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Bob volman forex scalping free diana dobreva bforex reviews

Bob volman forex scalping free

Both moves seem to appear equally strong, but the one that emerged out of the cluster stands a much better chance of holding up. Not only does it stem from a slightly higher bottom, the fact that it broke free from a cluster puts a solid foundation beneath the current market. This means that if prices were to retrace back to where they broke free from, as they often do, they are most likely to be halted right at the level of the earlier break resistance becoming support.

After all, it is much harder for prices to dig themselves a way through a solid group of bars than when there is very little standing in their way. Notice how prices bounced off of the signal line, a few bars after the break, which clearly shows us the power of cluster support 6. Have a look at the three very small dojis leading up to the break of the box 5.

They are displaying in miniature the same pre-breakout tension as the complete box is displaying in the bigger picture of the chart just wrap an imaginary box around the highs and lows of the price action from to At the risk of being overly elaborative, I am pointing this out for a very valid reason. If you learn to train your eye to recognize these subtleties in a live market environment, you will eventually be doing yourself a tremendous favor. The rise and fall of prices is not a result of somebody swinging a giant wheel of fortune.

There are actual people in the market, trading actual ideas, feeling actual pain and actual pleasure. You may never know for sure what motivates them to do what they do at any given moment in time, yet of one thing you can be sure: their actions are reactions to other traders actions, which is why most of the time everything happens in such repetitive manner. Markets may be random, as it is often stated, but traders surely are not. Despite the upward pressure, the cluster below and the magnetic pull of the round number above, with-trend participation after the break quickly died out.

Although they clearly lost a round, we can expect the bulls in this chart to not just crawl up in a turtle position. Given all the higher bottoms earlier on, they will surely be on the lookout to buy themselves back into the market at more economical levels. The most logical area to pick up new contracts would be in the 1.

With the market traveling a few pip higher because of this buying activity, touching the 20ema from below, the bears were now offered a more favorable level to become a little more aggressive 8. And indeed, they managed to squeeze out one more low 9.

They were given little time to enjoy that feat, though, as a large number of sidelines bulls quickly stepped in. It is the information necessary to keep a trader on high alert for another bullish attempt to take control of the market. With no less than six equal highs testing one another, a scalper did not have to think very long about where to draw the signal line of the second box.

That is only an instrument in our own personal toolbox. In fact, in a somewhat sideways environment, buying above it could at times be more dangerous than buying below it. Therefore, from a technical perspective, both patterns here are very similar in nature: sideways action, support holding up, a buildup of tension and a subsequent break.

Take a mental note of the two little dojis right before the break of the second box We will see this duo many times over throughout this guide. Both bulls and bears will be very quick to act, though, should the proverbial jack pop out. As pleasurable as it may be to occasionally stumble upon the near perfect trade, it also poses a rather interesting challenge on the topic of volume versus predictability. If we were to assign a rating to each individual trade—by counting the number of valid reasons to either skip or trade a setup—and came to conclude that the probability factor is apparently not a constant but varies visibly from setup to setup, should this not force an intelligent strategy to alter the volume per trade in compliance with the degree of predictability?

On the other hand, one could argue that if there is such a thing as a superior trade, then, naturally, there must also be its counterpart, the inferior trade though still possessing a positive expectancy ; when opting to trade the latter, could one not take off volume and tread lightly? And rightly so. Whenever we picture ourselves to have an edge, each setup deserves to be treated with equal respect, no matter how shady or pretty its appearance. And that means assigning the maximum allowable amount of units per trade to fully capitalize on the principle of positive expectancy.

Note: Contrary to common perception, the least important of all your trades is the one you are currently in. Your current trade, on the other hand, has yet to earn its notch on the historical slate. It is just a trade in process. And it is totally irrelevant whether it will win or lose. Why is that? But the point does show the importance of a proper understanding of distribution in a probability play. All individual outcomes are just data.

The only thing that truly matters is the collective result of all your scalping actions in the market. It can indeed be a mental challenge to have to sit out these times of inactivity, hoping for action and not getting any, especially to those traders who look upon their trading platform as a slot machine in a penny arcade.

A word of caution may be in place here, because these sideways ranges do have the nasty habit of luring a trader in one of two very classic mistakes. This warped sense of reality is typical for a trader who just needs action. The second classic mistake is made by traders who on the surface seem to stay composed rather well in a sideways market.

Up until that one amazing moment that boredom abruptly kicks in. For reasons unbeknownst to themselves they suddenly have to get up to make these phone calls, do their exercises, watch the news on the TV or even take a stroll outside. Anything to get away from that screen and that market! It is a pity that traders are so caught up in the notion that trading trending markets is the only way to go.

Contrary to popular believe, sideways markets deliver excellent opportunities, for the simple reason that they have to break out eventually, just like a trending market will eventually come to a halt or even reverse. With the moving average traveling sideways and price bars alternating above and below it, there is not much to make of it.

This is your typical round number zone tug-o-war in the absence of a clear incentive 1. But of one thing we can be sure: unless it is a national holiday, late Friday evening, or lunchtime in an already dead Asian session, price will not stay put for hours on end.

The trick is to recognize the buildup that most often precedes it. This is why it is so important to familiarize yourself with pre-breakout tension. What will help is to draw, or imagine, a box around any clustering price action that might lead to a break. By extending the signal line to the right, we can see that the pullback following the break successfully tested the breakout level as well as the broken round number of 1.

That will certainly have inspired a number of bears to just throw in the towel. And a number of bulls to quickly enter the ring. However, despite this potential for double pressure, markets do not always immediately pop. If you look closely, you can see that the top barrier of this second BB setup is not exactly running across the absolute high 2 but one pip below it, across the equal extremes of four consecutive bars.

Here it seems logical to put more weight to the four equal highs than to that one single high sticking out on the left. It would be overly prudent to wait for this high to be taken out, too. But let us ignore our setup for a moment and see what the market has to say about this: it put in a series of distinctive higher bottoms within the course of two hours; it broke a round number zone and saw it successfully tested; it built up towards a possible bullish breakout and now it breaks a cluster of four bars with equal highs.

I think it is telling us to trade. Once again, the breaking of a round number zone trapped traders on the wrong side of the market. In the previous chart, it was a downward break through the zone that not long after turned bullish, here it was an upward break that soon turned bearish. Probably no more than there is to any other break or move that fails or falls short: a lack of follow-through. It is not uncommon to see enthusiasm dwindle in rather subdued markets, or in situations where the round numbers are more of a symbolic nature than that they actually represent true technical levels of resistance and support.

In these cases, it is fair to assume that not too many stop-losses reside above or below the levels. As a result, the price action remains calm; as much as those in position do not see the need to get out, those on the sidelines are not exactly scrambling to get in, either. Everything is very easy in hindsight, yet if you managed to grasp the concept of the forces in play that caused the upside break in Figure Let us examine up close what exactly went on from the moment the third top was set 4.

It started to go wrong for the bulls when the reaction to this top a tiny countermove was not being picked up by new bulls in the 20ema a few bars later. That would have been a perfect opportunity to swing prices back up. From there on, they could have created themselves a nice squeeze by not giving in to whatever bearish pressure and then force themselves a way through the top barrier of the range. In fact, the three earlier tops 1, 3 and 4 would have made for an excellent barrier to trade that upside break from.

However, instead of working on that upside break, the market set out on its way to the bottom of the range again 5 and now even showed a classic triple top in its wake. These are not bullish signs. But there was hope still. After all, the round number zone was cracked to the upside and successfully tested earlier on, and that should at least amount to something.

If somehow new bulls found it in their heart to aggressively step in above the 1. And that would look quite bullish. Forex Price Action Scalping Excerpts Sometimes it only needs one bar to turn pleasurable hope into the idle variety. How about that little doji 7 that stuck its head a pip above the high to the left of it 6. A higher high in a bullish market after a possible double bottom in round number support, that should have attracted new bulls to the scene.

What kept them away? We can imagine it to be the triple top pattern to the left; but it is not our business to decipher or explain the actions or non-actions of our fellow traders. Everything is just information. As observant scalpers our task is not just to monitor a chart, but to look for clues in it. The more crucial the signs we can assemble, the more we can solve the puzzle of who is possibly toppling who in the market.

The best indication to determine the value of a particular chart event is to consider its place in the chart in relation to whatever price action preceded it. To give an example, the tiny false upside break of 7 would have been considerably less indicative had the market not printed that triple top shortly before. With prices now trapped below the 20ema, the market was on the brink of being sandwiched into a bearish breakout through the bottom barrier of the range.

For my own personal comfort, I would like to see prices get squeezed a little bit more before breaking down. Preferably, I would like to see the market print a couple of dojis right on the bottom level of the range as in a regular BB setup. It must be stated, though, that a conservative stance is not always the most successful approach. It would be nice if we could really put a rule of thumb on these false breaks, particularly on the tease variant, but alas, it often depends on the situation at hand.

That makes me want to wait for superior conditions just a little bit longer than, for instance, in case of a speedy market, where I might run the risk of fully missing the break on account of being too conservative. Note: As for the difference between the false break trap and the tease break variant, imagine for a moment the low 5 to have dipped a pip below the range barrier.

That would have turned it into a false break of the earlier bottom of 2 and not a tease. And most of them will have no choice but to sell back to the market what they had bought at bottom prices just moments before. Add to this a number of sideline bears eagerly stepping in and we have ourselves the perfect ingredients of double pressure and thus follow-through.

At times, the anticipation of this little chain of events is very straightforward. At other times, the assessment of the squeeze can be a lot more subtle and it may leave a scalper wondering whether or not to trade.

Particularly when the space between the 20ema and the barrier line is no more than a few pip in width, the tease break may be almost indistinguishable from a valid break. As we have seen already in several examples, the 20ema, just like in the chart above, can still guide prices back out in favor of the trade.

Take a moment to compare the string of black bars after the break in this chart with the string of white bars after the break in Figure What do these moves represent? They clearly show us the unwinding of positions of those traders trapped on the wrong side of the market. In the chart above, for instance, all scalpers that picked up long contracts inside of the range are carrying losing positions the moment prices break down below 1.

That string of black bars represents their predicament and their panic, so in essence a rapid unwinding of long positions that are being sold back to the market. As a result, prices will fall even more until eventually the market calms down and more bulls than bears are willing to trade. This, in short, is the principle of supply and demand. It works the other way around in equal fashion. And it is our job to anticipate it before it even takes place.

To the non-initiated this may seem like quite a daunting task. Yet those who observe, study and learn will most likely come to see the repetitive nature of it all. And soon they will be able to exploit those who do not. For example, if, say, 1. Variations on this pattern repeat themselves with such relentless persistence that it is not hard to imagine how numerous intraday strategies are solely built to exploit this phenomenon.

Of course, as scalpers we are only interested in one thing: can we exploit it? Anyhow, if nothing else, round numbers do have the pleasant side-effect of framing things in organized manner, just like wrapping boxes around ranges gives us clarity on resistance and support. They may do so at the moment, but I rather leave that to the price action itself. Frankly, in the never-ending quest for simplicity I have tried to scalp with a clean chart, meaning without the lines in it, but somehow my conditioned brain felt less comfortable without these levels framing the action.

This may very well be a personal quirk and any scalper can try for himself what suits him best. One last thing: on the road from 40 to 60, and the other way around, things can get very tricky. Currency trading, like it or not, is a big players game, and the level is arguably their favorite toy.

Unlike the 00 round number, this level is not a level itself. More often than not, these levels are what the bigger chart is all about and why we see so many ranges appear as a result. Let us look at Figure Halfway through the chart, the options are very much open. There are no trades near and a scalper should just relax and apply patience. Tip: you do not necessarily need to draw boxes, a horizontal line across the tops and one beneath the lows will do just ine.

At any moment in time there are always three ways to look at a chart. Through bullish eyes, bearish eyes, or neutral eyes. Needless to say, observing the price action with a neutral disposition is the way to go. Should it continue its pattern of slightly higher bottoms, then breaking out to the upside, eventually, would technically be the most logical result. As neutral scalpers, we can only sit back and enjoy whatever the market has in store for each party.

One thing is of importance, though, and that is to not walk away from this chart in a silly act of boredom. If the bulls show a bit more persistence, particularly when entering a potential squeeze phase, we may have a trade on our hands in a matter of minutes. As a matter of fact, the subsequent price action after the tease, that is the perfect squeeze that led to an excellent textbook RB trade 9. That is a very fair question. So far the examples here show outcomes that point in favor of that option.

It is my observation, though, that in most cases you can get away with being a little more patient. In other words, missing a range break trade due to a conservative stance is less common than one might think. As we will see in the section on Trade Management, squeezes provide excellent levels for stop placement. Conversely, a tease break situation, in essence a somewhat hastier break, seldom delivers the same technical clarity in terms of where to place the stop.

When trading breaks, patience truly is a virtue. Therefore, my advice would be to shun the non-buildup breaks entirely false break traps and those resulting from little buildup as much as you can tease break traps. Note: If prices after a tease break are pushed back inside the range but not much later break out again as in a valid RB, then it is not necessary to postpone entering until the tease level is taken out, too.

An exception would be if there are multiple tease breaks in a row that together form a new barrier by themselves. Then it may be recommended to assess the situation from the perspective of that new barrier see Figure Despite the many false breaks, there was no need to get caught in any of them. This chart, obviously, shows the market being a bit nervous.

By that information alone, it is quite safe to assume that halfway through it, the market was bracing itself for a typical news release. News releases bear an intrinsic potential to really rip a chart apart. It means that contracts change hands so feverishly that it looks like the bars are literally being spit out on the screen. Not seldom, these spikes are extremely short-lived, but that is of little consolation to those shaken out.

All in all, news breaks offer a dangerous environment to scalp in. To avoid getting caught by surprise, traders can check the economic calendars freely available on the web for the exact moment of major announcements like interest rate decisions and non-farm payroll numbers. If caught anyway, and not immediately shaken out, just remain calm. Always aim for a technical way out of a trade.

If the broker is okay in any other respect, offers a solid platform to trade from and keeps the spread at 1 pip throughout 99 percent of your sessions, then a simple solution would be to avoid the occasional mark-up by simply not trading during a hefty news release. The brokers to absolutely avoid are those who mark up their spreads more sneakily for no particular reason and for hours on end.

Even if they just add a few pipettes either side, it can have a devastating effect on even the best of scalping strategies. In terms of turmoil, the reaction to the news in this chart was rather subdued. But not without tricks, though. First appeared another false upside break F3 , which got slammed back pretty fast. Next in line was the tease break T that suffered a similar fate. We have to give the bulls some credit for not throwing in the towel then and there. Instead, they played their last trump card, which was to keep the pressure up by not allowing prices to slide below the last low in the range.

And that worked out wonderfully well. The low of 6 matched the low of 5 , forming a double bottom, and not much later prices were pushing against the top barrier once more 7. Notice the pretty little squeeze and how nicely the 20ema guided prices out of the box. Out of all the breaks through that top barrier, this was the only one that deserved true RB status 8.

As we have seen already many times before, it is not essential for the market to have prices attack a particular barrier up to the point of exhaustion. Quite often, it needs no more than a double top or double bottom to show all participants who is in charge. At times, it can make you wonder, though, why at some point the strongest walls of resistance get attacked with a relentless fervor, while elsewhere in the market a mere halfhearted expression of power remains completely undisputed.

But the market is what it is and does what it does. In the end, the direction of prices is a big players game and the mortal scalper has no business asking questions. Up until the encapsulated IRB setup there was not much to make of this range in terms of possible direction. In fact, they could dissolve in a matter of seconds without any signs of protest. That is why it is probably not a very good strategy—at least not for the aspiring scalper—to simply sell in resistance or buy in support, not even for the sake of a brief little scalp.

Overall, the safer approach is to see how the market handles these zones and then try to trade them. Whenever the market is approaching a barrier, or even just a former top or bottom, basically three things can happen. A bull, for instance, is basically telling the bear: I am buying your contract but I am shorting your dream.

And, likewise, so does the bear scorn the bull in return. It should come as no surprise that the average trader is not particularly burdened by moral inhibitions, nor does he feel the need to pledge a humane disposition towards his fellow trader in the market.

After all, he knows very well he is not exactly operating in the welfare industry and that at any moment in time he himself may get trampled by another. It is the novice, no doubt, who will get burnt the most in his line of duty; that is why it is so important to escape that status as soon as possible through sound preparation and extensive study, and with the inevitable lessons in the market costing as little as possible. Above all, carefully scrutinize their spreads for at least a number of days.

It's all part of the job. Many readers, no doubt, will have already gone through this process, one way or another, but those new to Forex are strongly recommended to diligently check out the available options and not just fall for hype and flashy looking platforms. In order to fully concentrate on the task of scalping there has got to be total trust in the speed and accuracy with which the orders are handled. Nothing can be so disruptive and detrimental to one's peace of mind as a low quality platform or a malevolent broker in the back.

Once a scalper has set up his account, wired over some funds and decided on his market to trade, he now has to craft himself a chart to trade from. In our next chapter, we will look into the matter of setting up this one special chart that should be able to serve a scalper's needs and wishes perfectly, all through the day.

And everyday again. The fact that this market is the most actively traded instrument on the face of the earth is often used as a sales pitch by clever marketeers in the brokerage industry. But sheer numbers alone should not inspire traders to venture out in the currency game. A more crucial factor to consider, apart from the mandatory tight spread, is the way an instrument behaves price technically on the chart.

In other words, a very technical market that meets the demands of a technical trader. Not too many currency pairs will do. With an average daily range of close to a 1 50 pip, the intraday moves on the chart are highly exploitable from the long as well as the short side and there appear to be plenty of opportunities in almost any session.

Most any method, when sound, will have at least incorporated. It is important to understand, though, that trading in general, and scalping in particular, is not a hobby or a game that one can pick up by flipping through a couple of charts. As any struggling trader may tell, developing a strategy on a technical chart is one thing, taking that strategy to the market is quite another. As we will soon discuss, there is a lot more to it than initially meets the eye and all aspects of it demand equal attention.

All a scalper ever needs in terms of information can be found within a single graph. Since there is little sense in trading intraday movements on fundamental vision, an aspiring scalper has no option but to get acquainted with all the specifics of price action charting.

But what chart should he look at? The time frames to choose from are practically limitless and surely there are pros and cons to each and every one of them. This can be measured by the length of the average moves, the buildup of pressures leading up to the breaks, the presence of tradable patterns and even by the way most classic tricks and traps will play themselves out.

Once a trader decides on his chart, it is crucial to commit to it, to study it inside out, to learn how it breaths, moves and dances, to understand its beat. A great chart to explore is the tick. This is the sole chart we will be focusing on in all of the coming chapters and it is actually not a time frame in the usual sense. Sometimes this frame resembles a second chart, but when volume picks up, it takes on a life of its own. Note: Not all charting packages offer the adjustable tick chart setting x-ticks , so it is recommended to check this out before subscribing to a provider.

Furthermore, the actual tick count is dependent on the data feed connected to the chart. This is no reason for worry, though. Close is close enough. In fact, if the tick count in all of our charts was set to something like 65 or 75, it really wouldn't have altered the patterns, nor their tradability, much. Within another package, however, the number may have to be set to something like 40 or even to a 1 00 or more.

It all depends on how charting companies filter their incoming data. When comparing your bars to the ones is this book, look closely at the time scale below the chart and monitor also the average height of the bars. A calm market will show most of them in the range of 2 to 4 pip; a vivid trend may easily exceed that, but usually not for long. A good trick is to set the tick number to a level that resembles a regular second time frame chart; if so, then you are very close.

Arguably, tick charts possess a distinctive advantage over time charts, primarily because the patterns in them are more compact in shape, which makes them somewhat easier to identify. When trading is slow, a tick chart will not print that many useless bars that flatten out the chart and take up unnecessary space; when trading is fast, it gives one all the more to work with.

This tick setting is not a magical number, nor is it the best chart setting you will ever come across. Because such a setting simply does not exist. Choosing the source of information is a personal matter and. Above all, we need a chart from which to time our trades with sniper precision. At times, following the bars on their march through the chart is like watching a brigade of colorful majorettes doing their routine.

In many instances, these price moves may seem rather chaotic, complex or at least highly diverse, but to an observant eye the actual variables are quite limited. In the end, there are only so many moves choreographically possible before repetition sets in. It is this repetitive tendency of price behavior that we must try to anticipate in order to cleverly time our way into the market or to find our way out.

This is essential because we need those other players to come in after us to bring our trades to target.. Basically, a clever scalper wants the majority of other traders to see the same thing, ride the same trends, catch the same pullbacks and trade the same breaks; he just wants to beat them to it.

This one single chart should be able to produce all the information necessary to make sound scalping decisions. There is no need to know yesterday's high or low, whether the market is in an up or downtrend on a bigger frame, or if it is running into some kind of major support or resistance level from the day before. In fact, in most instances, it is totally irrelevant what happened a few hours back. A chart that shows about one and a half hour of price bars in one go should definitely suffice.

The more information a scalper tries to cram into his chart, the more all this data will start to conflict. These patterns form the core of the scalping method about to be presented. Each setup will be discussed in full detail, along with many examples taken from actual market activity.

Entries and exits of trades will be pointed out precisely to the pip. Trend, countertrend, ranges, everything can be traded. When the objective is only a quick scalp, why discriminate. Allowing oneself the freedom to trade anything at anytime, that is the prerogative of scalping. No matter how many years a trader has been active in the markets, the undeniable marvel of a price pattern coming to fruition will never cease to amaze the technical eye. One might think that the hundreds of books on crowd sentiment and technical analysis over the years would have fully destroyed the tradability of price action patterns, but nothing could be further from the truth.

Just open up any chart, in any time frame, of any instrument, and before long the phenomenon unfolds. There are only two groups to distinguish: the bulls, thinking the market will go up, and the bears, thinking the market will go down. It is irrelevant whether they are in it for a short ride or a long ride, whether they are trapping other traders or showing true directional preference, whether they will fight till the end or betray their companions by joining the other team.

The only thing that truly moves prices is their actual buying and selling of contracts at the present moment in time. If one group is more aggressive than the other, price will travel in favor of aggression. It is widely believed that the activity in the chart is sending out clear signals as to who is currently toppling who in the market.

There would be little point in technical trading if that was not the case. But that leaves us with a rather interesting question: If all these moves and patterns are so well-documented and their implications essentially. We can safely state that at the core of a typical trader's misery lies a very simple fact that is often overlooked. The typical trader does not look upon his trading as a business. As a consequence, he approaches the market without a sound business plan.

This is a classic and very common mistake that, strangely enough, somehow seems to come with the territory. In almost any other field, a sloppy attitude towards one's own profession will quickly stand corrected. Banks will not grant credit without seeing a proper business plan; partners will not hook up when confronted with a flaky organization; if one carries a flimsy product, customers will soon play judge and jury. Yet when it comes to trading, the freedom is overwhelming, the anonymity complete.

He has no customers to satisfy, no partners to answer to, no banks to please. As long as there are still funds left to trade, it is just so easy to entertain the illusion that things will turn around, that good times will come and that eventually the inevitable profits will come falling from the sky. A trader should consider himself fortunate to recognize this absence of structure, and the self-foolery it brings about, before his funds run out. Interviews with top traders have discovered that even these widely acclaimed masters had to learn many of their valuable lessons the hard way and not having a proper plan was usually one of them.

But what exactly constitutes a proper plan in trading? Is it a bunch of rules that one should never break? Is it rigid formula to abide by? Is it a checklist to run before each and every trade? Unfortunately, this is not so easy to answer. What works well for one trader may prove detrimental to another.

However, we can be certain that successful traders do share at least one common trait: they take their trading very seriously. We could say they have acquired the mindset of a regular business entrepreneur. Since they understand the long-term aspect of their enterprise, they seldom get caught up in the heat of the moment. They are confident in what they are doing and as a result have no trouble putting capital at risk. They fully understand the cost of doing business and accept the losses that come with the job.

They will not walk around with a checklist of dos and don't's in their pockets, nor will they be constantly anxious about their capital at work or feel the need to check their bank accounts to see if they are up or down on the day. Even through times of adversity, they will remain calm and focused and always have the bigger scheme of things in mind. They operate from a structured frame. They are businessmen. Although we may not be able to tell what exactly drives a trader to the markets, we can safely assume that very few will be attracted by the prospect of earning a living in yet another line of work.

Many will have fled the monotonous drum of whatever they were previously engaged in, either discontented with their daily routine or with the wages earned. Needless to say, the majority of them arrive totally unprepared. They may have picked up an introductory course on technical analyses and maybe got themselves all excited about the surprising simplicity of it all. Look at these patterns. Anybody can do this. Never mind the statistics. All the others must be fools. And with the fearless mind of the ignorant they burst upon the trading scene.

To avoid this very common route, or to escape it when already trapped, requires a totally different mentality. Without question, the single most important factor contributing to either success or failure in the markets is a trader's ability to distinguish fiction from reality.

But even people who have proven. Such is the treacherous nature of speculation. When exposed to the markets, all previous images of the self can crumble in a very short space of time. In a way, this process of self-destruction can be very beneficial. It is even argued that in order to ever reach the desired rationale of the master, a trader first has to pay the obligatory visit to the very depths of desperation and emotional despondency. At some point in their careers, most traders, one way or another, will have to deal with this process and it may not be a pretty one, nor will it be pleasurable on the psyche.

When dragged through this transitory stage, a disconcerted trader may deeply question all he knew about himself and even wonder if he is cut out for the job. It is all part and parcel of this wondrous business that can bring such generous rewards and misery alike.

It would be out of place for anyone not thoroughly trained in the psychological field to pretend expertise on the mysterious ways of the mind. All that can be offered within these pages is a personal take on these matters as seen through the eyes of someone who has traveled the rocky path himself.

Even when dealing with the technical aspects, this guide serves no other purpose than that. Therefore, throughout this entire work, all relevant issues, whether technical or psychological, will be addressed from a very practical perspective. The viability of our method would be seriously compromised if we did not dig into the virtues of clever accounting as well. In a later stage of the book, we will take on this very crucial side of the business, in which the essentials of volume, risk-control and account buildup are extensively discussed.

We will see. The aspiring scalper who is truly capable of looking upon his trading as a business will find this chapter most promising. We will start out our journey by looking at the technical aspects first. The next chapter will take up the particulars of trade objective, damage control and order types. In a number of chapters after that we will run through all of the setups that form the basis of our technical approach. From then on, we will delve into the finesses of trade management, and further on into those of proper accounting.

Let us look realistically at the possibilities within a single scalping day. Many readers new to the ways of the faster chart will be anxious to know what kind of profits can be expected on a daily basis should one ever reach that pleasurable state of mastery. The answer to that is very straightforward. In trading, it is foolhardy to expect anything, so we best not go that route. At all times, the price action in the chart needs to align itself in a favorable way before we can even begin to think of trading a particular setup for profit.

This holds up for any chart, regardless of time frame or instrument. On a scalping chart like the tick, it may take minutes for something to set itself up, or it may take hours. To a smart scalper it is all the same, because he has no need for a trade. He will be able to idly watch the market from the sidelines, for hours on end if need be, and be totally okay with that.

At other times, he will fire off his trades in quick succession, exploiting every possible opportunity a favorable market may present. On balance, the tick chart will offer numerous opportunities throughout the day. When planning a trade, however, it is of crucial significance to opt for a reasonable profit target that should be obtainable within the. Also, to not have the mandatory 1 pip spread weigh too heavily on our trades, we have to choose a minimum target that sufficiently offsets these costs without compromising the likelihood of it being reached.

Preferably, we will like to see it set as close to the entry as possible, but not so close as to run a risk of constantly getting hit before our position has time to prosper. Obviously, these are matters to consider before delving into the heat of the market and they are best taken up as a rigid part of the method that is not to be tampered with. To neutralize the ever-present demons of fear and greed, it makes sense to prefer hard targets over adjustable ones.

Many trading strategies are designed around the latter, though. This may present a trader with the occasional huge winner, but more often than not, the market will turn sour on the trade and demand back a large part, if not more, of earlier profit. Naturally, there are ways to protect a profitable position with an adjustable stop. But that may cut short the proceeds prematurely. In the end, it is all a matter of choice and much of it depends on time frame and a trader's ability to cope with volatility and setbacks.

It should be no surprise, though, that most scalping strategies are not geared towards catching that occasional huge winner but more towards reaping small profits from the market on a regularly basis throughout the day. In any case, our settings should not just reflect our personal desires; they have to comply with what is technically obtainable within the span of a typical price move on our tick chart.

The following settings have proven their value over time and they are used in all of the examples discussed in this scalping method without exception. The target on each trade is a non-adjustable one and set to 1 0 pip of profit. Likewise, the stop is also set at a 1 0 pip distance from entry, but it is adjustable in the direction of the target only; either to close out a losing trade with minimal damage, or to close out a profitable trade that has lost its validity and needs to be scratched.

Certainly, this will not prevent a scalper from getting fully stopped out on occasion, nor will it prevent him from exiting a trade that would have been a winner. Regardless of these outcomes, there is a fine technique that could be applied to help a trader decide on the proper course of action. In the section on Trade Management, we will deal with the subtleties of the so-called tipping point of trade validity.

It is an exit technique that allows us to time our way out of a trade with the same precision as we plan to enter one. Next to these price technical settings, we have to decide on the matter of volume per trade. This is where the currency market, more than any other, provides excellent possibilities. Whereas many stock or futures brokers demand a minimum commission to enter a position, making it rather expensive for the smaller trader, in currency trading the costs of stepping in are the same for both small and big participants in the sense that they are derived as a percentage of one's volume.

This works out great because it allows a trader to start out as small as he likes without suffering an immediate disadvantage. It is a trader's personal choice to decide on his volume per trade. My advice would be to start out very conservatively until one slowly starts to come out ahead.

In the section on Account Management, we will look into the matter of volume in more detail, and in particular on how to build up it up in stepwise fashion to effectively run up an account. Note: The novice trader is always offered the opportunity to work himself through the learning curve on a papertrade account, trading virtual money; there are practical as well as psychological reasons why this may not be the best approach.

It is recommended to at least apply a tiny amount of true capital, even on a micro scale of a 1 , units, if need be. However, it could never hurt to explore a papertrade account for a number of days to get acquainted with all the particulars of order tickets and the such. Being content with a relatively small and predefined profit target like. All else equal, striving for very obtainable targets is a much more relaxed way of trading than aiming for extensive profits that may or may not be reached.

And what's more, pocketing a 1 0 pip profit on a trade does not forfeit the right to nimbly re-enter and scalp another 1 0. Scalping 20 to 30, or even 40 pip out of a 60 pip swing is definitely not uncommon in a favorable market. Nowadays, almost any trading platform will provide a variety of ways to execute a trade.

Next to the mandatory market and limit orders there may exist a whole array of esoteric order types that allow for a specific entry and exit techniques. This means we have to be able to set them beforehand to represent the right amount of volume and distance from entry.

So, before choosing a broker and the platform that comes with it, a scalper has to make sure the following options are provided. There is no fumbling around with limit orders in the scalping game. If we want in, we simply click the buy or sell button the moment the market hits our chosen level of entry. Since we already decided on a 1 0 pip target and a 1 0 pip stop, it makes sense to have the platform send out these orders automatically the moment we take position in the market. This is referred to as the very popular bracket order.

Conversely, in a short trade, anticipating falling prices, the target order automatically shows up 1 0 pip below our entry and the stop 1 0 pip above it. If either of these orders are hit, whether for a profit or a loss, the order at the other side. If the bracket order is set properly, a trader, when in position, could basically leave his screen and come back a little later to either a 1 0 pip profit or a 1 0 pip loss.

The target order, when hit, will be executed as a limit order, meaning it will be filled at precisely 1 0 pip from entry. The stop order at the other end is always a market order and once hit it will close out the trade either for a 1 0 pip loss or slightly worse than that.

By the way, depending on the size of one's spread, on most platforms the stop order may have to be set at a distance of 1 0 pip minus the spread. For the purpose of simplicity, in all the coming chapters we will assume the 1 pip spread to be standard. Eventually, competition will force the spreads to go down even more.

Since it represents an order to be filled at any price the moment the market hits a particular level, there is the possibility of the market moving away from that price after first hitting it in the split second it takes the platform to work the order. In speedy market conditions, this may result in a less economical fill occasionally, it may even work to one's benefit.

On the good side, if a trader wants out or in, a market order will always be filled. A limit order, on the other hand, is set to be filled at a specified price, which brings with it the risk of either missing the trade by not getting filled or not being able to get out when its time to get out. For this reason, we will only use market orders to get into our trades and to exit them manually in case we need to bail out before the limit order of the target is reached.

U sing the bracket order option and then let the market cast its verdict on the trade is a pretty relaxing way of managing an open position, but it may not represent the most effective approach. Arguably, a better way to go about it is to follow the price action attentively from the moment of entry and look for technical clues in the chart that could possibly negate a trade's validity status. Of course, this level to get out will be determined on technical grounds. This is where our tipping point technique comes in.

To close out a trade, we simply hit a market order in the opposite direction. For example, if a scalper fired off a market order to open a long position with, say, a full contract of a 1 00 , units, a simple click on the sell button will flatten his position close out in an instant, because this order will send a 1 00, units the other way, bringing the position from open to flat.

Depending on one's trading platform, this could also be done by hitting a close-out button. However, many less sophisticated platforms will not offer this option in one-click mode after hitting the button, it may ask for confirmation to close out the trade, a setting that can not always be unchecked.

At all times, we should strive to send our orders in one-click fashion. In doing so, inexperienced traders may occasionally slip up by hitting an order to exit not in the opposite direction but accidentally in that of the original position. Instead of flattening out, that will leave them with a double open position. It happens. If a one-click close-out button is not offered and the opposite order technique provokes anxiety, then a way to go around it is to immediately hit the close-out button the moment an entry is taken.

That will pop up the confirmation ticket, which can then be activated with a click of the mouse when it is time to exit the trade. An excellent way to set up one's order tickets is to show the buy and sell buttons in a small window on top of the chart.

That way, they will always remain visible, even if the chart is touched with the mouse. In this fashion, a trader has only one screen to look at. It will show him the technical chart and allows him to enter and exit with a simple click of the mouse. Another reason why the single screen setup is preferable is because it hides all other information from view.

Once in position, all we have to monitor is how the market responds after our entry. We have no need to know the status of our account, nor the current loss or profit on the running trade. That kind of information is not only useless, it may affect the decision-making process in a non-desirable manner fear or greed may kick in.

It is vital to realize that mental stability, more than technical skill, is the most important ingredient in the process of doing what needs to be done. The more we create ourselves an environ-. Readers already familiar with technical analysis should understand that this particular scalping method takes a very minimalistic approach to chart reading and shies away from anything that might clutter up the screen and distract a trader from concentrating on the sole thing that truly matters, which, of course, is price.

In fact, apart from a single moving average, the 20ema, there is nothing on the screen but price. May it be suggested to give up that fight. What's more, depending on indicators might keep a scalper out of perfectly healthy trades or even suck him into the market at precisely the wrong time. When it gets to pulling the trigger, no algorithm code could ever compete with sound observation. The best way to look at a live price chart is as if it were a non-moving snapshot. Forget the next coming candles for a moment and look at what is already there.

What does it tell us? Do we see higher bottoms appear, lower tops? Are levels being defended, attacked? It is not that hard to do, really. Barring the occasional erratic mishmash, the market, one way or another, usually tips its hand quite transparently. But it will not.

That is why we have to scrape all available pieces of information together before we can even begin to think of taking a trade. They appear to have little regard for the overall picture and seem to concentrate mainly on their beloved setups. And it shows up in the chart. We may never be able to tell what drives other traders to do what they do at any given moment, but it is obvious just by looking at the terrible spots that get traded every day that plenty of traders have very little clue themselves.

The point to grasp is that we have to have a very good reason to step into the market and put capital at risk. We can't just go around firing off trades and hope for the best. In order to really feel confident about what we are doing, we have to find an edge in our trading, a tiny technical advantage that puts the odds in favor of our trades.

There is no denying that this magical edge, by far, is the most sought after element in the game of clever speculation. We could say it is a trader's equivalent of the philosopher's stone. Possess the edge in the market and one could turn lead into gold.

And quite like our ancient alchemists, in an almost universal desperation to find it, most traders are looking for it in all the wrong places. Try as they may, they won't find their edge in a box full of indicators. All the money in the world could not buy it on the internet. A trader will not stumble upon it in a stroke of good fortune.

Simply because the edge is not a thing that can surface by itself. Bear in mind, though, that no edge will ever make a trader beat the market. For the market is not a beatable object. A trader can only strive to beat those in it less proficient than himself. Hence the value of proper education. The true edge in the market, it is safe to say, is simply one's ability to recognize and exploit the incompetence of others.

Even so, it is important to understand that trading is very much a probability play. It is not a game of win or lose. The objective is not to score a winning trade or to beat another trader. In fact, throughout the. At all times, the clever scalper should have the bigger scheme of things in mind.

Detaching oneself from the need to reap profits from each and every trade has enormous benefits. For example, if one truly understands the principle of a probability play there can be no agony in temporary adversity. If a trader executes his method correctly and consistently, all results, good and bad, only reflect the typical variance to be expected in a random distribution of outcomes.

The good part is that even a marginal edge will eventually prove its value. Or it wouldn't be an edge. This is an essential concept to grasp. Here's another way to look at it: If you were to engage in a game of dice, with the numbers 1 through 7 representing profit and the numbers 8 through 1 2 representing loss, would you be upset if 1 1 came up?

And then 9 and then 1 1 again? Surely, with a statistical edge of 7 : 5 , you would be very happy to roll these dice again. This is no different in scalping with an edge. It also shows us the folly of being upset after a losing trade. And of euphoria after a winning one, for that matter.

So, more than aiming for profit, the objective should be to do what needs to be done. If so, then the edge in one's play will take care of the rest. Diligently executing a particular method is the only way to fully exploit probability in the market. It is quite amazing, actually, how little this approach is practiced, even by those more experienced.

Trying to predict direction, for instance, is a very common way to look at the market. After all, traders love to be right. But there really is no point in that. Who is looking anyway? Those that strive for glory in their trading are simply deluding themselves. A clever scalper is an observer more than a participant. Regardless of circumstance, he will remain neutral and observant, paying equal.

At times, he may take a conservative stance; at other times, he will show more aggression. It is all up to the scalper. But whatever he does, he will make sure it is in accordance with his personal method or else he will not put his capital at risk. A tiny little edge can go a long way; it could even run up the smallest account to any desirable height. It is time to let the charts do the talking. Scalping a market profitably requires a very disciplined mindset and a carefully chosen array of trade setups that allow for a minimum of freehand interpretation.

Even the novice trader will quickly come to understand that simply shooting from the hip is the fastest way to blow up an account. The problem lies in the misleading assumption that a trading plan is in place when in fact there is no such thing as a solid plan at all.

This can be a painful basis to trade from and it is not uncommon for even the promising trader to be fully unaware of it. More often than not, this will bring all sorts of negative emotions into play, such as frustration, anger, agony, vengeance, fear-ultimately pushing the baffled trader only further downhill. And so the dire quest for the holy grail can start all over again. Fortunately, there are ways to avoid this very predictable route and it starts with looking at the plan from an analyst's perspective.

Strip that trading plan to the core and analyze it as if it were somebody else's. Put this plan to the stand and let it defend itself. This is no time to be gentle. See how this plan holds up under severe cross examination and find out if it is guilty of either vagaries or deceit. If this is the plan that will accompany a trader in battle, better make sure it will not crumble apart under enemy fire. A number of questions need to be thoroughly addressed before any trading plan could ever pass the viability test.

Are the setups well defined? What are the conditions to trade them in? What target objective accompanies what setup? When is a running trade no longer valid? What is the maximum stop-loss level on the trade at hand? When it looks like a setup but differs slightly, can it be traded? How to handle missed entries? How to handle slippage? When to scratch a valid trade?

How to handle a new setup when already in position? And these questions are just addressing the technical mechanics of the plan. We haven't even touched upon the psychological pitfalls that await any unprepared trader for sure. As already stated, a trading plan, by itself, is not a checklist of dos and don'ts. That kind of rigidity will only serve to stifle a trader in a field of work where he may need to be flexible more than stiff-minded and apply logic more than rules.

For the market itself is never rigid and no situation will ever present itself exactly as it has done in the past. Arguably, the best way to obtain an understanding of what scalping is about is to dive into the waters and learn to swim with the sharks. Yet very few will survive the audition. The coming chapters of this book will have that mission in mind and hopefully provide most of the answers to the questions above. But it is important to understand that the setups by themselves have very little meaning.

They are just tools to get us into the market. Our first aim is. In a later stage of our technical journey, we will discuss when and why to forgo even the best looking setups on account of unfavorable conditions. Every setup has its own set of characteristics although some of them can appear rather similar in structure. It is not uncommon for one setup, at a particular moment in time, to contain all the makings of another. Some setups perform extremely well in trending price action , while others set themselves up to exploit the many ranging phases of the market.

To identify the particular setups, all of them are named according to their main characteristic and each will have a chapter of its own to study its specifics in detail. The setups are:. All of these setups, one way or another, revolve around the bar exponential moving average, the 20ema. This widely followed indicator plots the average closing price of the last 20 candles bars with a slight tweak in calculation the exponential , giving the present closing prices somewhat more weight than the earlier ones.

Some traders may prefer an 1 8ema or 2 1 ema, but that doesn't really alter much. Any number of bars between approximately 1 5 and 2 5 , either exponentially plotted or as a simple moving average sma , will usually give the short-term trader a dependable guideline as to whether the market is currently trending or merely drifting sideways. Is the average sloping up, most traders will be operating on the buy side go long ; is the average sloping down, traders will look for entries on the sell side go short.

The average can also be used to anticipate a shift in price direction when it is going from sloping to fiat or from fiat to sloping, and in many cases it can almost literally push prices out of a sideways pattern. When the average is not trending but more waving sideways, with prices not staying on one side of the average but alternating above and below it, it acts as a warning sign to be more selective in picking trades. The market apparently has entered a very indecisive phase that needs to be cleared up first.

Faster averages, like 1 5 and below, track price even closer but have the tendency to be constantly breached by individual bars without the trend really changing; the slower averages, like 30 and up, tend to point out the trend rather well, but, to a scalper's fine taste, may be lagging behind too much or simply produce too little setups. Bear in mind that this 20ema should always act as a guide, not a law. Sometimes a trader may even have to discard it. Frankly, it is perfectly possible to trade the markets without it, but overall its visual value will be proven in almost any trade setup and since it doesn't clutter up the screen, it is a great average to have in the chart.

In a bullish trending market, with the average sloping up and most of the candles traveling above it, the safest trades are to the long side and so a trader should be on the lookout for setups to go long, preferably in the vicinity of the 20ema.

In a bearish trending market, with the average sloping down and. In topping markets or heavy chart resistance, when prices cannot seem to make further advances, a trader should look to go short but still have an open mind towards going long. In bottoming markets or strong support, when prices cannot seem to make new lows, a trader should look to go long, but still have an open mind towards going short. One could say that the trend is temporarily taking a breather by allowing prices to go against it.

It is also referred to as countertrend traders countering the trend. The general assumption, however, is that the pullback in a trend is ultimately short-lived and that a true trend will soon pick itself up. With-trend traders, using their with-trend setups, try to capitalize on that continuation , and, thanks to the pullback, at more favorable prices to boot. The Block Break BB is seen in all markets, trending and ranging, topping and bottoming.

When it comes to the difference between a pattern and a setup, both terms can be used interchangeably, for a setup is always a pattern, even if it contains only one bar. But technically, the term pattern is mostly used for a somewhat larger formation or a number of bars in which a smaller formation, the setup, can appear.

This setup formation will then be used to trade the break of the bigger pattern. Despite the sometimes confusing terminology, trading, of course, is. The names by themselves are not significant. Let's start by examining the DD setup first. The Double Doji Break DD is the most straightforward setup in the method and is just as easy to identify as it is to trade. Prices may travel up or down within the duration of the bar, forming bar extremes tails , yet if they return to the area of the opening level upon the closing of the bar, then we are dealing with a doji.

In any bar, the area between the opening price and the closing price is called the body. The price levels outside the body are called the tails of the bar. These bars are essentially a sign of market indecision. When the chart prints another doji next to the first, the temporary indecision obviously builds up. In most instances, however, a brief stalling of prices bears little significance; but when two or more dojis appear in what might be the end of a pullback to a nice trend, somewhere in the 20ema zone, a trader better place his finger on the trigger and get ready to trade.

Once prices have retraced about 40 to 60 percent of the most recent swing due to the activity of countertrend traders , the original trend stands a good chance to resume. Grateful for the more attractive levels to trade from, they will. This is a well-trodden strategy, and a clever one at that. After all, more attractive levels not only reduce the potential loss on a trade, a trader also stands to reap more profit from the trend should it indeed continue on its march.

Still, it can be a tricky proposition to decide when exactly to step in. In the scenario of a waning pullback, countertrend traders face an important decision of their own: either book their profits and get out of the way, or hold on still, in anticipation of more countertrend activity, or, who knows, even a complete failure of the trend.

It is impossible to predict whether a pullback is just a harmless little countertrend, or the beginning of a new trend in the opposite direction. But that is essentially irrelevant. In a probability play, we have no need for guarantees. We just trade probability. However, we do have to assess the validity of the trend itself. We could say that trending bars look somewhat more aggressive than non-trending ones.

In our charts, a bearish trend will print mostly black bodied bars closing price lower than opening price ; a bullish trend will print mostly white bodied bars closing price higher than opening price. Logically, in the pullbacks the coloring will mostly be reversed. Therefore, a nice white bodied uptrend, for example, will show a smaller black bodied pullback.

Assigning colors to the bodies is just to aid the visual process of recognizing price action. Many traders have no need for it and they may have their charts set up in one-color fashion. In all its simplicity, the DD setup is a powerful tool to capitalize on a continuation of a trend and in most instances it is best acted on without second thoughts.

An important requirement, though, is that prices, from the moment of entry, have to have a clear path ahead of them, at least on the chart at hand we will never know what looms in the dark. Not uncommonly, it is the pullback itself that obstructs the path to target. The pullback, when deemed harmless, is ideally running diagonally against the trend and pretty much one-directional.

When it presents itself as a block of clustering and sideways trailing price bars, it could seriously cut short a future advance or decline. Some examples will clarify this for sure. The dojis in this setup do not have to be dojis in the absolute sense. Small candles, usually no more than 3 pip in length, are best considered to express similar indecision as any regular doji and therefore can also serve as valid candles in this particular pattern.

In contrast, the smaller the average bar in the trend, the less the DD setup, with similar small bars, will stand out among the rest. In all instances, a trader has to calI on his personal experience to determine whether the current technical conditions are supportive enough to engage in a particular setup play. In other words, due to circumstance, he may have to skip what appears to be a solid setup on its own.

In Chapter 15 on Unfavorable Conditions, we will look into this more closely. In general, most setups will show up under conditions that will not put much strain on the decision-making process. We either trade the setup or we just skip it.

Note: Although we should basically strive to scalp the chart like we would in the safety of a solid backtest, obtaining similar results in the actual market will be extremely difficult, if not completely impossible to achieve. Therefore, as much as even a thin edge theoretically should. Because they do not incorporate the disruptive effect of the human hand.

The solution: refraining from strategies that show a marginal edge under ideal circumstances. It is not the strategy itself that should be distrusted, though, just the crippling effect of those at helm of it ourselves included. Ideally, all bars in a DD setup show equal extremes on the trend-side the side from which the break is to be traded , but more often than not that is just riot the case. For this reason, the most important candle to watch in the DD setup is the one with the highest high-for possible long trades-or the one with the lowest low-for possible shorts.

The position of this bar in the doji group is irrelevant; its extreme on the trend-side, on the other hand, is crucial. This bar is called the signal bar. When dealing with a setup in the making, the signal bar is the one to watch most attentively. The moment its trend-side extreme gets taken out by another bar, we got ourselves a signal to trade.

The bar that takes out the high or low of this signal bar is called the entry bar. Obviously, this is the bar in which to take position. This terminology holds up in all of our other setups as well. One more distinction can be made regarding the tradability of the pattern.

When the setup is currently showing two dojis that have their trend-side extremes more than one pip apart, the pattern has to be judged in relation to the trend before it to see if it is still eligible as a tradable event. In case of a rather weak trend, for instance, it may be wise to skip the DD trade altogether when the extremes are more than one, but certainly more than two pip apart.

In a very strong trend, on the other hand, it may pay off to be less conservative and just trade the pattern on a break of the extreme. The 20ema should now be sloping up with most bars traveling above it. At some point, the trend may lose a bit of steam and a number of bars will start to travel in the opposite direction , towards the average that is. Not long after, average and price may collide. Since the trend is up, this pullback is widely considered to be a temporary event and so a lot of scalpers will be watching the possible low of it attentively.

It would be silly just to fire a long order on account of prices reaching the 20ema. It is better to watch out for some sort of sign that prices may be about to reverse. Watching a bar pierce the average to the downside, for instance, only to see it quickly close above it again, is a pretty good starting point.

In case the current bottom of the pullback is represented by two or more neighboring dojis, more or less resting on the 20ema their tails preferably dipping below it , a scalper calmly waits for a new bar to take out the highest high of the doji group.

By definition, the high of any signal bar is taken out when the current price bar in the chart goes exactly one pip above it. Upon seeing the signal bar being taken out by another bar the entry bar , the scalper immediately enters long at the market.

In the event of a downtrend and a potential short position, all of the above is simply reversed: once the inevitable pullback emerges and prices arrive at the now down-sloping 20ema, the alert scalper will start to monitor the price action with close scrutiny, comfortably knowing that a number of setups are at his disposal to trade this market from the short side.

This sell order, when set properly, will be instantly bracketed by a 1 0 pip stop above the entry price and a 1 0 pip target below it. It is important to understand, though, that the highly regarded 20ema is just a tweaked moving average of the last 20 closing prices and does not in any way offer support or resistance to the market on account of its presence. It does point out a dynamic visual level of where prices tend to stall when countering a particular trend. But that, most. This 20ema just so happens to catch the bulk of the pullbacks quite well.

On any chart. Admittedly, there may be a strong self-fulfilling prophecy aspect attached to this average, but then again, that basically holds up for price action in general. A clever scalper will not concern himself with the actual reasons behind the moves in his chart. For there is no point in speculating over other traders' motives. All he has to go by is what takes place in the chart on a recurring basis.

And his task should be to exploit repetition. Now let us see how the DD setup, the first in a line-up of seven, is effectively traded in the real-world environment on a tick chart. Figure 7. In this case, no less than four dojis had formed into the 20ema zone 1. One of them broke the average briefly to the upside, but all four of them shared equal lows below it. But that is not necessarily a requirement. This could very well be interpreted as a with-trend play incentive. Not uncommonly, sideliners harboring with-trend views on the market only need to see a tiny break in the direction of the earlier trend to deploy new with-trend positions at the speed of light.

One price bar taking out another bar's high or low by a pip can already trigger a waterfall of with-trend orders cascading into the market. This activity could leave a serious trail of countertrend sorrow in its wake. In many instances, the degree of with-trend aggression after a pullback mimics the strength of the trend before it.

The weaker the trend before the pullback, the more any potential chart resistance after it might play an obstructing role. Each of the four dojis here could pass as a signal bar, because they all share equal lows. The arrow in the chart points towards the first bar that took out these lows, and this bar is therefore called the entry bar. A scalper does not wait for this entry bar to finish. The moment it takes out the signal bar's low, by traveling exactly one pip below it, a market order is fired and the short trade is on.

Note: It should be stressed that no matter what charting software the scalper holds preference to, the bars in it should have a price scale in increments of one full pip. The trading platform may show prices in increments of pipettes tenths of a pip , but that will not do for the chart. If this is neglected, a series of price bars with otherwise equal extremes will most probably show a jagged edge of fluctuating extremes, making it seriously harder, if not impossible, to determine a proper break level to base an entry on.

If this could already pose a problem in the event of a simple DD setup, then it will certainly do so when it comes to the more streamlined setups that we get to discuss later on. Furthermore, it is strongly recommended not to use the chart on the trading platform as the source of information, even if it offers the tick chart setting and is set to 1 pip intervals. Get yourself a decent stand -alone package solely for charting purposes and leave the trading platform completely running in the back.

Monitor this carefully. Sometimes the bid will resemble the price in the chart, at other times the ask is more close. It may differ a few pipettes here and there, which is only natural; but if either one is constantly off by more than a pip, then something is not right. If it doesn't look right, either change broker or charting provider until you get them both to align. Any trend, no matter how strong, will have pullbacks in it. That is just the nature of the markets where so many opposing ideas are traded up and down.

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When that fourth higher bottom was printed, forming a cluster together with the handful of price bars next to it, things are starting to get interesting. Both moves seem to appear equally strong, but the one that emerged out of the cluster stands a much better chance of holding up. Not only does it stem from a slightly higher bottom, the fact that it broke free from a cluster puts a solid foundation beneath the current market.

This means that if prices were to retrace back to where they broke free from, as they often do, they are most likely to be halted right at the level of the earlier break resistance becoming support. After all, it is much harder for prices to dig themselves a way through a solid group of bars than when there is very little standing in their way.

Notice how prices bounced off of the signal line, a few bars after the break, which clearly shows us the power of cluster support 6. Have a look at the three very small dojis leading up to the break of the box 5. They are displaying in miniature the same pre-breakout tension as the complete box is displaying in the bigger picture of the chart just wrap an imaginary box around the highs and lows of the price action from to At the risk of being overly elaborative, I am pointing this out for a very valid reason.

If you learn to train your eye to recognize these subtleties in a live market environment, you will eventually be doing yourself a tremendous favor. The rise and fall of prices is not a result of somebody swinging a giant wheel of fortune.

There are actual people in the market, trading actual ideas, feeling actual pain and actual pleasure. You may never know for sure what motivates them to do what they do at any given moment in time, yet of one thing you can be sure: their actions are reactions to other traders actions, which is why most of the time everything happens in such repetitive manner.

Markets may be random, as it is often stated, but traders surely are not. Despite the upward pressure, the cluster below and the magnetic pull of the round number above, with-trend participation after the break quickly died out. Although they clearly lost a round, we can expect the bulls in this chart to not just crawl up in a turtle position.

Given all the higher bottoms earlier on, they will surely be on the lookout to buy themselves back into the market at more economical levels. The most logical area to pick up new contracts would be in the 1. With the market traveling a few pip higher because of this buying activity, touching the 20ema from below, the bears were now offered a more favorable level to become a little more aggressive 8. And indeed, they managed to squeeze out one more low 9.

They were given little time to enjoy that feat, though, as a large number of sidelines bulls quickly stepped in. It is the information necessary to keep a trader on high alert for another bullish attempt to take control of the market. With no less than six equal highs testing one another, a scalper did not have to think very long about where to draw the signal line of the second box. That is only an instrument in our own personal toolbox.

In fact, in a somewhat sideways environment, buying above it could at times be more dangerous than buying below it. Therefore, from a technical perspective, both patterns here are very similar in nature: sideways action, support holding up, a buildup of tension and a subsequent break.

Take a mental note of the two little dojis right before the break of the second box We will see this duo many times over throughout this guide. Both bulls and bears will be very quick to act, though, should the proverbial jack pop out. As pleasurable as it may be to occasionally stumble upon the near perfect trade, it also poses a rather interesting challenge on the topic of volume versus predictability. If we were to assign a rating to each individual trade—by counting the number of valid reasons to either skip or trade a setup—and came to conclude that the probability factor is apparently not a constant but varies visibly from setup to setup, should this not force an intelligent strategy to alter the volume per trade in compliance with the degree of predictability?

On the other hand, one could argue that if there is such a thing as a superior trade, then, naturally, there must also be its counterpart, the inferior trade though still possessing a positive expectancy ; when opting to trade the latter, could one not take off volume and tread lightly? And rightly so. Whenever we picture ourselves to have an edge, each setup deserves to be treated with equal respect, no matter how shady or pretty its appearance.

And that means assigning the maximum allowable amount of units per trade to fully capitalize on the principle of positive expectancy. Note: Contrary to common perception, the least important of all your trades is the one you are currently in. Your current trade, on the other hand, has yet to earn its notch on the historical slate. It is just a trade in process. And it is totally irrelevant whether it will win or lose. Why is that? But the point does show the importance of a proper understanding of distribution in a probability play.

All individual outcomes are just data. The only thing that truly matters is the collective result of all your scalping actions in the market. It can indeed be a mental challenge to have to sit out these times of inactivity, hoping for action and not getting any, especially to those traders who look upon their trading platform as a slot machine in a penny arcade.

A word of caution may be in place here, because these sideways ranges do have the nasty habit of luring a trader in one of two very classic mistakes. This warped sense of reality is typical for a trader who just needs action.

The second classic mistake is made by traders who on the surface seem to stay composed rather well in a sideways market. Up until that one amazing moment that boredom abruptly kicks in. For reasons unbeknownst to themselves they suddenly have to get up to make these phone calls, do their exercises, watch the news on the TV or even take a stroll outside.

Anything to get away from that screen and that market! It is a pity that traders are so caught up in the notion that trading trending markets is the only way to go. Contrary to popular believe, sideways markets deliver excellent opportunities, for the simple reason that they have to break out eventually, just like a trending market will eventually come to a halt or even reverse.

With the moving average traveling sideways and price bars alternating above and below it, there is not much to make of it. This is your typical round number zone tug-o-war in the absence of a clear incentive 1. But of one thing we can be sure: unless it is a national holiday, late Friday evening, or lunchtime in an already dead Asian session, price will not stay put for hours on end.

The trick is to recognize the buildup that most often precedes it. This is why it is so important to familiarize yourself with pre-breakout tension. What will help is to draw, or imagine, a box around any clustering price action that might lead to a break. By extending the signal line to the right, we can see that the pullback following the break successfully tested the breakout level as well as the broken round number of 1.

That will certainly have inspired a number of bears to just throw in the towel. And a number of bulls to quickly enter the ring. However, despite this potential for double pressure, markets do not always immediately pop. If you look closely, you can see that the top barrier of this second BB setup is not exactly running across the absolute high 2 but one pip below it, across the equal extremes of four consecutive bars.

Here it seems logical to put more weight to the four equal highs than to that one single high sticking out on the left. It would be overly prudent to wait for this high to be taken out, too. But let us ignore our setup for a moment and see what the market has to say about this: it put in a series of distinctive higher bottoms within the course of two hours; it broke a round number zone and saw it successfully tested; it built up towards a possible bullish breakout and now it breaks a cluster of four bars with equal highs.

I think it is telling us to trade. Once again, the breaking of a round number zone trapped traders on the wrong side of the market. In the previous chart, it was a downward break through the zone that not long after turned bullish, here it was an upward break that soon turned bearish. Probably no more than there is to any other break or move that fails or falls short: a lack of follow-through.

It is not uncommon to see enthusiasm dwindle in rather subdued markets, or in situations where the round numbers are more of a symbolic nature than that they actually represent true technical levels of resistance and support. In these cases, it is fair to assume that not too many stop-losses reside above or below the levels. As a result, the price action remains calm; as much as those in position do not see the need to get out, those on the sidelines are not exactly scrambling to get in, either.

Everything is very easy in hindsight, yet if you managed to grasp the concept of the forces in play that caused the upside break in Figure Let us examine up close what exactly went on from the moment the third top was set 4. It started to go wrong for the bulls when the reaction to this top a tiny countermove was not being picked up by new bulls in the 20ema a few bars later. That would have been a perfect opportunity to swing prices back up.

From there on, they could have created themselves a nice squeeze by not giving in to whatever bearish pressure and then force themselves a way through the top barrier of the range. In fact, the three earlier tops 1, 3 and 4 would have made for an excellent barrier to trade that upside break from. However, instead of working on that upside break, the market set out on its way to the bottom of the range again 5 and now even showed a classic triple top in its wake.

These are not bullish signs. But there was hope still. After all, the round number zone was cracked to the upside and successfully tested earlier on, and that should at least amount to something. If somehow new bulls found it in their heart to aggressively step in above the 1. And that would look quite bullish. Forex Price Action Scalping Excerpts Sometimes it only needs one bar to turn pleasurable hope into the idle variety.

How about that little doji 7 that stuck its head a pip above the high to the left of it 6. A higher high in a bullish market after a possible double bottom in round number support, that should have attracted new bulls to the scene. What kept them away? We can imagine it to be the triple top pattern to the left; but it is not our business to decipher or explain the actions or non-actions of our fellow traders. Everything is just information.

As observant scalpers our task is not just to monitor a chart, but to look for clues in it. The more crucial the signs we can assemble, the more we can solve the puzzle of who is possibly toppling who in the market. The best indication to determine the value of a particular chart event is to consider its place in the chart in relation to whatever price action preceded it. To give an example, the tiny false upside break of 7 would have been considerably less indicative had the market not printed that triple top shortly before.

With prices now trapped below the 20ema, the market was on the brink of being sandwiched into a bearish breakout through the bottom barrier of the range. For my own personal comfort, I would like to see prices get squeezed a little bit more before breaking down. Preferably, I would like to see the market print a couple of dojis right on the bottom level of the range as in a regular BB setup. It must be stated, though, that a conservative stance is not always the most successful approach.

It would be nice if we could really put a rule of thumb on these false breaks, particularly on the tease variant, but alas, it often depends on the situation at hand. That makes me want to wait for superior conditions just a little bit longer than, for instance, in case of a speedy market, where I might run the risk of fully missing the break on account of being too conservative.

Note: As for the difference between the false break trap and the tease break variant, imagine for a moment the low 5 to have dipped a pip below the range barrier. That would have turned it into a false break of the earlier bottom of 2 and not a tease. And most of them will have no choice but to sell back to the market what they had bought at bottom prices just moments before.

Add to this a number of sideline bears eagerly stepping in and we have ourselves the perfect ingredients of double pressure and thus follow-through. At times, the anticipation of this little chain of events is very straightforward. At other times, the assessment of the squeeze can be a lot more subtle and it may leave a scalper wondering whether or not to trade.

Particularly when the space between the 20ema and the barrier line is no more than a few pip in width, the tease break may be almost indistinguishable from a valid break. As we have seen already in several examples, the 20ema, just like in the chart above, can still guide prices back out in favor of the trade.

Take a moment to compare the string of black bars after the break in this chart with the string of white bars after the break in Figure What do these moves represent? They clearly show us the unwinding of positions of those traders trapped on the wrong side of the market. In the chart above, for instance, all scalpers that picked up long contracts inside of the range are carrying losing positions the moment prices break down below 1.

That string of black bars represents their predicament and their panic, so in essence a rapid unwinding of long positions that are being sold back to the market. As a result, prices will fall even more until eventually the market calms down and more bulls than bears are willing to trade. This, in short, is the principle of supply and demand. It works the other way around in equal fashion.

And it is our job to anticipate it before it even takes place. To the non-initiated this may seem like quite a daunting task. Yet those who observe, study and learn will most likely come to see the repetitive nature of it all. And soon they will be able to exploit those who do not. For example, if, say, 1. Variations on this pattern repeat themselves with such relentless persistence that it is not hard to imagine how numerous intraday strategies are solely built to exploit this phenomenon.

Of course, as scalpers we are only interested in one thing: can we exploit it? Anyhow, if nothing else, round numbers do have the pleasant side-effect of framing things in organized manner, just like wrapping boxes around ranges gives us clarity on resistance and support. They may do so at the moment, but I rather leave that to the price action itself.

Frankly, in the never-ending quest for simplicity I have tried to scalp with a clean chart, meaning without the lines in it, but somehow my conditioned brain felt less comfortable without these levels framing the action. This may very well be a personal quirk and any scalper can try for himself what suits him best. One last thing: on the road from 40 to 60, and the other way around, things can get very tricky.

Currency trading, like it or not, is a big players game, and the level is arguably their favorite toy. Unlike the 00 round number, this level is not a level itself. More often than not, these levels are what the bigger chart is all about and why we see so many ranges appear as a result.

Let us look at Figure Halfway through the chart, the options are very much open. There are no trades near and a scalper should just relax and apply patience. Tip: you do not necessarily need to draw boxes, a horizontal line across the tops and one beneath the lows will do just ine. At any moment in time there are always three ways to look at a chart. Through bullish eyes, bearish eyes, or neutral eyes.

Needless to say, observing the price action with a neutral disposition is the way to go. Should it continue its pattern of slightly higher bottoms, then breaking out to the upside, eventually, would technically be the most logical result. As neutral scalpers, we can only sit back and enjoy whatever the market has in store for each party. One thing is of importance, though, and that is to not walk away from this chart in a silly act of boredom. If the bulls show a bit more persistence, particularly when entering a potential squeeze phase, we may have a trade on our hands in a matter of minutes.

As a matter of fact, the subsequent price action after the tease, that is the perfect squeeze that led to an excellent textbook RB trade 9. That is a very fair question. So far the examples here show outcomes that point in favor of that option. It is my observation, though, that in most cases you can get away with being a little more patient.

In other words, missing a range break trade due to a conservative stance is less common than one might think. As we will see in the section on Trade Management, squeezes provide excellent levels for stop placement. Conversely, a tease break situation, in essence a somewhat hastier break, seldom delivers the same technical clarity in terms of where to place the stop.

When trading breaks, patience truly is a virtue. Therefore, my advice would be to shun the non-buildup breaks entirely false break traps and those resulting from little buildup as much as you can tease break traps. Note: If prices after a tease break are pushed back inside the range but not much later break out again as in a valid RB, then it is not necessary to postpone entering until the tease level is taken out, too. An exception would be if there are multiple tease breaks in a row that together form a new barrier by themselves.

Then it may be recommended to assess the situation from the perspective of that new barrier see Figure Despite the many false breaks, there was no need to get caught in any of them. This chart, obviously, shows the market being a bit nervous. By that information alone, it is quite safe to assume that halfway through it, the market was bracing itself for a typical news release.

News releases bear an intrinsic potential to really rip a chart apart. It means that contracts change hands so feverishly that it looks like the bars are literally being spit out on the screen. Not seldom, these spikes are extremely short-lived, but that is of little consolation to those shaken out. All in all, news breaks offer a dangerous environment to scalp in. To avoid getting caught by surprise, traders can check the economic calendars freely available on the web for the exact moment of major announcements like interest rate decisions and non-farm payroll numbers.

If caught anyway, and not immediately shaken out, just remain calm. Always aim for a technical way out of a trade. If the broker is okay in any other respect, offers a solid platform to trade from and keeps the spread at 1 pip throughout 99 percent of your sessions, then a simple solution would be to avoid the occasional mark-up by simply not trading during a hefty news release.

The brokers to absolutely avoid are those who mark up their spreads more sneakily for no particular reason and for hours on end. Even if they just add a few pipettes either side, it can have a devastating effect on even the best of scalping strategies.

In terms of turmoil, the reaction to the news in this chart was rather subdued. But not without tricks, though. First appeared another false upside break F3 , which got slammed back pretty fast. Next in line was the tease break T that suffered a similar fate. We have to give the bulls some credit for not throwing in the towel then and there. Instead, they played their last trump card, which was to keep the pressure up by not allowing prices to slide below the last low in the range.

And that worked out wonderfully well. The low of 6 matched the low of 5 , forming a double bottom, and not much later prices were pushing against the top barrier once more 7. Notice the pretty little squeeze and how nicely the 20ema guided prices out of the box. Out of all the breaks through that top barrier, this was the only one that deserved true RB status 8.

As we have seen already many times before, it is not essential for the market to have prices attack a particular barrier up to the point of exhaustion. Quite often, it needs no more than a double top or double bottom to show all participants who is in charge. At times, it can make you wonder, though, why at some point the strongest walls of resistance get attacked with a relentless fervor, while elsewhere in the market a mere halfhearted expression of power remains completely undisputed.

But the market is what it is and does what it does. In the end, the direction of prices is a big players game and the mortal scalper has no business asking questions. Up until the encapsulated IRB setup there was not much to make of this range in terms of possible direction. In fact, they could dissolve in a matter of seconds without any signs of protest. That is why it is probably not a very good strategy—at least not for the aspiring scalper—to simply sell in resistance or buy in support, not even for the sake of a brief little scalp.

Overall, the safer approach is to see how the market handles these zones and then try to trade them. Whenever the market is approaching a barrier, or even just a former top or bottom, basically three things can happen. A bull, for instance, is basically telling the bear: I am buying your contract but I am shorting your dream. And, likewise, so does the bear scorn the bull in return. It should come as no surprise that the average trader is not particularly burdened by moral inhibitions, nor does he feel the need to pledge a humane disposition towards his fellow trader in the market.

After all, he knows very well he is not exactly operating in the welfare industry and that at any moment in time he himself may get trampled by another. There was a problem filtering reviews right now. Please try again later. Verified Purchase. As a trader, broker and a lover of speculation in general, I have had the opportunity to review thousands of books, videos, magazines, brochures and other media concerning speculation over my life. Forex Price Action Scalping has been placed at the pinnacle of my library for the following reasons.

The book is written by a trader who has through rigorous empirical experience found sound repeatable patterns with a historical statistical edge. The author does not have a rigid rote system in place to trade these setups. He understands as would any person who trades, that you must apply your judgement or sixth sense if you will, to the formula on every trade.

The genius part of the book however, is that while your not given a turnkey trading system which would not work for long anyway , you are given the authors years of experience as he does an exhaustive overview of the setups for each trade. Which brings me to my final point. This book has the potential to turn the right person into a real trader.

You would have to come to the table with the right mental abilities and would have to have self control and courage, but you could walk away from this book and in a few months be an honest to goodness independent professional trader. Very few books could ever really do that for anyone. The reason this book has the potential to do this, lies in it's ability to at least in the proverbial sense, teach you to fish rather than give you a fish.

At the begining of reading i was very optimistic about what it will come next. Having in mind the contents and the specialization of the subject in general "Scalping". At the first 38 pages just before start desrcibing the entry techqnics i was already so tired from the style of writing ,but i said " ok,this is kind of intro.. After that piont i became very dissapointed from general and philosophic approach and style of writing.

I understand its good to give the general perspective many times ,but after that i personally would expect some guidelines He gives only few genaral advices about that. IN general i think that this book ,that refers to traders, is written in way like it refers to philosophers ,and not been practical,too many words for so small quality of information. One person found this helpful.

If you're looking for ideas on how to day trade that don't include fibonaccis, MACDs, market profile, tape reading, correlated markets, or having to parse news reports in the flash of a second, this is it. A somewhat similar but more technically complex approach is professed by Al Brooks, albeit his work is much less accessible than Volman's. Volman provides both trend and ranging strategies, including range breaks and range reversals which gives you plenty of ideas to work from.

There is also much to be said about Volman's thoroughness: he discusses the psychology of the setups, spends time analyzing faulty setups, and has a whole chapter on trade management talking about multiple scenarios, in a way that I have yet to come across in a trading book. The one disadvantage of Volman's approach is that it is based on a 70 tick chart, and one that displays candles in only whole pip increments using pipettes can throw you off strategy wise, you will have a tough time setting clean entries and managing the trade.

You can approximate the 70 tick with a 30 second chart during the liquid NY and London sessions, or find a broker that offers a tick chart. In the case of the latter you might have to adjust the tick chart to a different value than 70, because Volman relies on ProRealTime's feed the target setting for the chart is candles per hour.

Be prepared to study this book a number of times, this is not a cookie cutter system based approach and requires developing a sense of discretion, even though the author gives you some very solid ideas and guidelines for the setups. A high value book offered at a price that is way below most of the trash that is offered as trading education. Edit: Bob's new book, Understanding Price Action, is also a good read. You may even want to read it before this book as it offers a slightly broader perspective and operates primarily off the 5 minute timeframe.

Easy to read even for novices 2 Clearly details specific set ups with tons of chart 3 clear explanations regarding market forces as expressed in each bar in the chart 4 "Real Life " analysis of traders psychology e. Focus on the price chart alone is a great practice. It is more than enough to tell the whole story for the trader who has trained his eye to know the road I am convinced that a trader who spends the time studying this book and then goes of a journey to apply the principles will be rewarded handsomely.

A great price action book by a pioneer of the tick chart analysis. The author does a fantastic job explaining the high probability trading setups based on market overview and clear-cut setups. A highly recommended book for quick-in, quick-out trades. Unlike obsolete, indicator addicted marketers of fake "get rich fast" systems, the author gives the reader a real insight on the bull-bear fight from a naked chart, with only one moving average as a guide.

Brilliant job! See all reviews. Top reviews from other countries. Although you can tell he has written the whole book, each chapter seems to be written in slightly different ways. He has a conversational style but I don't think it is really suited to this type of book. Making notes is very hard going. I decided to highlight parts in the book something that goes against the grain , then make notes from those highlighted parts.

However, a summary version for those that have read it would be a welcome addition. If you can really understand this book then it could make you a lot of money. I'll be honest in the charts there is a lot going on and its quite complex knowing when to put a trade on and when you leave it.

The guy clearly knows how to trade and there are a few things to be learnt from this book if you read give it the time to get into it. There is a lot in there about entries rather than full trade life cycle which is why i gave it 4 and not 5 out of 5. Report abuse. Good advice in a easy to read style.

I thought a few chapters pressed the point to exhaustion so I found it hard going to finish. That said the overall concept of "double pressure" or as others might call "trapped Traders" overflow is something I think has a lot of merit. It would have been good for some more Money Management details. For the Money and compared to the books out there I'd say buy, read, ponder, learn I havent finished reading the book yet,but it is a great addition to my trading library and definitely added to my understanding of scalping in particular and trading in general.

Would recommend the book for folks who are serious about trading and improving their understanding and trading techniques. Dont waste your money and time. Bad book. The author does not explain clearly the techniques and even with only a few graphs and many words. Customers who bought this item also bought.

PROFOREXUNION

Strangely enough, despite the ill-boding facts and the painful fate of all those who perished before him, the typical trader still shows up on the scene wholly unprepared. And those who do take the trouble to build themselves a method, in most instances seem to only postpone their inevitable fall. On the slippery slope of the learning curve, things can get pretty unpleasant and many never recover from the tuition bills presented on the job.

Nor does it have to take years to acquire the necessary skills. Even so, scalping may not be for everyone. Countless charts, setups and trade examples will be presented to fully ingrain the necessary techniques into the mind. To a nimble scalper, this instrument is an absolute delight. It offers highly repetitive intraday characteristics, a low dealing spread and is accessible to even the smallest of traders; however, since price action principles are quite universal, not too many adjustments would have to be made to take the method to another market with simi- lar volatility and attractive trading costs.

In that respect, this guide may serve many non-Forex traders as well. No fancy indicators. One-click in and out. Everything preset. And opportunities abound in an almost repetitive loop. Figure P. The vertical axis shows the price of the instrument; the horizontal axis displays the passing of time and the curved line in the chart is an exponential mov- ing average, the only indicator allowed.

The boxes encapsulate some of the price action patterns that we will get to discuss later on. Each of the coming chapters will take on a part of the journey. Forex Price Action Scalping truly is about scalping. It is written by a trader at heart, and at all times with the aspiring trader in mind. They not only acknowledge the presence of a trend, they try to capitalize on its continuation as well.

Almost any trading method will incorporate at least a couple of clever with- trend plays to hop on or ride out a good move. Unfortunately, as any chartist will surely admit, things seldom materialize in the most desirable way. It is all part and parcel of the trading game. However, in many such instances, the opportunities are not necessarily lost and with a little luck and patience we may just be able to pull a nice trump card from our sleeve: the multipurpose Block Break setup BB.

This setup comes in many shapes and forms and we would probably not do it justice if we were to casually generalize on its appearance. A most simplistic description would be to characterize the pattern as a cluster of price bars tightly grouped together in a narrow vertical span.

On occasion, depending on the speed of the market, this group of bars could appear and be broken in a matter of seconds, but the formation itself could best be seen as a miniature trading range. If we were to draw a rectangular box around all the bars that make up this pattern, what should emerge is a distinctive block of price action in which a relatively large amount of contracts changed hands without price being really affected.

But the tension within should almost be tangible, like that of a coil being suppressed by a weakening force that is bound to give in. If prices eventually break free in the direction of the path of least resistance, we immediately enter the market on a break of the box.

This makes the broken horizontal barrier the signal line to our entry point. Should prices break out at the less favorable side, then no action is taken just yet. When encountering this cluster of bars at the possible end of a pullback in the area of the 20ema, a trendside breakout would require similar action as would a break of a regular DD or SB setup.

In fact, if we would also wrap a box around a group of dojis that make up a typical DD, we would basically create a miniature BB setup. The same goes for the SB pattern as a whole, though be it that the entry in this setup usually shows up before the highs or lows of the complete pattern are taken out.

But make no mistake, when it comes to the BB setup, we are not just dealing here with another trick to take a with-trend trade at the end of a pullback, although that is one of its functions. What gives this pattern its unique quality and personal character is its multipurpose application.

This setup could essentially show up anywhere in the chart, while still conforming to the requirements of a tradable event. Its abundant presence makes it one of the better weapons to tackle almost any market, trending or not. There are some factors to assess, though, before we can start to regard this pattern as a valid setup. We cannot simply trade any odd block break and expect the market to take off for at least a 10 pip run.

But what exactly is a favorable market? As we have already observed, a pullback in a trend, for one, leaves little room for discussion on that part. But how about a sideways market that just printed a nice double bottom and a higher bottom in support? How about a market that broke so violently that countertrend traders cannot even force a noteworthy pullback in it? How about an uptrending market that shows clear signs of resistance, like double tops and lower tops? And what about a market that seems chaotic in any respect, apart from the fact that it successfully slammed back all attempts to break a round number zone?

The situations above, just randomly chosen, may be as different from each other as night and day, but they do have one particular characteristic in common: not so much that they paint a very vivid picture of the perpetual clash between the bulls and bears, but more that they show us who is currently winning. In essence there are only three.

In case this pullback is quite extended, the setup may at times show the characteristics of a countertrend trade. This block usually shows up in a very brisk move that just cannot seem to pull back. Whereas a typical pullback seems to move somewhat diagonally against the trend, this one merely travels sideways, forms a block, and then breaks out in the direction of the trend. It can be played with-trend as well as countertrend. In the coming charts we will see all of the BBs encapsulated by a rectangular box, aiding the visual process of identifying the highs and lows within each block.

Although it is not necessary to draw these boxes when engaged in a live session, it does come in handy to at least plot the signal line in the chart. That way we can keep a real good eye on the exact break, because the highs or lows that make up the signal line may be several bars apart. Note: When looking at the chart, it is quite tempting to focus mainly on the moving price action and on the possible development of a tradable setup.

Yet the status of the overall picture deserves the most attention. Whatever price bar is currently being formed, it can only derive value from its relation to the bigger picture. It is this wider view on the price action that ultimately determines our setups to be valid or not. Keeping track of the 20ema is just one way of assessing the current pressure in the market, and an excellent one at that. But the whole array of actual tops and bottoms in the chart determines the overall pressure.

More distinctive higher bottoms than lower tops: the pressure is currently up. More distinctive lower tops than higher bottoms: the pressure is currently down. Alternating tops and bottoms: the current pressure is evenly distributed. However, this one little pattern may very well represent the near perfect box, should there exist such a thing as perfection in the tricky nature of the market.

Let us see how exactly this pattern earned its credentials. Earlier on, the bullish character of the market was somewhat curbed by the resistance of the 1. After a little backing and illing, as aimless price action is often referred to, the market drifted lower in the next 30 minutes of trading and then established its most distinctive low so far 2. Of course, we can only identify this low once the bulls start to buy themselves into the market again and take prices back up.

Since it is our primary intention to trade this particular chart to the upside, we have to wait patiently for some sort of resistance to come in. Now that we have a high and a low to go by, it is just a matter of following the price action until anything tradable develops. Should prices break out immediately, then that is just too bad.

There are many ways to play the market and should a scalper have to forgo a particular setup, then he just moves on to the next tradable event. Either to get in or to get out. Within the setup, a number of higher bottoms can be counted 4, 5 and 6 , lending extra credit to the possibility of a bullish breakout.

As the coil is now being suppressed to the max, something has got to give. We can imagine it to be the signal line, but as clever scalpers we will never act before our turn. Notice how gently the 20ema eventually guides the bars through the top of the box, literally pushing them out. We could say it is a miniature box within the box itself. The subsequent reaction to the break speaks volumes. With the 1. Note: Similar as in the previous chart Figure Would that not be worrisome?

To a tiny DD pattern it most probably would. There may just be too little tension building up within the dojis to counter the resistance overhead. But the BB pattern, in that respect, is quite different: it has tension written all over it.

Which is also why the break of it stands to cause a sharp reaction. Once the defenders give up and step out of the way, the path is usually cleared for at least a number of pip. Aspiring scalpers, when slowly taking a liking to this method, are recommended to study the characteristics of boxes like those of Figures Hardly a session will go by without these very tell-tale patterns showing up in the chart, one way or another.

Obviously, assessing the overall pressure in a trending chart will not cause much problems. In more sideways progressions, this process requires a little more subtlety on the part of the chartist, as is the case, for example, in the next chart below. Figure Still, the observant scalper may have already spotted a series of almost nonchalantly printed higher bottoms in this sideways progression 1, 2, 3 and 4.

When that fourth higher bottom was printed, forming a cluster together with the handful of price bars next to it, things are starting to get interesting. Both moves seem to appear equally strong, but the one that emerged out of the cluster stands a much better chance of holding up. Not only does it stem from a slightly higher bottom, the fact that it broke free from a cluster puts a solid foundation beneath the current market.

This means that if prices were to retrace back to where they broke free from, as they often do, they are most likely to be halted right at the level of the earlier break resistance becoming support. After all, it is much harder for prices to dig themselves a way through a solid group of bars than when there is very little standing in their way. Notice how prices bounced off of the signal line, a few bars after the break, which clearly shows us the power of cluster support 6.

Have a look at the three very small dojis leading up to the break of the box 5. They are displaying in miniature the same pre-breakout tension as the complete box is displaying in the bigger picture of the chart just wrap an imaginary box around the highs and lows of the price action from to At the risk of being overly elaborative, I am pointing this out for a very valid reason.

If you learn to train your eye to recognize these subtleties in a live market environment, you will eventually be doing yourself a tremendous favor. The rise and fall of prices is not a result of somebody swinging a giant wheel of fortune.

There are actual people in the market, trading actual ideas, feeling actual pain and actual pleasure. You may never know for sure what motivates them to do what they do at any given moment in time, yet of one thing you can be sure: their actions are reactions to other traders actions, which is why most of the time everything happens in such repetitive manner. Markets may be random, as it is often stated, but traders surely are not. Despite the upward pressure, the cluster below and the magnetic pull of the round number above, with-trend participation after the break quickly died out.

Although they clearly lost a round, we can expect the bulls in this chart to not just crawl up in a turtle position. Given all the higher bottoms earlier on, they will surely be on the lookout to buy themselves back into the market at more economical levels. The most logical area to pick up new contracts would be in the 1.

With the market traveling a few pip higher because of this buying activity, touching the 20ema from below, the bears were now offered a more favorable level to become a little more aggressive 8. And indeed, they managed to squeeze out one more low 9. They were given little time to enjoy that feat, though, as a large number of sidelines bulls quickly stepped in. It is the information necessary to keep a trader on high alert for another bullish attempt to take control of the market.

With no less than six equal highs testing one another, a scalper did not have to think very long about where to draw the signal line of the second box. That is only an instrument in our own personal toolbox. In fact, in a somewhat sideways environment, buying above it could at times be more dangerous than buying below it.

Therefore, from a technical perspective, both patterns here are very similar in nature: sideways action, support holding up, a buildup of tension and a subsequent break. Take a mental note of the two little dojis right before the break of the second box We will see this duo many times over throughout this guide.

Both bulls and bears will be very quick to act, though, should the proverbial jack pop out. As pleasurable as it may be to occasionally stumble upon the near perfect trade, it also poses a rather interesting challenge on the topic of volume versus predictability. If we were to assign a rating to each individual trade—by counting the number of valid reasons to either skip or trade a setup—and came to conclude that the probability factor is apparently not a constant but varies visibly from setup to setup, should this not force an intelligent strategy to alter the volume per trade in compliance with the degree of predictability?

On the other hand, one could argue that if there is such a thing as a superior trade, then, naturally, there must also be its counterpart, the inferior trade though still possessing a positive expectancy ; when opting to trade the latter, could one not take off volume and tread lightly? And rightly so. Whenever we picture ourselves to have an edge, each setup deserves to be treated with equal respect, no matter how shady or pretty its appearance.

And that means assigning the maximum allowable amount of units per trade to fully capitalize on the principle of positive expectancy. Note: Contrary to common perception, the least important of all your trades is the one you are currently in. Your current trade, on the other hand, has yet to earn its notch on the historical slate.

It is just a trade in process. And it is totally irrelevant whether it will win or lose. Why is that? But the point does show the importance of a proper understanding of distribution in a probability play. All individual outcomes are just data.

The only thing that truly matters is the collective result of all your scalping actions in the market. It can indeed be a mental challenge to have to sit out these times of inactivity, hoping for action and not getting any, especially to those traders who look upon their trading platform as a slot machine in a penny arcade.

A word of caution may be in place here, because these sideways ranges do have the nasty habit of luring a trader in one of two very classic mistakes. This warped sense of reality is typical for a trader who just needs action. The second classic mistake is made by traders who on the surface seem to stay composed rather well in a sideways market. Up until that one amazing moment that boredom abruptly kicks in. For reasons unbeknownst to themselves they suddenly have to get up to make these phone calls, do their exercises, watch the news on the TV or even take a stroll outside.

Anything to get away from that screen and that market! It is a pity that traders are so caught up in the notion that trading trending markets is the only way to go. Contrary to popular believe, sideways markets deliver excellent opportunities, for the simple reason that they have to break out eventually, just like a trending market will eventually come to a halt or even reverse.

With the moving average traveling sideways and price bars alternating above and below it, there is not much to make of it. This is your typical round number zone tug-o-war in the absence of a clear incentive 1. But of one thing we can be sure: unless it is a national holiday, late Friday evening, or lunchtime in an already dead Asian session, price will not stay put for hours on end.

The trick is to recognize the buildup that most often precedes it. This is why it is so important to familiarize yourself with pre-breakout tension. What will help is to draw, or imagine, a box around any clustering price action that might lead to a break.

By extending the signal line to the right, we can see that the pullback following the break successfully tested the breakout level as well as the broken round number of 1. That will certainly have inspired a number of bears to just throw in the towel. And a number of bulls to quickly enter the ring. However, despite this potential for double pressure, markets do not always immediately pop.

If you look closely, you can see that the top barrier of this second BB setup is not exactly running across the absolute high 2 but one pip below it, across the equal extremes of four consecutive bars. Here it seems logical to put more weight to the four equal highs than to that one single high sticking out on the left.

It would be overly prudent to wait for this high to be taken out, too. But let us ignore our setup for a moment and see what the market has to say about this: it put in a series of distinctive higher bottoms within the course of two hours; it broke a round number zone and saw it successfully tested; it built up towards a possible bullish breakout and now it breaks a cluster of four bars with equal highs.

I think it is telling us to trade. Once again, the breaking of a round number zone trapped traders on the wrong side of the market. In the previous chart, it was a downward break through the zone that not long after turned bullish, here it was an upward break that soon turned bearish. Probably no more than there is to any other break or move that fails or falls short: a lack of follow-through.

It is not uncommon to see enthusiasm dwindle in rather subdued markets, or in situations where the round numbers are more of a symbolic nature than that they actually represent true technical levels of resistance and support. In these cases, it is fair to assume that not too many stop-losses reside above or below the levels.

As a result, the price action remains calm; as much as those in position do not see the need to get out, those on the sidelines are not exactly scrambling to get in, either. Everything is very easy in hindsight, yet if you managed to grasp the concept of the forces in play that caused the upside break in Figure Let us examine up close what exactly went on from the moment the third top was set 4.

It started to go wrong for the bulls when the reaction to this top a tiny countermove was not being picked up by new bulls in the 20ema a few bars later. That would have been a perfect opportunity to swing prices back up. From there on, they could have created themselves a nice squeeze by not giving in to whatever bearish pressure and then force themselves a way through the top barrier of the range.

In fact, the three earlier tops 1, 3 and 4 would have made for an excellent barrier to trade that upside break from. However, instead of working on that upside break, the market set out on its way to the bottom of the range again 5 and now even showed a classic triple top in its wake. These are not bullish signs. But there was hope still. After all, the round number zone was cracked to the upside and successfully tested earlier on, and that should at least amount to something.

If somehow new bulls found it in their heart to aggressively step in above the 1. And that would look quite bullish. Forex Price Action Scalping Excerpts Sometimes it only needs one bar to turn pleasurable hope into the idle variety. How about that little doji 7 that stuck its head a pip above the high to the left of it 6. A higher high in a bullish market after a possible double bottom in round number support, that should have attracted new bulls to the scene. What kept them away?

We can imagine it to be the triple top pattern to the left; but it is not our business to decipher or explain the actions or non-actions of our fellow traders. Everything is just information. As observant scalpers our task is not just to monitor a chart, but to look for clues in it. The more crucial the signs we can assemble, the more we can solve the puzzle of who is possibly toppling who in the market. The best indication to determine the value of a particular chart event is to consider its place in the chart in relation to whatever price action preceded it.

To give an example, the tiny false upside break of 7 would have been considerably less indicative had the market not printed that triple top shortly before. With prices now trapped below the 20ema, the market was on the brink of being sandwiched into a bearish breakout through the bottom barrier of the range. For my own personal comfort, I would like to see prices get squeezed a little bit more before breaking down.

In the scenario of a waning pullback, countertrend traders face an important decision of their own: either book their profits and get out of the way, or hold on still, in anticipation of more countertrend activity, or, who knows, even a complete failure of the trend. It is impossible to predict whether a pullback is just a harmless little countertrend, or the beginning of a new trend in the opposite direction.

But that is essentially irrelevant. In a probability play, we have no need for guarantees. We just trade probability. However, we do have to assess the validity of the trend itself. We could say that trending bars look somewhat more aggressive than non-trending ones. In our charts, a bearish trend will print mostly black bodied bars closing price lower than opening price ; a bullish trend will print mostly white bodied bars closing price higher than opening price.

Logically, in the pullbacks the coloring will mostly be reversed. Therefore, a nice white bodied uptrend, for example, will show a smaller black bodied pullback. Assigning colors to the bodies is just to aid the visual process of recognizing price action. Many traders have no need for it and they may have their charts set up in one-color fashion. In all its simplicity, the DD setup is a powerful tool to capitalize on a continuation of a trend and in most instances it is best acted on without second thoughts.

An important requirement, though, is that prices, from the moment of entry, have to have a clear path ahead of them, at least on the chart at hand we will never know what looms in the dark. Not uncommonly, it is the pullback itself that obstructs the path to target. The pullback, when deemed harmless, is ideally running diagonally against the trend and pretty much one-directional.

When it presents itself as a block of clustering and sideways trailing price bars, it could seriously cut short a future advance or decline. Some examples will clarify this for sure. The dojis in this setup do not have to be dojis in the absolute sense. Small candles, usually no more than 3 pip in length, are best considered to express similar indecision as any regular doji and therefore can also serve as valid candles in this particular pattern.

In contrast, the smaller the average bar in the trend, the less the DD setup, with similar small bars, will stand out among the rest. In all instances, a trader has to calI on his personal experience to determine whether the current technical conditions are supportive enough to engage in a particular setup play.

In other words, due to circumstance, he may have to skip what appears to be a solid setup on its own. In Chapter 15 on Unfavorable Conditions, we will look into this more closely. In general, most setups will show up under conditions that will not put much strain on the decision-making process. We either trade the setup or we just skip it. Note: Although we should basically strive to scalp the chart like we would in the safety of a solid backtest, obtaining similar results in the actual market will be extremely difficult, if not completely impossible to achieve.

Therefore, as much as even a thin edge theoretically should. Because they do not incorporate the disruptive effect of the human hand. The solution: refraining from strategies that show a marginal edge under ideal circumstances. It is not the strategy itself that should be distrusted, though, just the crippling effect of those at helm of it ourselves included. Ideally, all bars in a DD setup show equal extremes on the trend-side the side from which the break is to be traded , but more often than not that is just riot the case.

For this reason, the most important candle to watch in the DD setup is the one with the highest high-for possible long trades-or the one with the lowest low-for possible shorts. The position of this bar in the doji group is irrelevant; its extreme on the trend-side, on the other hand, is crucial. This bar is called the signal bar. When dealing with a setup in the making, the signal bar is the one to watch most attentively. The moment its trend-side extreme gets taken out by another bar, we got ourselves a signal to trade.

The bar that takes out the high or low of this signal bar is called the entry bar. Obviously, this is the bar in which to take position. This terminology holds up in all of our other setups as well. One more distinction can be made regarding the tradability of the pattern. When the setup is currently showing two dojis that have their trend-side extremes more than one pip apart, the pattern has to be judged in relation to the trend before it to see if it is still eligible as a tradable event.

In case of a rather weak trend, for instance, it may be wise to skip the DD trade altogether when the extremes are more than one, but certainly more than two pip apart. In a very strong trend, on the other hand, it may pay off to be less conservative and just trade the pattern on a break of the extreme. The 20ema should now be sloping up with most bars traveling above it. At some point, the trend may lose a bit of steam and a number of bars will start to travel in the opposite direction , towards the average that is.

Not long after, average and price may collide. Since the trend is up, this pullback is widely considered to be a temporary event and so a lot of scalpers will be watching the possible low of it attentively. It would be silly just to fire a long order on account of prices reaching the 20ema. It is better to watch out for some sort of sign that prices may be about to reverse.

Watching a bar pierce the average to the downside, for instance, only to see it quickly close above it again, is a pretty good starting point. In case the current bottom of the pullback is represented by two or more neighboring dojis, more or less resting on the 20ema their tails preferably dipping below it , a scalper calmly waits for a new bar to take out the highest high of the doji group.

By definition, the high of any signal bar is taken out when the current price bar in the chart goes exactly one pip above it. Upon seeing the signal bar being taken out by another bar the entry bar , the scalper immediately enters long at the market. In the event of a downtrend and a potential short position, all of the above is simply reversed: once the inevitable pullback emerges and prices arrive at the now down-sloping 20ema, the alert scalper will start to monitor the price action with close scrutiny, comfortably knowing that a number of setups are at his disposal to trade this market from the short side.

This sell order, when set properly, will be instantly bracketed by a 1 0 pip stop above the entry price and a 1 0 pip target below it. It is important to understand, though, that the highly regarded 20ema is just a tweaked moving average of the last 20 closing prices and does not in any way offer support or resistance to the market on account of its presence. It does point out a dynamic visual level of where prices tend to stall when countering a particular trend.

But that, most. This 20ema just so happens to catch the bulk of the pullbacks quite well. On any chart. Admittedly, there may be a strong self-fulfilling prophecy aspect attached to this average, but then again, that basically holds up for price action in general.

A clever scalper will not concern himself with the actual reasons behind the moves in his chart. For there is no point in speculating over other traders' motives. All he has to go by is what takes place in the chart on a recurring basis. And his task should be to exploit repetition.

Now let us see how the DD setup, the first in a line-up of seven, is effectively traded in the real-world environment on a tick chart. Figure 7. In this case, no less than four dojis had formed into the 20ema zone 1. One of them broke the average briefly to the upside, but all four of them shared equal lows below it. But that is not necessarily a requirement. This could very well be interpreted as a with-trend play incentive. Not uncommonly, sideliners harboring with-trend views on the market only need to see a tiny break in the direction of the earlier trend to deploy new with-trend positions at the speed of light.

One price bar taking out another bar's high or low by a pip can already trigger a waterfall of with-trend orders cascading into the market. This activity could leave a serious trail of countertrend sorrow in its wake. In many instances, the degree of with-trend aggression after a pullback mimics the strength of the trend before it. The weaker the trend before the pullback, the more any potential chart resistance after it might play an obstructing role. Each of the four dojis here could pass as a signal bar, because they all share equal lows.

The arrow in the chart points towards the first bar that took out these lows, and this bar is therefore called the entry bar. A scalper does not wait for this entry bar to finish. The moment it takes out the signal bar's low, by traveling exactly one pip below it, a market order is fired and the short trade is on. Note: It should be stressed that no matter what charting software the scalper holds preference to, the bars in it should have a price scale in increments of one full pip.

The trading platform may show prices in increments of pipettes tenths of a pip , but that will not do for the chart. If this is neglected, a series of price bars with otherwise equal extremes will most probably show a jagged edge of fluctuating extremes, making it seriously harder, if not impossible, to determine a proper break level to base an entry on.

If this could already pose a problem in the event of a simple DD setup, then it will certainly do so when it comes to the more streamlined setups that we get to discuss later on. Furthermore, it is strongly recommended not to use the chart on the trading platform as the source of information, even if it offers the tick chart setting and is set to 1 pip intervals. Get yourself a decent stand -alone package solely for charting purposes and leave the trading platform completely running in the back.

Monitor this carefully. Sometimes the bid will resemble the price in the chart, at other times the ask is more close. It may differ a few pipettes here and there, which is only natural; but if either one is constantly off by more than a pip, then something is not right. If it doesn't look right, either change broker or charting provider until you get them both to align. Any trend, no matter how strong, will have pullbacks in it. That is just the nature of the markets where so many opposing ideas are traded up and down.

A trader may not like it while in a trade, but when seen from a sideline perspective, the pullback brings. For instance, to trade a nice little DD in the 20ema, like the first setup in the chart above. The second DD setup 2 broke eight minutes later. There is nothing wrong with this particular trade. The setup is slightly inferior to the first since the doji highs are not equal but two pip apart. Still, there is no technical reason not to take the trade.

The trend is clear and so is the pullback. Fact is, though, that this trade would have had to be scratched for what looks like a 7 pip loss when price dipped below the setup lows don't worry about the exits yet. It shows us actually a very good example of how important it is to immediately accept any loss as just a cost of doing business and to remain on the alert for another setup in the same direction.

Not from a vindictive stance towards the market, but simply because the chart may still be eligible to be traded in the same direction of the earlier trade. Any proper setup will do. In this situation, the market printed another DD pattern just a few minutes later 3. Have a look at the four little dojis, all with equal highs pushing against the 20ema. And equally fast, countertrend traders ran for cover. And vice versa for with-trend traders who are forced to bail out due to strong countertrend activity.

That will turn a with-trend trader in a countertrend one the moment he bails out. The principle of double pressure is a crucial concept to grasp; in fact, it forms the core of our edge in the market. If we cannot picture double pressure to kick in, we simply do not put capital at risk. Just look at the many tall black bars in it and compare them to the smaller white bars in most of the pullbacks. Still, that does not mean that all bears are on board. It just shows a temporary lack of bullish enthusiasm.

In fact, it is fair to assume that the sharp downswing in the first half of the chart caught many bears by surprise. As a result, there will always be a large number of traders on the sidelines with only one thing in mind: to find a tradable pullback to get in on the party, and sooner rather than later.

It can be a painful sight to see an obvious trend take off and not be in it, but patience and discipline need to be practiced. The pullback will come. If it does not set up a proper trade, then so be it. In this chart a very tradable DD setup emerged once prices finally reached the 20ema 3. Let us look at it from the perspective of a downtrend. This could be traded in a very clear trend but every now and then it may suck a scalper into the market a bit too early, meaning.

It is not uncommon for this kind of price action to activate the exit strategy. It should be noted that countertrend traders, the ones causing the pullback to happen, can be very persistent. But how can we blame them. They just want to make a profit and show guts in their attempts. Should they manage to take control of the 20ema and keep prices above it, the first part of their job is accomplished, for they have turned the trend from down to sideways at least temporarily.

A good example of it is the first DD setup in this chart. This is the somewhat riskier version because it shows conviction in the pullback. Still, it can be very tradable, provided the trend is very strong and the break of the low of the DD is not occurring too long after the average was taken back.

Once a number of bars start to rest on the average, using it as support relatively speaking , turning it sideways or even lifting it up, the market may be dealing with a trend change. The second DD setup in this chart 5 , although less attractive, is still very tradable. The first doji in the setup is the one that pierced the average. The two neighboring doji bars remained below it.

It is two pip apart. Preferably, we like to see the extremes just one pip apart, or better yet, have equal lows. However, with a downtrend still very much in tanking mode and the pullback being very orderly and diagonal, this setup is good enough to trade.

It may be interesting to compare for a moment the first D D setup at 3 to the situation at the end of the chart, at 8. Here we can see why the latter setup, a triple doji pattern in the 20ema zone technically a DD , is best skipped on account of its inferior qUality. There are a couple of reasons why that is the case. First of all, the pullback leading up to the three dojis it is not an orderly, one-directional countermove against the trend. In it, we can spot a higher low 7 , which is technically.

It means that countertrend traders bravely aborted a trend continuation. It is a higher low because the bottom of it sits higher than the low of the previous bottom of 6. If we also bring the earlier low of 4 into the equation, then we can count three lows in the area It is not necessary at all to be acquainted with these rather esoteric patterns that will surely warm the heart of the typical technical analyst. Applying a bit of logic to our chart reading may just as well do the trick.

Looking at the first DD setup, for instance, it is not hard to see that it is showing up in an unmistakable downtrend. In more subdued markets this pattern may have given off a clear warning sign, but compared to the power of the trend at hand it is best perceived as a countertrend attempt that is most likely to fail in terms of probability. In fact, had the three dojis from the skipped setup at the end of the chart 8 shown up in the area of the first setup 3 , similarly a bit above the average, then trading a break of them to the downside should have been administered without hesitation.

So, in other words, the reason for skipping the DD short trade is not necessarily the fact that the doji bars display themselves on top of the average, but more that they do so in combination with a couple of other hints that could be interpreted as warning signs that the current downtrend may be coming to a temporary hold.

All the more reason to fully exploit the opportunities when they are offered on the proverbial silver platter. Both setups here are quite self-explanatory. Four tiny dojis, gently nestling in the average, three of them with equal highs-if that doesn't spell a great opportunity, then what does. The second pattern 2 , though much higher up in the trend, still provides an excellent opportunity to reap some more profits from this generous market.

The fact that the trend was already 50 pip underway does not in any way diminish its longevity prospect. At least not from a technical perspective. If that trade does not work out, then that is okay. What would not be okay, is a scalper being affected by it. When prices reside above a horizontal level a support zone and then finally break through it by a number of pip, the market has a strong tendency to climb back up to that former support level to touch it from below.

This is technically called testing the breakout zone, and it is very likely to be welcomed by traders on the sidelines, for these higher prices now give them more favorable odds to start shorting the market. This principle is equally capitalized on if it is not a level of support that cracks to the downside but a horizontal level of resistance that cracks to the upside and is then tested back.

In fact, one could say that all the market ever does is cracking and testing support and resistance, even on the tiniest of scales. Pullbacks, for instance, quite often have their bottoms or tops acting as a test of some former resistance or support level. So, as much as we think the 20ema is stopping the pullback in its tracks, in many cases, it is the former price action a bit to the left that is either offering support or showing resistance.

In most instances, it won't take long for them to see the folly of it because no matter how you look it, they present their opponents, those that did not trade the initial break for whatever reason, with more favorable levels to trade from. Of course, either party could win in any kind of battle, but it in the long run it will pay off to not trade against a trend, nor against a proper horizontal break, for that matter.

Take a look at the two bars in the 20ema zone at the end of the chart 2. They provide a good example of when to ignore a setup that under other circumstances may have been tradable. First of all, the second bar, the black bodied one, is not really a doji, but still it is attractively bearish price closed in the lower region of the bar and not overly tall.

So, seeing this two-bar pattern appear in the 20ema, we could basically regard it as a proper DD short setup. Because the DD bars, compared to the overall length of the price bars preceding them, in both trend and pullback, are not compressed at all. In fact, they both are about the biggest bars in the neighborhood. One could argue, and rightly so, that a break of the DD did not materialize until two new, and this time little dojis underneath the average were broken by a third candle a few minutes later 3.

Even so, with the entry on this trade almost equaling the low of the pullback and the overall price action quite slow and subdued, it is recommended to not engage in a short at this point in time. Note: It may be interesting to contemplate for a moment the reason why any trader would want to buy or sell something at any moment in time. After all, even if the value of the underlying instrument was to be accurately estimated, it is highly unimaginable, if not plainly impossible, for anyone to be able to put an absolute price tag on it.

At the end of the day, value is nothing more than a perception in the eye of the beholder. And price a mere reflection of consensual appraisal of many. The more obscure and unfathomable the underlying instrument, the crazier the notion that the average trader would be qualified to make.

Trading currencies by the trillions just about tops the list of daily irrational behaviors, for there is no way a mere mortal would be able to make sense of the many global Powers That Be on a fundamental basis. With that in mind, how is it possible that a trader would be able to trade anything at all, and walk away with consistent profits to boot?

The answer to that is simply that the smart trader does not trade the underlying instrument, he trades other traders. And more so, he trades their pain and incompetence. He trades the fact that they have to react to their many mistakes to protect themselves. He exploits predicament and agony, all of it highly visible on a technical chart. To exploit others more than being exploited himself should be the ultimate satisfaction of any trader who is not in this business out of philanthropic idealism or to indulge in masochistic tendencies.

ProRealTime,com eurfusd 70 tick IFig 7. It ProReeflrne. Then formed a classic pullback eating back about 40 percent of the move, stalling into the 20ema 1. Two nice little dojis, both no more than 2 pip tall and with identical lows, presented a patient scalper with a safe opportunity to enter the market short once the lows were broken. This tick counter will appear on the vertical axis of the price chart and counts down the number of ticks per bar in these charts from 70 to zero , and then starts all over again in a new bar.

Why is this handy? Quite often , a signal bar will show a closing price a t one o f its extremes; should a trade have to be entered on a break of this bar, chances are that this trigger may be presented right on the first tick of the next bar in case this entry bar opens with a one pip gap.

A gap is the difference between the closing price of one bar and the opening price of the next. Although most new bars will show an opening price equal to the previous close, gaps do occur quite frequently, and particularly in setup situations, where the price action could be a bit jumpy.

A scalper, not alert enough to act on an entry bar that takes out a signal bar, runs a risk of missing his trade. Surprises are not uncommon, even to the focused, which is why it is good to keep track of the signal bar's lifespan. Hence the very handy tick counter. It also works the other way around, by helping a trader to relax a bit when there are still quite a number of ticks to go in a particular bar of interest. The second DD setup broke about fifteen minutes later 2.

With both trend and pullback of very fine, almost harmonious quality trend bars all bearish, pullback bars all bullish , it was safe to anticipate the market to fall further still. A small discomfort had to be weathered when, two bars after the break, prices briefly pierced the average a bit. That's all part and parcel of trading. A trader cannot expect the market to not put up a fight. As long as that fight remains within the boundaries of his risk profile as will be discussed later on , the scalper has no option but to stand pat and see what happens.

In any case, it's only a trade. Trade or skip? Technically, it is a DD pattern in the 20ema at the possible end of a diagonal pullback. However, it has three things. Prices did halt nicely, though, in the resistance of the previous DD setup's signal line.

Still, a conservative scalper would probably decline this offer. But we couldn't really argue with a more aggressive individual having a go at it. Always wait for the proper setup to be broken before entering, no matter how much you can already picture prices to move a certain way. Expectation and bias are terrible companions to put faith in.

When presented with a group of four or five neighboring dojis, like setups 1 and 2 , all with equal extremes, it can be tempting to already fire an order to the trend-side of the market without waiting for the setup to be actually broken. Such can be the anxiety of anticipation or greed. But not being able to wait for a true break to materialize is. Quite ironically, the irp. Of course, from an educational viewpoint that is an excellent reprimand. Another thing that might help to avoid this kind of behavior, is to ask oneself what exactly is gained by front-running a break.

In case the anticipated continuation of the trend indeed emerges, then, in the event of a profitable trade, the standard entry would have probably delivered the same 1 0 pip profit. So little gain there. In case the trade did not set itself up as a tradable event, because the break never materialized, the scalper actually loses out due to his own impatience, maybe so much as by having to close out this non-trade for a 5 pip loss a scratch.

Is it worth it, one may ponder. The first DD setup 1 consisted of no less than four neighboring dojis, all sharing equal highs. Patiently waiting for the break of the highs is always the proper thing to do. Note: Next to the trend being obvious here, alert traders could also anticipate further price advance by keeping track of the round number zone of 1. The currency chart is full of round numbers the last two digits ending at 00, 1 0 , 20, 30 etc but two zones in particular stand out on any currency pair as being the most relevant: the level and the leve1 round number zones the half cent and full cent levels.

Bear in mind, these are zones, not actual pip levels, so when they get breached, even by a fair amount of pip, they could still hold up as support or resistance we will take on this phenomenon in more detail in the Range Break chapters. Trading can be rather thin when prices approach these zones, meaning that a lot of traders prefer to stay on the sidelines to await how the market handles these major levels.

This can show a very peculiar side-effect of prices being literally drawn towards these round number levels, simply because there are not too many traders standing in the path of them. What will happen when these round numbers are hit is impossible to tell, but before impact has taken place, prices tend to be sucked straight towards them. We will refer to it as the vacuum effect.

In case of a proven trend, it is not necessary to be intimidated by these round numbers. They are easily breached enough for a trade to still finish profitably. What's more, it is fair to assume that a number of stop-loss orders will reside beyond these obvious levels and once hit they may even help a trade along.

Still, when it comes to the DD setup, it may pay off to be a bit more conservative when contemplating a possible trade straight into a round number level. And participation in the round number zones may just be too thin to call a break of the DD setup a high probability trade. Some of the other setups are better suited to take on these situations, because they really build themselves up.

For example, the second D D setup at 2 is of inferior quality when compared to the first 1. Not only is the round number zone of 1. Any cluster of price bars nearby on a level higher than a long entry, or on a level lower than a short entry, is likely to represent resistance. It would depend on the. So, it would be best to see if there are some other signs pointing either in favor of the trade or against it. Quite often, determining whether to step in or not, weighing the pros and cons, can be a delicate proposition.

For example, some might argue that the price action preceding the first DD setup is also of the clustering kind. Still, I would not hesitate one moment to fire off that trade. Sometimes it is hard to explain, because the differences seem so subtle; but I would not go so far as to suggest that gut feel has anything to do with it.

At all times, the decisions should be based on technical grounds. The third DD setup 3 is even worse than the skipped second. The entry price may be more economical, since it is lower in the chart, but way more important than that is what lies above it on the path to target. The clustering price action below that round number is clearly blocking the path, so it is best to not risk capital on this trade.

Prices actually ran through it without any trouble, but that is totally irrelevant. Scalping is all about probability, not about outcomes. How hard is it to trade these sort of setups? Not hard at all, one would think. As a nice. The more distinctive the trend before the pullback, the more the one after it is likely to mirror the first.

How about the DD setup about twelve minutes later 3? Had the pullback preceding it been more straightforward and more diagonal, like the one leading up to the first D D , then this setup, too, would have been quite tradable. Shorting a break of the DD pattern from the perspective of the overall pressure is essentially the proper thing to do, if not for the fact that prices now face the troublesome task of having to pave their way through chart resistance, as any horizontal cluster of bars blocking the way can be looked upon.

At this point of the journey, telling the subtle difference between a proper setup and its questionable counterpart could appear to be quite challenging; if so, it should be comforting to know that everything will fall into place soon enough. After all, patterns, ranges, trends, minor ripples, shock waves, traps, even the freak oddity-if the seasoned trader has seen them all a thousand times before, then so too will the dedicated novice once he gets the hang of these price action principles.

The First Break setup FB provides an alternative way to pick up the trend in the event of a stalling pullback. Once that break is set, a scalper enters with-trend to capitalize on a quick resumption of the market's original intent. In fact, in the majority of cases, a scalper may be better off skipping the trade altogether. Despite its discretionary nature, this setup is certainly worth studying because in the right environment it produces excellent odds. The first condition concerns the trend itself.

Once that break becomes a. In a downward surge we will see the chart spit out a number of black bars closing on their lows; in an upward surge, a number of white bars closing on their highs. By the looks of these sudden moves, or spikes as they are often called, it can safely be derived that the current action is not just a reflection of tiny scalpers stepping in and out but that the bigger time frame participants are also involved in them.

The second condition deals with the shape of the pullback that tries to counter this flurry of one-directional activity. Nothing ever climbs or falls in a straight line, so even an aggressive move sooner or later will find the notorious countertrend traders on its path. Logically, seeing these new players come in against the trend, a number of with-trend players will quickly start to pocket some profits. Not necessarily equally strong as the move it is trying to counter, but definitely not as a weak attempt either.

Preferably, the candles in the pullback are also one-directional in their closes, meaning that if the trend was down, printing black bodied candles, this pullback will have mostly white bodied candles in it. And it should not stop or falter in its run before the area of the 20ema is reached. Take heed of the word area, because when the trend is formed by only a few very tall bars that broke free from a consolidation zone, the moving average may be lagging behind and thus be out of reach, even to a substantial pullback.

At other times, the pullback itself is so violent that it might easily perforate the average more than it normally would before calming down. So the 20ema is a guide, not a barrier. When both required conditions are met-a strong trending surge and a firm straight pullback in it-the chart will show a very visible fishhook pattern.

Most of the time, the pullback hook will not exceed the halfway mark of the trend, although it is not exceptional to see a retracement even further than that. The third and last condition to grant the FB setup validity is that the. The first pullback in any newborn trend is highly prone to be slammed back itself by with-trend traders the very moment it stalls. By now a very legitimate question may have arisen among readers trying to figure out the logic behind some of the price action principles already discussed: what is it with these countertrend traders, what makes them so persistent in their need to constantly swim against the tide?

Are they self-indulgent masochists, suicidal maniacs, utterly mad? Can't they tell when a trend is on and don't they know the odds are technically in favor of the trend to continue? To answer these questions we may have to ask another. What is a trend to begin with? We may perceive our trend to be so obvious that even a novice could spot it a mile off, but still the move itself may only be a minor ripple in the trend on a bigger time frame.

And this other trend, in turn, may simply be a pullback in an even bigger trend. This pattern of hierarchy could even go on until we're looking at the monthly charts and beyond. So who is actually countering who at any given moment in time? There is no feasible answer to this riddle. That is why trading is such a fascinating clash of opposing ideas and insights. It is this perpetual disagreement on price and value that causes the market to provide endless liquidity to all participants involved.

And luckily so, or there wouldn't be any trading done. Just imagine a market where everybody would agree. Who would be so generous to sell us a contract should we want to go long, or buy our contract should we want to go short? Nobody would.

Everything else is irrelevant. That one chart is the frame in which to decide whether the market is trending, ranging or pulling back, and any decision to enter or exit the market should be based on the setups and the candles in that chart alone. Now let's have a look at this FB setup and see if it is easy to identify.

Keep the three required conditions in mind: a bursting move, a straight pullback, the first pullback to the move. Figure 8. Although not necessary, it can be a nice bonus to see the candle that needs to be broken the signal bar turn out to be a full-grown doji, with its closing price very close to the side of the break.

When it closes back on its lows in a downtrend, it hands us a strong signal that the trend may be about to resume. But basically any candle in this setup will do. They should not be any taller than 7 pip, though, in order for us to still be able to wrap a 1 0 pip stop around them 7 pip for the candle, 2 pip for the break on either side, and 1 pip to account for the spread.

More on this in Section 3 on Trade Management. Note how most of the bars in the downswing are firm black bodied candles, whereas those in the pullback are all smaller in size, yet none-. Not even one bar in the pullback got broken to the downside until the signal bar in the 20ema appeared. One couldn't ask for a better FB setup. Technically, this particular FB is also a D D setup.

After all, there are two dojis-with equal lows-appearing in the 20ema. That would render the necessity of the pullback to be the first a non-issue, because now a scalper could simply trade a DD setup, which does not have that kind of restriction. As we march through all of our setups in this book, we will most likely see many more examples of situations in which one setup is part of, or equal to another.

The reader should not let himself be confused as to what to call it. The names of all patterns are essentially irrelevant. The tops of most of the bars remain capped at a horizontal level, but the lows are slowly progressing upward. That is a clear sign of tension building up towards an upside break. The reader is prompted to always check the chart for any kind of clustering price action in it. Whatever is compressed will eventually unwind, simi-.

It is referred to as pre-breakout tension. The later to be discussed BB setup see Block Break, Chapter 1 0 is solely designed around this principle. But all throughout the chart, setup or not, we can expect tension to build up, one way or another. Pullbacks that retrace about 40 to 60 percent of the trend and simultaneously collide with the 20ema provide excellent opportunities for a with-trend scalp.

In this chart, it turned out to be a proper FB setup 2. However, when compared to the previous chart, Figure 8. The trend has some black bars in it, the pullback some white ones. All in all, that makes for a tradable FB. This setup provides a good example of how a tick counter can help to indicate when a signal bar is about to end and a possible entry bar about to begin. There is always the possibility that the entry bar will open with a one pip gap, which will be an immediate break of the signal bar on the first tick, and thus a valid reason to fire an order.

Hesitating in that spot may result in a worse entry price or even lead to missing the trade altogether. When using market orders instead of limit orders, it is unavoidable to occasionally incur some slippage when entering on a trade. Since a market order aims to grab the price of the moment, but has no specific price attached to it, it could be filled disadvantageously in the event of the market moving away.

There are basically two reasons that could cause this to happen. The first is a technical one, meaning the market. That happens even on the best of platforms. The second reason is self-inflicted, as a result of acting too slow. The technical reason, obviously, cannot be avoided. We will certainly not be using any limit orders and see half of our trades move away from us without being filled.

Even if we were to operate a high-tech platform that allowed us to put in limit orders at the speed of light, that would not eliminate the risk of not getting filled. Therefore, if we want in, we hit the market order button.

The self-inflicted slippage as a result of hesitating at the moment of entry is more common than one might think. Balancing on the brink of a trade can trigger a lot of anxiety within a trader's mind. As a result, some will act prematurely without waiting for a proper break; others simply act too slow and some may not act at all. These things happen and they are only natural. It may take many months for a trader to routinely fire off his trades without the slightest sense of discomfort.

A thing to strive for, of course, is to act when action is required, whether that still provokes anxiety or not. Eventually all these feelings will wear off. Most winning trades surpass the 1 0 pip target without too much trouble, so even being filled uneconomically, and thus having a target objective a little further out by the same amount the entry got slipped by , should not make that much difference. It may cause the damage control to be more expensive, though-so be it.

Still, that is no reason to get upset. Nothing in the market ever is. Should a trade be missed, for whatever reason, it is important not to whine over it but to quickly adapt and see if the situation can still be saved. Just as often as the market tends to shoot off and not look back, it shows a tendency to stall right after the break. And even if it spikes away without us in it, in many instances, just a few bars later, price will quickly pull back to revisit the breakout level.

Both situations pro-. We may even be dealt the exact same price as the original missed entry. However, in case a trade is truly missed and does not pull back, it is essential to not chase price up or down, no matter how much a scalper wants in. That is very poor trading and reeks of amateurism.

If the moment is really gone, it's gone and a scalper moves on. Price action like this is very often caused by traders responding to a news release. The fact that it also broke a technical pattern 1 -2 , a so-called bulljZag, don't worry about it and cracked a round number zone 1. Whenever a trader sees something like this happen on his chart, he should immediately think: FB!

For that is the fastest entry into a new trend after a pullback 4. This is typical for sharp moves that contain only a few very long bars. The average may have an exponential calculation to it, which puts more weight to the most recent closing prices, it is still an average made up of the closing prices of the last 20 bars, and at the end of the.

This is why the 20ema can only act as a visual aid and not as a definitive level that needs to be touched first. A handy trick to determine whether a FB entry may be imminent in situations like this is to watch out for an opposite colored bar to get printed in the pullback could also be a doji without a colored body. In this example the pullback is bearish, with the candle bodies being black; the moment a white bodied candle appears, the scalper may be dealing with a possible signal bar.

But only once the high of that bar gets taken out does it signal an entry to go long. This is only a handy aid, though, because by itself the color of the signal bar is irrelevant. Any bar in this setup that gets broken in the direction of the trend should be considered a valid signal bar.

The time scale below this chart gives the reader a good impression of the occasional huge difference between a tick frame and a time frame chart. That is about 1 3 times as fast. Shock effects, like news releases, can be extremely volatile and fast paced, but with a bit of luck, an alert scalper may still reap some profits from them before they wear off.

It is not uncommon for a target to be reached within a matter of seconds. To the downside, it should be noted, there is the possibility of being stopped out equally fast. Under calm conditions, it is quite rare for a full stop of 1 0 pip to be hit, yet it is a market like the second half of Figure 8. The mere speed of it could make it impossible to scratch an invalid trade at a better level.

But since these trades come with nice odds, getting stopped out on occasion is just part of the normal distribution of outcomes in a probability play. In this chart, the market, within a minute or so, almost printed an exact copy of the earlier situation that led up to the first FB trade.

Both trend and pullback are almost identical. It is a bit of a judgment call to decide whether or not to trade the break of the second pullback 5 in similar fashion as the first. The pros to this trade are the facts that. And, of course, that a signal bar got taken out to the upside.

On the other hand, the pullback is not the first to the trend, which basically renders the option of a FB invalid, due to strategy restrictions. It is not for nothing that a FB trade is often skipped in favor of a better setup under relatively normal conditions. But these are not exactly normal conditions. So the judgment call is purely a result of the exceptional quality of the market. Does it matter what a trader decides to do, skip or trade? Probably not. It would only matter if these situations occur almost every day, for then they need to be implemented into the strategy and not be looked upon as an oddity any more.

Taking the trade anyway and getting stopped out could harm the not yet confident scalper, for he may be prone to the negative illusion of being reprimanded for strategy deviation. Should the trade work out, then he may start to foolishly entertain the idea that he is allowed to deviate from his strategy at will on account of his excellent insights. The proficient scalper, on the other hand, will just look upon any trade as just another trade.

It either delivered on its potential or it did not. It actually appeared after an already extensive run-up of the market not visible on the chart. And so we can look upon that huge move here as a newborn one; therefore, the pullback in it should count as a first. In hindsight, sometimes a trader may regret not having scrolled a little further back in time to spot the huge resistance that caused a particular trade to lose. But then he should also consider the possibility of not having traded a large number of his winners on account of similar perceived resistance further back in the chart.

In the faster paced markets, it is not uncommon to be filled with some slippage. Being aware of a terrible fill and at the same time seeing the trade not want to take off can be quite a mental challenge. Just imagine. That would have taken the trade about 6 pip in the minus at the low of that tiny pullback a few minutes later 2. Despite the discomfort of being so many pip in the minus, it is vital to stay calm and composed throughout any trade and only resort to bailing out when the technical conditions warrant such action see Chapter 1 4 on Tipping Point Technique.

And never because the current loss becomes mentally unbearable. It is crucial to understand, and accept, that a large number of trades at some point before the target is reached will see at least some, if not all of the paper profits being eaten away; and a great many more will simply have to endure the initial hesitation before finally taking off.

It is just the way the markets work and in essence also the very mechanism that makes pullback trading possible in the first place. It would be very selective reasoning to welcome a pullback when looking to trade, yet to despise one while in position. When in the market, a trader, at all times, should keep his eyes on the chart and not on the mesmerizing fluctuations of his profit and loss window.

If the traded break is picked with care, it most probably will defend its very existence and send these countertrend traders packing. The uncertainty of whether a trade will work out or not, and the fear of having capital at risk, can trigger all sorts of unhealthy emotions that will hardly contribute to managing the open position in proper manner. Since we all know that certainty is nothing but an illusion in the marketplace, how could uncertainty really be an issue?

Many times, though, a trader's discomfort is not caused by the possibility of a losing trade, but more by the disturbing uncertainty of whether it was the right thing to do to take the trade in the first place. This immediately shows us the necessity of proper education.

Whereas a trader can never be certain about the market's response, he has got to be certain about his method! All a trader can go by is the likelihood of his edge to comply with probability over a longer term. Therefore, he has got to trust his setups and take every valid trade. It is pointless trying to. At times, it can be very tempting, though. But it is crucial not to give in to this treacherous temptation. Prediction and hunches are like the ever-present hecklers who thrive on confusing the performer.

Since they cannot be denied a ticket to the show, it is best to ignore them and just do what you have to do, even if it hurts. It does not. And when it finally does, maybe once or twice a week, it may not necessarily present itself in tradable fashion. In the unfortunate event a trader is signed up with one of these shameless brokers that outrageously mark up the spread in wild markets, or prior to, and in the wake of, a news release, any trading venture will be reduced to a foolish act of gambling.

Under these conditions, a scalper is strongly advised not to step into the market anyway, no matter how tempting the chart. That would be a clear demonstration of poor judgment. According to sound probability, every trade should be looked upon in the same man-. They either work or they don't. Accepting a trade under terrible conditions-which would be considered wholly untradable under other circumstances-is the same as saying: I can afford this because I know what's going to happen next.

Delusions of grandeur are not uncommon amongst those traders not yet ready to grasp the probability principle. The pullback candles neatly follow one another to the 20ema zone without the with-trend traders trying to take over yet. It is also the first pullback in the new trend, so this action makes for a great FB setup 1. What is different, compared to the FB examples seen so far, is the shape of the signal bar leading up to the first break.

That one could not be more tiny, yet is a very valid signal nonetheless. Small as it is, there are just as many transactions done in it as in any of the other bars not necessarily the same volume, though; tick bars do not the count the number of contracts changing hands, they only indicate the number of transactions taking place. The fact that price is stalling in it does not make it any less a signal bar. On the contrary. Sellers and buyers are apparently in complete harmony with each other, at.

Every time prices stall in the area of the 20ema, countertrend traders will be extremely quick to exit their positions once the chart starts to move in the opposite direction again-especially so when the pullback was countering a very strong move.

A scalper should capitalize on these countertrend traders running for cover and fire his order as quick as he can in the direction of the trend once a signal bar gets taken out. If all goes well, then in just a matter of seconds new with-trend traders will pick up on the action and jump in themselves, helping the trade along. Note: To produce the I pip signal bar, for educational purposes, I actually cheated on this particular chart by setting it not to 70 but 69 tick.

Compare this chart to Figure P. I in the Preface pages. They are the essentially the same, if not for the tiny difference in tick setting. As you can see, adjusting the tick number by a mere tick can already alter the way most bars are displayed.

Yet both charts are equally tradable. The situation above does present us with a technical issue regarding proper trade management.

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If we were to assign a rating to each individual trade—by counting the number of valid reasons to either skip or trade a setup—and came to conclude that the probability factor is apparently not a constant but varies visibly from setup to setup, should this not force an intelligent strategy to alter the volume per trade in compliance with the degree of predictability?

On the other hand, one could argue that if there is such a thing as a superior trade, then, naturally, there must also be its counterpart, the inferior trade though still possessing a positive expectancy ; when opting to trade the latter, could one not take off volume and tread lightly?

And rightly so. Whenever we picture ourselves to have an edge, each setup deserves to be treated with equal respect, no matter how shady or pretty its appearance. And that means assigning the maximum allowable amount of units per trade to fully capitalize on the principle of positive expectancy. Note: Contrary to common perception, the least important of all your trades is the one you are currently in. Your current trade, on the other hand, has yet to earn its notch on the historical slate. It is just a trade in process.

And it is totally irrelevant whether it will win or lose. Why is that? But the point does show the importance of a proper understanding of distribution in a probability play. All individual outcomes are just data. The only thing that truly matters is the collective result of all your scalping actions in the market. It can indeed be a mental challenge to have to sit out these times of inactivity, hoping for action and not getting any, especially to those traders who look upon their trading platform as a slot machine in a penny arcade.

A word of caution may be in place here, because these sideways ranges do have the nasty habit of luring a trader in one of two very classic mistakes. This warped sense of reality is typical for a trader who just needs action.

The second classic mistake is made by traders who on the surface seem to stay composed rather well in a sideways market. Up until that one amazing moment that boredom abruptly kicks in. For reasons unbeknownst to themselves they suddenly have to get up to make these phone calls, do their exercises, watch the news on the TV or even take a stroll outside. Anything to get away from that screen and that market! It is a pity that traders are so caught up in the notion that trading trending markets is the only way to go.

Contrary to popular believe, sideways markets deliver excellent opportunities, for the simple reason that they have to break out eventually, just like a trending market will eventually come to a halt or even reverse. With the moving average traveling sideways and price bars alternating above and below it, there is not much to make of it.

This is your typical round number zone tug-o-war in the absence of a clear incentive 1. But of one thing we can be sure: unless it is a national holiday, late Friday evening, or lunchtime in an already dead Asian session, price will not stay put for hours on end. The trick is to recognize the buildup that most often precedes it. This is why it is so important to familiarize yourself with pre-breakout tension. What will help is to draw, or imagine, a box around any clustering price action that might lead to a break.

By extending the signal line to the right, we can see that the pullback following the break successfully tested the breakout level as well as the broken round number of 1. That will certainly have inspired a number of bears to just throw in the towel. And a number of bulls to quickly enter the ring. However, despite this potential for double pressure, markets do not always immediately pop. If you look closely, you can see that the top barrier of this second BB setup is not exactly running across the absolute high 2 but one pip below it, across the equal extremes of four consecutive bars.

Here it seems logical to put more weight to the four equal highs than to that one single high sticking out on the left. It would be overly prudent to wait for this high to be taken out, too. But let us ignore our setup for a moment and see what the market has to say about this: it put in a series of distinctive higher bottoms within the course of two hours; it broke a round number zone and saw it successfully tested; it built up towards a possible bullish breakout and now it breaks a cluster of four bars with equal highs.

I think it is telling us to trade. Once again, the breaking of a round number zone trapped traders on the wrong side of the market. In the previous chart, it was a downward break through the zone that not long after turned bullish, here it was an upward break that soon turned bearish. Probably no more than there is to any other break or move that fails or falls short: a lack of follow-through. It is not uncommon to see enthusiasm dwindle in rather subdued markets, or in situations where the round numbers are more of a symbolic nature than that they actually represent true technical levels of resistance and support.

In these cases, it is fair to assume that not too many stop-losses reside above or below the levels. As a result, the price action remains calm; as much as those in position do not see the need to get out, those on the sidelines are not exactly scrambling to get in, either. Everything is very easy in hindsight, yet if you managed to grasp the concept of the forces in play that caused the upside break in Figure Let us examine up close what exactly went on from the moment the third top was set 4.

It started to go wrong for the bulls when the reaction to this top a tiny countermove was not being picked up by new bulls in the 20ema a few bars later. That would have been a perfect opportunity to swing prices back up. From there on, they could have created themselves a nice squeeze by not giving in to whatever bearish pressure and then force themselves a way through the top barrier of the range.

In fact, the three earlier tops 1, 3 and 4 would have made for an excellent barrier to trade that upside break from. However, instead of working on that upside break, the market set out on its way to the bottom of the range again 5 and now even showed a classic triple top in its wake. These are not bullish signs.

But there was hope still. After all, the round number zone was cracked to the upside and successfully tested earlier on, and that should at least amount to something. If somehow new bulls found it in their heart to aggressively step in above the 1. And that would look quite bullish. Forex Price Action Scalping Excerpts Sometimes it only needs one bar to turn pleasurable hope into the idle variety.

How about that little doji 7 that stuck its head a pip above the high to the left of it 6. A higher high in a bullish market after a possible double bottom in round number support, that should have attracted new bulls to the scene.

What kept them away? We can imagine it to be the triple top pattern to the left; but it is not our business to decipher or explain the actions or non-actions of our fellow traders. Everything is just information. As observant scalpers our task is not just to monitor a chart, but to look for clues in it. The more crucial the signs we can assemble, the more we can solve the puzzle of who is possibly toppling who in the market. The best indication to determine the value of a particular chart event is to consider its place in the chart in relation to whatever price action preceded it.

To give an example, the tiny false upside break of 7 would have been considerably less indicative had the market not printed that triple top shortly before. With prices now trapped below the 20ema, the market was on the brink of being sandwiched into a bearish breakout through the bottom barrier of the range.

For my own personal comfort, I would like to see prices get squeezed a little bit more before breaking down. Preferably, I would like to see the market print a couple of dojis right on the bottom level of the range as in a regular BB setup. It must be stated, though, that a conservative stance is not always the most successful approach. It would be nice if we could really put a rule of thumb on these false breaks, particularly on the tease variant, but alas, it often depends on the situation at hand.

That makes me want to wait for superior conditions just a little bit longer than, for instance, in case of a speedy market, where I might run the risk of fully missing the break on account of being too conservative. Note: As for the difference between the false break trap and the tease break variant, imagine for a moment the low 5 to have dipped a pip below the range barrier.

That would have turned it into a false break of the earlier bottom of 2 and not a tease. And most of them will have no choice but to sell back to the market what they had bought at bottom prices just moments before. Add to this a number of sideline bears eagerly stepping in and we have ourselves the perfect ingredients of double pressure and thus follow-through. At times, the anticipation of this little chain of events is very straightforward.

At other times, the assessment of the squeeze can be a lot more subtle and it may leave a scalper wondering whether or not to trade. Particularly when the space between the 20ema and the barrier line is no more than a few pip in width, the tease break may be almost indistinguishable from a valid break.

As we have seen already in several examples, the 20ema, just like in the chart above, can still guide prices back out in favor of the trade. Take a moment to compare the string of black bars after the break in this chart with the string of white bars after the break in Figure What do these moves represent?

They clearly show us the unwinding of positions of those traders trapped on the wrong side of the market. In the chart above, for instance, all scalpers that picked up long contracts inside of the range are carrying losing positions the moment prices break down below 1. That string of black bars represents their predicament and their panic, so in essence a rapid unwinding of long positions that are being sold back to the market.

As a result, prices will fall even more until eventually the market calms down and more bulls than bears are willing to trade. This, in short, is the principle of supply and demand. It works the other way around in equal fashion. And it is our job to anticipate it before it even takes place.

To the non-initiated this may seem like quite a daunting task. Yet those who observe, study and learn will most likely come to see the repetitive nature of it all. And soon they will be able to exploit those who do not. For example, if, say, 1. Variations on this pattern repeat themselves with such relentless persistence that it is not hard to imagine how numerous intraday strategies are solely built to exploit this phenomenon.

Of course, as scalpers we are only interested in one thing: can we exploit it? Anyhow, if nothing else, round numbers do have the pleasant side-effect of framing things in organized manner, just like wrapping boxes around ranges gives us clarity on resistance and support.

They may do so at the moment, but I rather leave that to the price action itself. Frankly, in the never-ending quest for simplicity I have tried to scalp with a clean chart, meaning without the lines in it, but somehow my conditioned brain felt less comfortable without these levels framing the action. This may very well be a personal quirk and any scalper can try for himself what suits him best. One last thing: on the road from 40 to 60, and the other way around, things can get very tricky.

Currency trading, like it or not, is a big players game, and the level is arguably their favorite toy. Unlike the 00 round number, this level is not a level itself. More often than not, these levels are what the bigger chart is all about and why we see so many ranges appear as a result.

Let us look at Figure Halfway through the chart, the options are very much open. There are no trades near and a scalper should just relax and apply patience. Tip: you do not necessarily need to draw boxes, a horizontal line across the tops and one beneath the lows will do just ine.

At any moment in time there are always three ways to look at a chart. Through bullish eyes, bearish eyes, or neutral eyes. Needless to say, observing the price action with a neutral disposition is the way to go. Should it continue its pattern of slightly higher bottoms, then breaking out to the upside, eventually, would technically be the most logical result.

As neutral scalpers, we can only sit back and enjoy whatever the market has in store for each party. One thing is of importance, though, and that is to not walk away from this chart in a silly act of boredom. If the bulls show a bit more persistence, particularly when entering a potential squeeze phase, we may have a trade on our hands in a matter of minutes.

As a matter of fact, the subsequent price action after the tease, that is the perfect squeeze that led to an excellent textbook RB trade 9. That is a very fair question. So far the examples here show outcomes that point in favor of that option. It is my observation, though, that in most cases you can get away with being a little more patient. In other words, missing a range break trade due to a conservative stance is less common than one might think. As we will see in the section on Trade Management, squeezes provide excellent levels for stop placement.

Conversely, a tease break situation, in essence a somewhat hastier break, seldom delivers the same technical clarity in terms of where to place the stop. When trading breaks, patience truly is a virtue. Therefore, my advice would be to shun the non-buildup breaks entirely false break traps and those resulting from little buildup as much as you can tease break traps.

Note: If prices after a tease break are pushed back inside the range but not much later break out again as in a valid RB, then it is not necessary to postpone entering until the tease level is taken out, too. An exception would be if there are multiple tease breaks in a row that together form a new barrier by themselves. Then it may be recommended to assess the situation from the perspective of that new barrier see Figure Despite the many false breaks, there was no need to get caught in any of them.

This chart, obviously, shows the market being a bit nervous. By that information alone, it is quite safe to assume that halfway through it, the market was bracing itself for a typical news release. News releases bear an intrinsic potential to really rip a chart apart.

It means that contracts change hands so feverishly that it looks like the bars are literally being spit out on the screen. Not seldom, these spikes are extremely short-lived, but that is of little consolation to those shaken out. All in all, news breaks offer a dangerous environment to scalp in.

To avoid getting caught by surprise, traders can check the economic calendars freely available on the web for the exact moment of major announcements like interest rate decisions and non-farm payroll numbers. If caught anyway, and not immediately shaken out, just remain calm. Always aim for a technical way out of a trade.

If the broker is okay in any other respect, offers a solid platform to trade from and keeps the spread at 1 pip throughout 99 percent of your sessions, then a simple solution would be to avoid the occasional mark-up by simply not trading during a hefty news release. The brokers to absolutely avoid are those who mark up their spreads more sneakily for no particular reason and for hours on end. Even if they just add a few pipettes either side, it can have a devastating effect on even the best of scalping strategies.

In terms of turmoil, the reaction to the news in this chart was rather subdued. But not without tricks, though. First appeared another false upside break F3 , which got slammed back pretty fast. Next in line was the tease break T that suffered a similar fate. We have to give the bulls some credit for not throwing in the towel then and there. Instead, they played their last trump card, which was to keep the pressure up by not allowing prices to slide below the last low in the range.

And that worked out wonderfully well. The low of 6 matched the low of 5 , forming a double bottom, and not much later prices were pushing against the top barrier once more 7. Notice the pretty little squeeze and how nicely the 20ema guided prices out of the box. Out of all the breaks through that top barrier, this was the only one that deserved true RB status 8. As we have seen already many times before, it is not essential for the market to have prices attack a particular barrier up to the point of exhaustion.

Quite often, it needs no more than a double top or double bottom to show all participants who is in charge. At times, it can make you wonder, though, why at some point the strongest walls of resistance get attacked with a relentless fervor, while elsewhere in the market a mere halfhearted expression of power remains completely undisputed.

But the market is what it is and does what it does. In the end, the direction of prices is a big players game and the mortal scalper has no business asking questions. Up until the encapsulated IRB setup there was not much to make of this range in terms of possible direction. In fact, they could dissolve in a matter of seconds without any signs of protest. That is why it is probably not a very good strategy—at least not for the aspiring scalper—to simply sell in resistance or buy in support, not even for the sake of a brief little scalp.

Overall, the safer approach is to see how the market handles these zones and then try to trade them. Whenever the market is approaching a barrier, or even just a former top or bottom, basically three things can happen. A bull, for instance, is basically telling the bear: I am buying your contract but I am shorting your dream. And, likewise, so does the bear scorn the bull in return.

It should come as no surprise that the average trader is not particularly burdened by moral inhibitions, nor does he feel the need to pledge a humane disposition towards his fellow trader in the market. After all, he knows very well he is not exactly operating in the welfare industry and that at any moment in time he himself may get trampled by another. It is the novice, no doubt, who will get burnt the most in his line of duty; that is why it is so important to escape that status as soon as possible through sound preparation and extensive study, and with the inevitable lessons in the market costing as little as possible.

The IRB pattern in the chart above is another great example of how to trade a top barrier bounce. Or we could say, it shows how to capitalize on the pain of demoralized bulls running for cover after their dreams of higher prices got shattered by a simple break of the pattern lows. It would be a misconception to think that prices, at any one time, could tank or rise more than 30 pip straight on account of such a tiny IRB setup alone.

Predominantly, the markets move because of the overall technical conditions. There could be a number of other reasons for markets to rise and fall as they do, even against the current trend, for that matter. But it is highly unlikely that a little tug-o-war with a vertical span of a mere 5 pip can cause the market to move six times the width of that pattern. The setups are nothing more than tools for entering at the best possible spots.

The pattern here, for instance, was put in by the market at just the right place and the break occurred at just the right time; it only provided the proverbial trigger for the bulls to get out and for the bears to get in. Whenever one party yields to the pressure of another, bulls and bears alike, though be it for complete different reasons, will start to aggressively hit prices in the same direction.

In many instances, it only needs one single pip to surpass a certain level to provoke this unanimous act. Granted, if the chart truly shows a mishmash of erratic movements that make no technical sense then it is best left alone until the picture clears up.

But do not give up on a chart too eas- ily. More often than not, from below the surface of non-descriptive price action clarity will emerge and before you know it the pieces of the puzzle may fall neatly into place. One more reason to always stay alert and focused, even throughout the less attractive doldrums of lunch hour ranges. Like the proverbial ball that is pushed under water, so is the price action within a range suppressed and contained.

When that happens, prices usually do the one logical thing: they pop. Of course, in the marketplace the pres- sure can escape at either side and it may not be in textbook fashion. But does it really matter? Classic breaks are valid breaks and the occasional trap is just part of the game.

The point is not to question the valid break but to avoid the classic trap. Regardless of his years in the market, a scalper will never be able to tell whether his break will be true or false. Forex Price Action Scalping Excerpts All he can do is follow the clues in the chart and trade any valid break that comes along. Let us look at the chart above and see if we can detect the signs that may have inspired a scalper to trade the IRB breakout.

In the beginning of the chart, prices came down from a level to test the round num- ber of 1. They subsequently bounced up and rose to test the former highs. Things got interesting when prices surpassed the earlier high of 1 by a mere pip F. A classic trap. He may not be able to draw exemplary and workable range boundaries yet, or feel the need to, but at least he has gained an impres- sion of what the future price action may be about. Should prices travel all the way down to support again, then the most prompting question, of course, will concern the round number defense.

Why waste time if it doesn't work? Big Mike says people are successful with it, so that is encouraging for me. I was actually looking into this method last night based on a recommendation in my journal and will be ordering the book soon. Would the 70 tick chart still be used? Looking at TOS , the smallest tick chart they have as a default option is I haven't dug deeper to see if there is a way to get to a 70 tick chart on the 6E manually.

The following user says Thank You to chaching for this post: MisterGopher. Big Mike. It is my understanding the chart size is mostly irrelevant. Trade the size most appropriate for your account and your personal trading style, setups should remain the same on any time frame. We're here to help -- just ask For the best trading education , watch our webinars Searching for trading reviews? The key to understanding the language of the markets is " Price Action " Attached Thumbnails.

The following 9 users say Thank You to zcui for this post: airborne82 , Hideyoshi , Johnygood , jwhtrades , macgwrite , MisterGopher , Mopaditi , PaperTrader , rgakalo. Any updates from anyone trying his setups? Not yet, but my plan is to give it a go. I let the style and I think it's doable but only if I can control myself.

Regards, Neil. Luck is what happens when preparation meets opportunity. Thread Tools. Become an Elite Member. There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products.

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