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My thoughts and strategy as in trying to become a scalp trader!
Triggered by the electronic mail I received on 31-01-2017 about the February Journal Challenge, here I am!
I have had about three, personally funded with my savings, attempts to become a trader and failed constantly while having my highlights, but the market is just not always moving like it should be. With this being a fourth... and probably my last!
Let me explain my strategy in a couple of posts first. This post being Part 1. After all the parts are explained, I will put on some limitations on my strategy e.g. the market(s) I trade it on etc.
When I believe my strategy is explained in a good fashion, I will write down my trades.
The ground work including its foundation are the Bollinger Bands (BB) created by John Bollinger.
Part 1 of my strategy:
I use the BB in its basic settings, which are 20/2, but I also use another configuration, which is 32/3. Why? I learned about it seeing it in a YouTube video... but the reasoning behind is obvious! Anyone with some basic understanding of statistics knows that if you stretch your range in days and deviation in this case, the trading opportunities will become less, but more certain.
And that right there is a dilemma on its own! Do I sit behind my desk doing nothing at all for an entire day? While if I have to do something chances are pretty high it will be successful. Or do I look for more opportunities to enter the market, because we all know... seeing the market move makes you feel like you are missing out on 'making money'!
Another dilemma, not being in the market means you're not making money! Being in the market means you risk losing it!
I will use both BB's as previously described in Part 1 in combination to what probably is the best known indicator among traders, the Relative Strength Index (RSI). I use the basic setting, which means a 14 day period.
Certainty can be granted if you can use this fourth dimension correctly: time.
I use structures as well when I can spot them. I tend to recognise the usual patterns, like triangles, flags etc.
But since this is a matter of perspective it can be harsh to deal with it.
The market is dynamic enough already and I try to keep my strategy as realistic as possible by relying a lot on these indicators. Because you can draw enough lines until you find the explanation you were looking for.
Instead you have to be able to admit to yourself that you will not always find, that very thing you are looking for.
For a more and clearer view I also use pivot points which present me the pivot and the support and resistance price levels in relation to the pivot line.
Time is an important factor in all elements. As in what has happened, as in what is and in what will happen. And maybe on a side note we have an 'eventually'.
The time frame I am using my strategy on is a 15 minute one.
I am setting my targets on smaller time frames e.g. 5 or 1 minute.
I don't have an exact science or rule yet that puts it in black or white. But the time frame has to be significant smaller preferably smaller than five minutes.
I am still in discussion whether I should use the mid-BB line, which is the Moving Average in the number of days set in the BB settings (MA20 or MA32 in my case), of one of the BB's I have installed as my target. Or if I should put in a number of points, I am using 10 at the moment, but sometimes I sell my position for less. And sometimes I put my target on the mid-BB as previously stated. This right here is a 'WIP' (work in progress). And am curious what I will decide to be final.
if you really want to be a scalper i would recommend getting rid of all the indicators, focus on price action. and make sure you always trade with a positive traders equation. (reward equal to your risk and never less than your risk). you also have to focus on and only enter 60% (high probability) setups.
scalping is the most difficult way to trade because of the high winning % required. if you are a beginner you should focus on swing trading (reward 2x your risk). this only requires a 40% winning average to make a profit. i have some explanations on the traders equation on my thread.
just so you know i am a scalper myself so i speak from experience
also not trying to tell you what to do about the indicators, but trying to help guide you in the right direction. (i wish someone would have for me when i started! it would have saved me a lot of time and $$).
Thank you for replying to my journal mastercraft29! I will visit your thread.
Aren't most indicators constructed by price levels noted in the past? And looking at price action only is also looking in the past to expect a certain future, right? A lot of traders are telling me price action is the holy grail in trading, but none are very concrete.
Seeing basic triangles and head and shoulder patterns as well as inverted ones are based on price action, are they not? As well as Bollinger Bands and the RSI? (just in a different format)
I am not one for calculations, really, but I will try to explain some in part 4. My observations over the years are telling me, the market is almost always moving within ranges the BB's at the settings described in Part 1 are including. I haven't fully explained my strategy, yet. Only some information I use to develop a trade so far.
Often the risk isn't quantifiable as in its really high/low, it's always depending on your perspective, you are quantifying risk, because you tell yourself your open trade should be sold off at a certain price level, hence your stop loss, probably. But I am trying not to be very strict when it comes to this. And this is something I need to work on, but I also don't want to be blind and put in a stop loss as in if that is a fact, as in if that was the definition of 'risk'. One of my motivations to try a different approach than maybe most traders is, because stop losses can drain your account, while you weren't necessarily wrong. The setup risk and reward is also stated on previously price action?
Risk/reward is like creating your own statistical facts. But I have a goal and that goal is for price to get to my target. And in doing so, sometimes risk may deviate from what you previously calculated with a degree of certainty to be your risk. I am trying a more dynamic approach as previously stated. What this approach may be, I am reasoning about it!
I'm not sure what others are telling you about price action and it being a "holy grail" as there is no holy grail in trading. However i do firmly believe price action is the only form of trading that will provide consitent profits and the ability to become a professional trader.
there are indicators that "claim" to be based on price action (delta trading group is one) and they are scam artists. but i would not say they are all based on price action, as a price action trader an indicator cannot do what i do (analyze price and make subjective decisions).
if i remember correctly bolinger bands are just an EMA with a standard deviation added and subtracted.
you are right about price usually being contained within a trading range (support and resistance), however if you try to apply a trading range method to a trend or vice versa you are going to lose money.
I'm not really sure what you mean about risk not being quantifiable ? You should always trade with a stop loss in the market, not just in your head. even if it is far away, atleast there is something to protect you against an extreme (and rare) case such as the flash crash of 2010. Also to protect yourself from yourself (denying or holding on to a losing premise). If you are wanting to use a swing stop that makes sense, just put a stop below the most recent swing low or high, and look to take profits at least 1X your risk. but buying in a bear trend with no stop loss is a sure way to drain your account, much faster than losing on a stop loss consecutively.
Risk, reward, and probability are the three variables in the traders equation. you should always trade with a positive traders equation. I understand what you are saying about not technically being wrong because price usually comes back to test a previous price or your target, but having to hold through a 30 pip open loss to make 10 pips is not a mathematically sound decision (assuming you are not scaling in). Your actual risk would at this point be 30 pips and so your target should be a minimum of 30 pips (the market often will go in your direction the total amount you had to risk).
Sorry if i sound like i am trying to tell you what to do, i am not. this is your path and your choice. i am just offering information that may benefit you
Exactly, I appreciate your opinion and I hope you continue to give feedback and advice in the future!
I will write down tomorrow maybe (there are still some other steps I wish to write first) what my method is for scalping and it may be no surprise at all, but still...
I totally agree with you that I too experienced risk and reward abnormalities, but that didn't stop it to get to my initial target thus not having a loss and having earned money, instead of having a loss due to a fixed stop loss.
The only logical and sound reason for having a stop loss can be to prevent as you described a flash crash.
That is the very thing with traders, labeling the behaviour the market has, it's a bull or a bear!
I have read strategies that go long during times the bear is in action. Basically for those traders a bear market is an opportunity to buy.
You can have bull behaviour in a bear market and vice versa. I therefor don't label the market. Tomorrow I will reveal more about my strategy.
I have a question for you to answer for yourself as you are getting into intraday trading.
1) How does the Futures market operate and how do prices move up/down?
2) Regarding your answer to #1, how does charting Bollinger Bands represent that information?
