move. However, on this five minute chart that continuation would be a successful BO out of the top of the channel. Bear channels usually break to the upside. If they don't then the market is weak. Just think about what I am saying. Bear channels on a smaller TF are bull flags on a bigger TF! The reason that trade worked was because I am aware of the market cycle and aware of the probabilities within a cycle. The cycle is a sideways to down bear channel on this 5 minute chart. That tells me that bearish institutions are slightly stronger than bullish institutions or it would be a bullish channel or bullish trend. So I want to bet with the bears and against the bulls. I see a BO attempt out of the top of a channel I am going to bet it will fail enough for a successful scalp. On the other hand, I have to also be aware that the successful BO could likely come to the upside so I must know what I should do beforehand should my short averaged down trade go awry.
See all those failed BO attempts? Those are jingle jingle cash register money. The problem traders get greedy and want more. Just grab those profits! The market is handing them to you freely! When wrong...I get right...and double up! On the failed bear BO attempts the only one I would have traded long is that one to the left because it is in the lower 1/4 of the channel. The second one didn't go far enough down in the channel for me to go long on it. Unless I was just "feeling" real giddy that day and on top of the world LOL Gotta run. Happy trading.