FOREX PRICE ACTION SCALPING an in-depth look into the field of professional scalping Bob Vo/man Copyright © 20 1 1 by Bob Volman. All rights reserved. Published by: Light Tower Publishing ISBN 978-90-90264 1 1 -0 ProRealTime charts used with permission of ProRealTime.com No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the author, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law. For permission requests, write to the author at the address below.com Excerpts of the book can be downloaded from: www.com Disclaimer: This publication is solely designed for the purposes of information and education.
Neither the publisher nor author shall be liable for any loss, claims or damage incurred by any person as a consequence of the use of, or reliance on, the contents herein. Table of Contents Preface. V Section 1 The Basics of Scalping Chapter 1 Trading Currencies. 3 Chapter 2 The Tick Chart.
7 Chapter 3 : Scalping as a Business. 13 Chapter 4 : Target, Stop and Orders. 19 Chapter 5: The Probability Principle. 27 Section 2 Trade Entries Chapter 6: The Setups.
33 Chapter 7: Double Doji Break. 39 Chapter 8: First Break. 61 Chapter 9 : Second Break. 79 Chapter 1 0: Block Break.
1 09 Chapter 1 1 : Range Break. 137 Chapter 1 2 : Inside Range Break. 1 75 Chapter 1 3 : Advanced Range Break. 209 Section 3 Trade Management Chapter 1 4 : Tipping Point Technique.
24 1 Section 4 Trade Selection Chapter 1 5 : Unfavorable Conditions. 283 Section 5 Account Management Chapter 1 6 : Trade Volume. 309 Chapter 1 7 : Words of Caution. 32 1 About the Author.
345 Preface Ever since the days of old, the markets have suffered no shortage of volunteers ready to sacrifice themselves on the ever-growing battlefields of supply and demand. Fortune-hunters, plungers, gamblers, misfits, and a motley crew of optimists and adventurers, all have roamed, and will continue to roam, the marketplace in search for quick-and-easy gains. Yet no other venture has led to more carnage of capital, more bro ken dreams and shattered hopes, than the act of reckless speculation. 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. Not surprisingly, this has led to an endless debate on the actual feasibility of profitable trading, in which skeptics and romantics fight out a battle of their own. To the skeptic, no doubt, the glorified image of a consistently prof itable trader seems highly suspect.
After all, the only ones who have always prospered in the trading field, at the expense of the ignorant, are brokers, vendors and clever marketeers. And if it is already hard to picture himself a proficient long-term investor surviving the odds, then, surely, the idea of a consistently profitable scalper must be bordering v Forex Price Action Scalping on the idiotic. To see the skeptic's point, one only needs to follow the rou te of common logic: in a line of business where so many traders have tried, and failed, to successfully trade the long-term charts, those ven turing out on the miniature frames can only be setting themselves up for an even uglier fate, and a faster one at that. And indeed, the shorter the time frame, the more erratic the moves on the chart; and with spreads and commissions cutting deep into a scalper's average trade, the odds seem stacked against the enterprise from the very onset.
Success stories are few and far between and it's hard to not take note of the sobering statistics that appear to confirm all reservations, at least way more than defy them. That being said, skeptics and statistics, of course, should never demoralize the dedicated. Scalping the charts profitably on a consis tent basis is by no means an illusion. Nor does it have to take years to acquire the necessary skills.
It is done every day again by many traders all over the markets, and it can be done by anyone who is determined to educate himself properly and diligently in all aspects of the field. The true issue is not the feasibility of profitable scalping but simply the quality of one's education. Even so, scalping may not be for everyone. If nothing else, this book could be an excellent way to find out.
Its sole objective is to show the reader all there is to know about the profession to effectively take on the job himself. Countless charts, setups and trade examples will be presented to fully ingrain the necessary techniques into the mind. The contract of focus in all of the coming chapters will be the eur / usd currency pair. 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. The benefits of scalping are plenty and speak for themselves. Just one single chart.
No fancy indicators. One-click in and out. And opportunities abound in an almost repetitive loop. VI Preface Have a look at the example below.
I is a snapshot impres sion of what a scalper's chart of the eur/ usd can look like. 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 .com eur/usd 1.COITI 15:26 15:32 15:36 '5:�O 15:44 15:52 15:56 16:00 18;04 16:08 18:12 15:16 16:20 18:24 16:28 Fig ure P.1 In just a little under an hour, the market offered an alert scalper numer ous textbook trades. To build a solid foundation beneath a scalping method, it will not suf fice to merely deal with the technical side of trade selection.
We have to examine all aspects of the profession from every possible angle so as to filter potentially disruptive elements completely out of the equation. Each of the coming chapters will take on a part of the journey. We will delve into the specifics of chart selection, price behavior, pattern recog nition, favorable and unfavorable markets, setups, entries and exits, targets and stops, traps and tricks, psychological issues, accounting matters-basically anything that comes to pass in the field of profes sional scalping. VII Forex Price Aaion Scalping Whether a beginning trader, a struggling one, or even a veteran in other fields of speculation , I sincerely hope this book will be enjoyed by all and that within its pages the necessary information is found to be able to scalp one's way through the market for many profitable years to come.
This work will not insult the reader's intelligence by showing him all kinds of stuff that do not reflect the reality of trading. There is no plowing through endless chapters of meaningless babble and industry gobbledygook. 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.
Free excerpts of the book can be downloaded from: www.com VIII iSection 1 The Bas ics of Sca lpi ng Cha pter 1 Trading C u rrencies Since the advent of high-speed electronic trading platforms, it has never been easier to set up an online account to join the daily tug-o-war in the foreign exchange. Little demand is made in terms of capital require ments and even less on the matter of proficiency. Pick a broker, wire some funds, set up a chart and one could be trading in less than an hour. As straightforward as this may sound, behind the curtains of online currency trading hides an immensely complicated network of central banks, institutional organizations, investment corporations, hedge funds and global market operators, all doing business with each other in amounts that simply defy imagination.
The foreign exchange resembles in no way the average stock mar ket or futures pit where all shares and contracts are traded orderly in one place; it is literally a melting pot of over a million participants, big and small, scattered all over the globe, trading in every time zone, and it is well beyond comprehension how all this activity is meticulously tracked, processed and ultimately transfigured into the dealing quotes on everybody's trading desk. The Forex markets spring to life when the currencies are compared to one another. Hence the so-called currency pairs. Barring the occasional exception, most countries allow their national currencies to be freely traded against other currencies, which can result in some pretty exotic 3 Forex Price Action Scalping combinations.
There is no point in trying to figure out the reason why the market at any given moment shows preference for one currency over another. It could be monetary obligations, fundamental prospects, interest rate decisions, fiscal policies, hedging purposes, ordinary tac tics-basically anything could cause the flow of money to shift from one side to another. As much as this may bear little relevance to the small independent scalper, he needs to understand that he will be up against some of the mightiest opponents in the business. To level the playing field to an acceptable degree, he has to operate under conditions that will not put him at an immediate disadvantage.
That means he has to find himself a broker that deals him fair prices. I t is no secret that brokers are often regarded as a necessary evil and when it comes to choosing one, the options are just as plentiful as they are obscure. It is almost impossible to find a company with unblemished reputation. Freezing platforms, widened spreads, failed executions, terrible fills, requotes, hostile helpdesks, funds gone miss ing-these are but a handful of complaints that pop up left and right.
And indeed, doing business with a shady company can be quite a roller coaster ride. It should be stated, though, that broker experience has improved considerably in recent years as more stringent rules and reg ulations have forced the industry to shape up. There are basically two ways for brokers to go about their business. They either offer the pairs to be traded at their current value in the market and for this service demand a commission, or they waive that commission in favor of marking up the spread.
This is the somewhat controversial practice of allowing both buyer and seller to trade through their system at a less favorable price than the actual quote of the under lying pair. The difference is pocketed by the broker. Accepting the latter concept can be quite a tricky venture, not in the least since this mark-up tends to be subject to rather questionable flex ibility. It is not uncommon for a broker to lure traders into opening an account by advertising acceptable dealing spreads, only to adjust these spreads disadvantageously in a live trading environment.
Needless to say, this could severely compromise a trader's plan of attack, if not fully 4 Chapter I Trading Currencies disrupt it.