Hello Volpri, hmmmmmm, scaling in. I think you have a good point here sir. I think I am understanding what you stating about scaling in and the advantage of scaling in. I am trading some Bitcoin here. I try the scaling in method. Here PA makes a minor Breakout and some lovely prior bear bars, I enter the trade short. I like using small profit targets for scalps with high probability setups. I like scalping and do not like holding trades. My stop is above the breakout bar. When I enter the trade, price goes against me. I wait for each bull bar and just click sell market as show below scaling in. I finally have a position of 6 contracts. My profit target comes up with each new position. Price finally goes my way. And I exit the trade for $132.84 Now look at my last my chart. Glad I got out. That is why I do not like that swing trading stuff man. Too much disappointment. Is this what you mean by scaling in on this price action breakout? I think this was a good job by me.
I have some interesting charts to show from trading today's price action. Hopefully, I can explain some good concepts and also show some trading mistakes that a scalper needs to avoid. I think it will be a good teaching opportunity. Maybe. Dad and Mom just arrived moments ago from out of town for our Christmas get together. So, I cannot post the charts right now but will try to post them tonight. I made annotations on the charts as I was trading live PA and corrected spelling mistakes and made some additional clarifications after I finished trading for the session. At least you will be able to see my thinking as PA unfolded. For better or for worse. LOL
Well I finally got around to making this post I mentioned earlier. Dad and Mom head back home later this morning. We had a good Christmas. Hope all of you did too. So now to Wednesday December 22, 2021 trades. I want to look at some trades in MES made Wednesday December 22, 2021. I will show 3 charts and some comments. I want to point out some good trades and some mistakes made and a few ways to pull out of such a mistake. Let's start with a definition of a scalp in the ES or MES. I define it as 1 to 8 points on normal days. A minimum scalp is 1 point. I am not interested in anything less than a 1-point scalp except when used as a means to just get out of a bad trade at BE or with 1 or 2 ticks profit, just to salvage a trade. Now some concepts about a scalper as I see it. You may disagree. But it is my journal LOL: 1) A scalper needs to make many trades per session as he is going for smaller profits. 2) He needs to have a high win rate, for two reasons. Because he is going for smaller profits, and because his initial risk is going to be (most of the time) bigger than his initial PT (if he is using PA Stop-losses). Therefore, he needs to have a high win rate. 3) And he needs to grab what the market gives him, without hesitation. He can always go back in again should the market continue in a favorable direction and even if it should reverse after his profitable "grab" he can go back in the reversed direction. The point is he has locked in his profits. Now he is free to go in any direction. 4) He should cut losses just before or when his premise, for taking the trade in the first place has been proved wrong by the action of price movement. 5) At times, to get back losses, he will have to double-up and go in the opposite direction of a previous losing trade. 6) When an entry is taking some heat because of price probing, he will often need to utilize scaling in or averaging down in order to be able to exit quickly with a profit, instead of waiting for several bars, for price to get back to his original entry and beyond, to make a profit. Averaging down makes BE and profitable points closer to the present PA. 7) Occasionally he can use scaling up when price action is conducive to it but most of the time he is just going to "grab" whatever profit the market hands him. 8) He needs to understand that bars are formed by price probing action. The market, all day long is probing back and forth, searching for price points that create more transactions. That is the way markets are designed. They will eventually always move to where more transactions will take place. That requires price probing to determine those points. Price probing is a sort of trial run at some price point. Will a move here create more or will it create less transactions? 9) There are, at all times, on all bars, bullish and bearish pressures at play and this is true every time frame imaginable. These pressures are what forms the bars. All bars except dojis are either owned or won by the bullish pressures or the bearish pressures. All bullish bars are trends on some TF. Likewise, so are bearish bars. For instance, a bullish bar on a 5-minute chart closing near it's high is a bull trend (maybe consisting of several bars) on a 1-minute chart. A large bear bar on a 15m TF is a bear trend (can be 1 leg, or 2, or more legs) on a 5-minute chart. A doji is simply a 1 bar trading range. And if you dial down to a smaller TF you will see that the doji on the larger TF actually consists of several bars in a sideways price action, i.e. TR behavior, on the smaller TF. 10) Unexpected events happen in the market. A scalper needs to know what to do when that happens. For example, a wedge bottom has slightly more a chance of price reversing up off the bottom than continuing down. But if it should continue down then that is the unexpected event and that will affect the setting of a profit target. Why? Because the trader now looking for a MM and not a reversal. 11) As scalper I always want to be aware of what cycle the market is in. The phase that the cycle is in is, in essence, the larger context. That context where I will find and execute setups. The phases of the cycle are 1) BO to 2) Channel to 3) Trading Range. The trend is composed of the first two combined. For example: Price has a BO in the form of a spike or just a move of consecutive bars in the same direction. Once there is a pullback then the channel phase starts. That will eventually begin to flatten out and price will morph into the third phase of TR price action. Then price stays in the TR but eventually another BO will occur, and the process starts all over. I want to take a look at 3 charts today, of the same price action, on the same instrument, MES. Look at this from the perspective as if this is a small account. So, position size has to be rather small. I want to point out some good trades and some bad trades on the charts. I also want to highlight a bad trade how I corrected it and ended the session with profit. I purposely want to highlight the mistakes made. In the explanations I will be showing some mistakes that relate to 1-11 above. But I want to also highlight some good concepts for scalping. Some were not employed but could have been were it not for the mistake. Only 5 trades taken Wednesday 12-22-21. Four were winners and one was a loser. The first chart is a RTH's 5m chart of MES. First, we will look at the Market Cycle context. The last few bars heading into the close of the previous session we see price was in TR behavior i.e. sideways movement-overlapping bars, up/down, bull/bear bars...etc So, now on the open of today's session 8:30 I am looking for some sort of BO out of this sideways PA. It may come as volatile spike or it may just come in the form of successive bull or bear bars. Now, once there is a PB then the channel starts. Bar 8:50 was the first actual PB since the open. At that point a top channel line could be drawn and extended out across the top of the highs of the bars. Then it could also be copied and pasted at the lowest point of the lowest bar, of the previous bars. So, 20 min after the opening bar we have a channel identified. Trade#1 was a good trade. A 1-point scalp on the opening bar. Price was just going back forth on that bar with no real conviction or pressures in any direction. However, price IS going to BO from the previous session's TR behavior. But I know the open can have wild swings so I am quick to grab any profit otherwise, I could get whipsawed after taking a position. I see the sideways action in the opening bar as it is forming, but I see no real advancement into a BO in either direction. Remember, there are such a thing as 1 bar TR's. All dojis are 1 bar TR's. TR's are areas where both bulls and bears are in exerting about equal pressures on the market while the market is deciding which direction the BO will occur in. I see this TR behavior as the minutes tick by on the first 5m bar of the session. Indecision. Back and forth and no real price advancement. Therefore, I bet I can scalp out a quick 1pt profit on that opening bar. I decide to go with the bullish side and make a long entry but I could have gone with the bearish side and shorted. The point is I wanted a quick 1pt scalp as the market decides where it is going to go. I get the 1 point scalp, so I grab it. I can always enter again once the BO occurs. The opening bar closes and we see a completed doji. What is a doji? See number 9 above. Ok I know T#1 was a small profit ...analogous to picking up a peanut... but it is thus so, ONLY, because the position size is small, and the instrument traded renders only a small profit on each contract. And the "grab" was fast. However, the process is the same if trading 2 contracts of MES or 5 ES contracts. It is a 1pt scalp. And a GOOD scalp. On the ES trading 5 contracts ...well ...that one point scalp is $250.00. Made in first 5 minutes of the open. Pretty good wages for the time invested. The idea here is to learn the processes. There are 81 5m bars in a RTH's day's session of MES or ES, and literally money can be made on any of those bars. If one can get the processes down and is skillful in PA reading. The instrument that one trades, and the position size that one trades depends upon one's account size, and one's mood for risk on that particular trading day. Inherently, MES is going to render less profit. So, trade #1 was a peanut bagged. A penny in the pocket LOL. "A penny saved is a penny earned." Was that Franklin that said that? Well, a successful one-point scalp in MES is a penny made. "Never despise small beginnings for they are the stuff big endings are made." A volpri twist on a biblical quote, as applied to trading. Too much typing here to explain a 1-point scalp on one trade, but I got carried away..... Trade #2 was also a 2-contract trade but with a twist to it. I bought 1 contract then scaled up adding another contract as it moved in my favor. I scaled up because the second bar after the open was a larger bull bar and the next bar getting close to its close showed more buying (tail on bottom). Together these two bars were indicative of buying pressure mentioned in number 9 above. Maybe the BO phase is starting? So, I scaled up on the small implied PB (bar 8:40) that followed these two bars. I discussed implied PB's in previous posts somewhere in this journal. Hunt it up LOL. So, I was betting we would see enough move up to make a decent scalp on both contracts as a bull channel appeared to be emerging see #11 above and that channel could soon be drawn on the chart. Two bars later I then exited both contracts, one with over a 5-pts profit and the other with over 4 pts profit. Again, GOOD scalps. Some more peanuts in the bag. Grabbing those profits (per number 7 above). On the ES these would be a bigger peanuts. A bull micro channel could now be drawn in putting a logical exit of T#2 to be near the top of the channel line. Why logical? Because most BO's out of the top of a bull channel fail within 5 bars. And so, I grabbed those profits at the top of the channel. A scalper needs to learn to get greedy and grab those profits. Remember "price probing" (#8 above) can quickly snatch a profit from a scalper. So, I use greed to my advantage. A trader cannot tame their emotions. We think we that we can but we really can't. Neither can you tame your thoughts. Your thoughts are like clouds on a windy day in the blue sky. They come in and move out as if they have a life of their own. A will of their own. The best we can do is acknowledge our thoughts and emotions, then use them to our advantage. I know this is a strange way of looking at things, but it is reality. OK an exercise: "I do not want you to THINK of a big, juicy, red, delicious apple." DO NOT think of it! See, you could not control your brain. Your brain thought of it anyway! Your brain burns about 20% of your energy. It has a life of its own. It is constantly creating new thoughts. It is our best friend but can also be our worst enemy. Especially, when it comes to trading. In trading we must realize our thoughts and emotions will pass like clouds blowing across a pretty blue sky. We must learn to acknowledge them, but then use them to our advantage in trading. Most traders cannot succeed because they have failed to learn to use their thoughts and emotions in ways that are advantageous to their trading. So, I got greedy to grab profits, not greedy to wait for bigger profits. The reality is I have a profit on hand. Will I lock it in or let it dissipate and slide away from me? Greed is an emotion that will come into play in every trade. Hope too. Fear too. Instead of hoping for bigger profits or fear of missing out on bigger profits, or getting greedy for bigger profits, I just take the profit that is there, by locking in what the market is handing me. If the move continues, I can ALWAYS get back in. See Numbers 1,2,3, and 8 above. Trade#3 was fading the bottom of the now drawn in channel line and grabbing 2 pts. Why grab two points? Why not wait and grab profits at the top of the channel as price will likely eventually get there. Because of a concept I call FOT or Frequency of Trades. See #1 and #2 above. As any 5m bar is forming there are many price probes in both directions. Bullish pressures and bearish pressures are being exerted. Who exerts the pressures is not relevant to us retail traders in the sense we don't need to know the name of the institution. We know around 95% of trade are done by institutions and around 70% of those are of the HFT's variety. The rest are traditional institutions. The remaining 5% are you and me. We are the one's picking up the peanuts LOL. Kinda like former president Jimmy Carter who was a peanut farmer. "You voted for him now eat his peanuts!" LOL That is what my uncle from MN once said. My uncle is now dead and gone and Jimmy yet liveth! Learning to eat peanuts is not an easy task because of FEAR, HOPE, GREED. Ok ...ok...I am making a short story long. I grabbed 2 points because of the concept of FOT. Often multiple trades can be made on a single 5m bar. That is, multiple entries and exits on the same 5m bar. When taking trades to post in my journal I try to stay away from the FOT on the same bar as it complicates matters trying to show the multiple entries and exits that the platform produces on a single bar. So, I grab 2pts to explain the concept and wait for another bar to appear, in this case bar 9:15 to appear. But please understand multiple entries and exits could have been made on bar 9:10 as price worked its way up to the top of the channel. I just didn't take them as I want to keep things explainable in terms of showing entries and exits on the chart and also ..well...I had to type these trades up with annotations "live" on the charts for you guys and I can't take a lot of high FOT and type at the same time LOL. The point I want to drive home from trade #3 is the idea of FOT. A scalper SHOULD learn to do FOT. Overtrading is a myth invented to justify losses that occurred because of a lack of skill, improper execution, or using emotions and thoughts in the wrong way. The only time overtrading as a concept has any merit to it is when one is physically or mentally fatigued to the point of being extremely tired, or even infirm, and such conditions impairs their judgement. Scalpers are going for small profits. Picking up peanuts. But they can be rather large peanuts if one is trading size. They must be able to pick up a lot of peanuts (FOT) and to do so with a high win rate. Some argue win rate doesn't matter. For a scalper that is a myth. I beg to differ, win rate DOES matter. A lot. It does if I am scalping for 1 to 8 point in the ES or MES. See I am going for small profits..rather, better to say small movements, as profits can be large if trading size. So, I am picking up peanuts...I have to pick them up before they get smashed. You catch my drift? If I delay some fat slob (institution) will step on them and smash them to smithereens. Besides if I have a 30% to 50% win rate when scalping and use PA SL's and have a loser that loser will likely be more than my average winners. I may have to spend the entire session just to get back to BE. The only way I can dig out of that quagmire of a bigger average loss is FOT, High win rate, and position sizing increase (especially on my winning trades). FOT. Of course, I never manage to take all the available trades. There are 81 5m bars in the session. Most bars can handle multiple entries and exits. The question is: can you or I? FOT's and high win rate are necessary for being a successful scalper IMAO (in my arrogant opinion..ROFLMAO). My next trade (T#4) will help show why. I hope T#4 is a learning experience for up and forth coming scalpers to practice on a SIM. Learn from this mistake. It gives a good opportunity for driving home some these key points that a scalper needs to be aware of. Trade#4 I shorted 1c at 4950.50 then added a second contract at 4953 both in the top of the channel both on bar 9:15 betting any BO that might occur out of the top of the channel would fail within 5 bars and price would go back into the channel far enough for a decent scalp. The BO occurred a few bars later at bar 9:35. However, this time it didn't fail. Instead, the BO was successful. There was initial FT (follow through). So, I added 2 contracts on bar 9:40 still thinking the BO would fail. So now I was short 4 contracts via averaging down or scaling in as price moved against me. The next two bars had higher lows and higher highs. So, by bar 9:50 I decided price was not going to go back into the range and this was essentially a successful BO and it would be best to just dump my 4-contract position and then work at getting the loss back on a subsequent trade. See number 4 above. I don’t use small SL’s unless PA indicates to do so. I usually don’t use monetary SL’s. Most of the time I use PA SL’s. I trade off probabilities knowing full well there is a 40% chance that I can be wrong on any single trade. But I also know that most BO attempts of a channel will fail 70% or more, and price will go back into the channel within 5 bars. However, price may FIRST trade OUT of the channel a bit. Therefore, I use a wide enough price action stop loss that will keep me in the trade as the trade works out. IF it doesn’t go back into the channel then my bet was in the 40%, and my premise for taking the trade was wrong this time. Price action has proved my premise to be wrong. Therefore, I just need to exit the erroneous trade with the loss and work on getting the loss back. So, I bit the bullet at this point I had a net loss of -$218.75 for the day. Because I not only lost the +$73.75 profit I had at the end of trade #3 but lost an additional -$218.75 so basically this trade cost me about $292.50. This meant I have to recover $292.50 to get back to $73.75 profit on the day. As a scalper that means I likely will have to increase my position size in next few trades. In order to get back the loss and get me back into profit. Another option is I can increase my FOT to get the loss back. Or I can do a combination of both. The point is if I don't change tactics, I would most likely go the rest of the session just trying to just get back to BE or possibly even end the day with a loss. I took my loss in Trade#4 at the point where I felt my premise for taking the four-contract trade was wrong. A premise can be wrong. Like I said there is a 40% chance at all times (except in rare circumstances) that any single trade can be wrong. Simply because there are too many variables and to many even unknowables in the market. Price action will ALWAYS prove if my premise is correct or wrong. I was betting on a failed BO out of the top of the channel, was willing to average down adding more, as price moved against me, but in this case the BO succeeded. Trade #4 fell into the 40%. ALL channels and ALL TR's will EVENTUALLY (see #11 above) have a BO. It is the nature of the market cycle. We must understand this truth of the market cycle. Prices cannot just go up and up, or down and down, with no respite. A trader cannot know beforehand when a BO attempt will succeed, or if it will fail. Most do fail with 5 bars. But sooner or later one will succeed. When that does happen, and I have an averaged down position put on, like in this 4-contract trade, I have to be quick to cut my losses and then work at getting it back. Otherwise, it can grow out of hand. Because at this point my average loss is quite a bit bigger than my average win. So, I played the hand that was dealt to me, now I am going to have to ante up again. I am sort of forced to change tactics if I want to end the day profitable. That leads us to my 5th and last trade of the day. After exiting trade#4 on bar 9:50 then on the same bar I went long 6 contracts initiating trade #5 Why? See number 5 above at the start of this post. I am employing the concept of doubling up (well almost). Going to bigger size to get back the loss of trade #4 and get it back quicker. I don’t want to spend the rest of the session trying to get the loss back. I am betting that price will continue on up as it has been bullish for 5 consecutive bars. We get a small pause, bars 9:55 to 10:05. This allows me to draw in a MM. I start the MM around the BO point of the channel then up to the pause and then extend it the same distance up above the pause. That gives me a potential PT (profit target) for my 6 contracts. While bar 10:05 is a PB (pullback) within the pause it did close with a tail on the bottom, indicating buying as the bar closed. But also, the pause is flattening the BO out of the top of the channel which is also indicating we MAY soon go into some sideways PA. Or not. So, I really need to grab profits near the MM. I should have been out of the 6-contract trade locking in profits by bar 10:10, at the latest by bar 10:30. And herein is the mistake I did not grab those profits from the 6-contract trade. I could have recouped much of my previous loss. Instead, I chose to hold on for more. I was greedy for more. The market was giving me a gift and I snubbed it. I failed to follow the concept of FOT. The larger size in comparison to the size of trade #4 was fine, and of itself even a correct tactic to use. I was reversing directions to get back in alignment with market PA (reversing from my previous losing trade) and increasing my lot size giving myself better odds of recuperating my loss. Nevertheless, seeing that price was leveling out by bar 10:30 I should have deemed it best to exit with a profit once the MM was reached or close to being reached. Why? Because since we may be going into a TR PA I could lock in my 6-contract profit and then change tactics, doing multiple TR entries and exits. There were several times I could have exited the 6 contracts before getting to bar 12:20. I failed to do so. Then price dropped back down in the TR to below my entry point of the 6 contracts. See bar 10:35. So, on bar 10:40 I added 6 more contracts betting we would see a push back up to the top of the now established TR (see #11 above) before the close (see #6 above). That is, I averaged down with another 6 contracts. But this time when price got close to the MM, and near the top of the now established TR on bar 14:10, I grabbed the profits locking them in. I got back my entire loss of trade #4 plus an additional $246.25 profit. I did not want to take the chance of price trading back into the TR and maybe going back to my entry price of the 12 contracts and doing so this close to the session close. In summary, I did finally grab the profits, but I lost out on multiple opportunities to trade 6 contracts over and over. I did not take heed to the principle of FOT nor the concept of high win rate. Even though I had a high win rate I could have had more profit and likely still maintained a high win rate. Those 2 things make the difference between a highly successful scalper and a so..so scalper. I squandered the FOT. Review #1-9 above near the start of this post because in one way, or the other, the concepts are show-cased in trade#5. Not that I followed the concepts completely. In some instances, I did not follow some of the concepts at all. However, at the bare minimum I could have a done better job following them. I hope this highlights mistakes that can be made when scalping and is instructive at the same time. As always you may want to SIM the concepts and verify if they are relevant to you and your style of trading. Below is a 24 hr chart with some quick thoughts made as I was trading. And volume added. I talk to myself. LOL Other annotations I made afterwards. Just thinking you might wish to see my clouds drifting across the blue sky as they are happening. Below is a third chart. Look at all the FOT opportunities I missed because of GREED holding on for more profit LOL (oval areas). Could have traded 6 contracts over and over and over multiple times. Instead ended up with a measley $246.25 profit. At least a little bag of peanuts. The chart also depicts the TR. TR behavior becomes an established TR after 20 bars or so of sideways movement. It is no longer just a PB but a TR on that particular TF one is looking at.
@volpri -- THANKS! What an amazing Gift you have given us! (Not to mention the amount of Time and Effort that is took to create and "wrap" . ) Thanks @volpri you are most generous.
Good Morning volpri, very nice and appreciated sir. I am about to get some coffee, print our your post and thourghly and happily read it. #team_take_those_profits
@volpri In another thread there is discussion of Brooks stuff regarding the recent market activity... https://www.elitetrader.com/et/threads/es-journal-2021-2022.353736/page-366#post-5521086 Admittedly, I am being lazy with my participation, I think your answer may help other Brooks students. Since the discussion does not include volume, I have next to nothing to input. Are there guidelines/rules regarding bar closing prices associated with the length of tails, wicks, and same bar opening price? Further, with the same bar details, are there guidelines/rules versus the/a previous bar? Thank you... and a happy, healthy, and prosperous new year to you and yours!
I just wanted to note that I don't actually agree with this rule / statement. This is honestly a matter of leverage / preference. I know guys that trade the ES only - but they go in with anywhere between 20-100c a trade - and they are scalping out at 1 point (while potentially letting around 25% of the position run with a B/E stop after that). So to be fair - if you are pushing enough leverage then you really don't need to take several trades per session. Well... unless your life is just so lavish you need all those extra monies to support it - or maybe just greedy as hell . Anyway everything else you wrote is world class as usual. If only everyone knew what they were missing by glossing over this journal and rolling their eyes. Keep fighting the good fight friend. Best journal if not thread on ET.
Of course you are in theory correct. But a trader has to consider losing trades too. I probably worded this wrong. It perhaps should read more like… A scalper needs to make many trades per session if he is trading with a small amount of capital (which is whom I have mostly directed this journal too). In addition, if he wants to maintain a high level of return in terms of percentage of the capital or leverage he is using whether it be large or small then FOT factors into the equation. Certainly trading 100 contracts for 2 points is a good return for the session on just one trade. But percentage wise it is ok, but not extraordinary. Then there is also the time 100c’s does not work out but instead generates a loss. Will the trader then swing another 100 or double up to 200 to get back the previous loss quickly? Or will he instead trade smaller (for fear of losing more) to recoup the loss? If he chooses the latter without utilizing FOT there is a higher probability he will end the session still in the hole. Get three 100 contract losses in a row on 1 point each time and that is quite the hole to dig out of before the session ends. So, depending on ones average win rate FOT can facilitate digging oneself out the hole, especially if coupled with some doubling up, and it can accomplish that rather fast. Then the rest of the session can be adding to profits. Bottom line as a scalper there will be days of 3 or even 4 consecutive losses. Without FOT doubling up how will he handle that? Keeping a runner on can help too if it is a successful runner.