FX Scalping Trading Pitt 4/7/2010

What is Scalping Scalping is a short term trading strategy that allows traders to make good use of the leverage that is available in the FX market. Using short term charts for making trades. Scalpers look to make very quick small profits while exposing their accounts to the possibility of small losses

Best Times for Scalping By session and Time: Check out this link: http://www.forextraders.com/forex-strategy/forex-scalping/best-times-for-scalping-forex.html

Divergence Scalping Start with Daily Charts, then 1 hour, and finally 5 minutes and label the key Support and Resistance levels. In this example I used the EUR/USD Then attach a 14 period RSI to the bottom. Add moving averages if you want. Open up your 5 minute charts Check out economic calender for news releases and exchange openings. Mark not recently reached even numbers.

Daily Levels

Hourly Levels

Bullish Divergence A Bullish Divergence is when the Price makes a relative new low and the indicator does not make a new relative low. Categorized as a reversal pattern. Indicates fading downside momentum

Bearish Divergence Exact opposite, in that the price makes a new relative but fails to make a new high on the RSI. Presents a Short signal and fading upside momentum.

How to size your position Only risk 1% of your account per trade Take .01 of account equity Ex: 2500 * .01 = $25 Then Divide that by your pip risk in our case 15 25/15 = 1.67 minilots Or 16.67 microlots round down to 16 Do Micro-lots (1000 units) if you have a small account On first signal buy 8 microlots Second signal buy 2nd set of 8

Rules to the Trade: ENTRY Start preparing for a Long (Buy) Entry when RSI gets 35. Start looking for a Short (Sell) Entry when RSI gets above 65. Once RSI gets below the 30 (oversold) or 70 (overbought) mark that low or high respectively upon close. Wait until that level is reached again and enter half of your planned position (half of 1% risk) with an order at that level. As long as RSI is not lower than previous marked point. Enter second half of your position at the close of the candle. If the close is above your first marked level. Otherwise, just maintain original half Wait at least 6 candles before entering 1st half of position, when price touches your marked level and recheck RSI

Rules of The Trade: EXIT Exit half your position when RSI touches 50 – Not Closes. Then move your stop to breakeven and if possible make it a trailing stop. This may not be possible depending on your broker (i.e. MT4 or FXCM micro Can place an OCO with your stop at breakeven if your comfortable with that. Do not pay attention to your previous half lot, just look for the next signal.

NEVER: Buy or sell when RSI is only overbought or oversold. Enter whole position at first test of your marked level. Risk more than 1% of your account on each trade. Trade directly around a news release. Never leave half position without adjusting stop to break even. Try this strategy without a few DEMO tests. Look at ONE minute charts, too much noise and algorithms at work.

Notes: Can be applied to longer charts besides 5 minutes but stops need to be wider and opportunities less frequent. When in a longer term downtrend RSI often does not reach 70. Likewise, in uptrend RSI will not always touch 30. 3 consecutive (ex. long, long, long) does not occur very frequently. 5 min Charts 10-20 pip risk beyond initial marked level is common If your target level isnt hit within 3 hours delete that level

Random Example 1

Random Example 2

Small Backtest Euro + Random Examples Trades: Long: No Trade Low never touched. Sell: +85 Buy: +10 Buy: +30 Buy: +17 Total +142 pips Return of around 7% (assume 20 pips is 1%) With max drawdown 1% Period of less than 2 days

Resources: http://www.smbtraining.com/blog/ SMB Prop Equity Trading http://traderfeed.blogspot.com/ Covers psychology of trading http://www.fxstreet.com/education/learning-center/ FX Street’s learning center. Email: smcmannis3@gmail.com Text: 724-594-3569 StockTwits/Twitter: smcmannis3