M1 Countertrend Scalping Strategy

You can find the full cpfleger's template and ruleset here: https://www.forexfactory.com/thread/...3#post14318063

Warning/Intro: This is a very aggresive/discretional strategy, so don't trade with money that you cannot afford to lose. Also, I AM NOT THE ORIGINAL CREATOR OF THIS STRATEGY! I just thought it would make a very interesting experiment to share and look into, as most systems online preach the "trend is your friend" mantra and in my experience this is not true (most of the time). The owner of the strategy claims that it is capable of generating consistent profits through time and that it will let you "join the 1%" club, so I believe these big claims should be put to the test.

Main Premises:

1) We know price is ranging most of the time, so it makes sense to exploit this type of movement over trends and/or momentum.
2) We know price is hard to "time" accurately, so we use more "loose" entry rules (averaging) to avoid the headache (and the losers).
3) We know grid systems tend to break and burn down the accounts, so we add price action to the formula and try to gain an "edge" over the market.
4) Hypothesis: Breakouts and trends are short lived in the lower timeframes (defined by the 9, 20 and 50 EMA touches).

Timeframe & Chart Setup: EURUSD, GBPUSD, M1 (one minute) charts. Please note that the spread should be low enough for this to work (I recommend a ICMarkets standard account with the highest leverage available). Insert the 9, 20, 50, 200 period EMAs AND the volume indicator with a 20 MA overlay for reference (see example):



Rules:

1) Avoid trading "just-before" OR during news times.

2) Stick to the lower time-frames and one chart at a time (M1, M5).

3) Entries:

a) First Buy: Price close is BELOW ALL the 9, 20 AND 50 EMAs AND has a "good enough" distance away from these averages (more distance = more profits) .
b) First Sell: Price close is ABOVE ALL the 9, 20, AND 50 EMAs AND has a "good enough" distance away from these averages (more distance = more profits).

NOTE: What is a "good enough" distance is defined by your own discretion and depends in the current market conditions (volatility and structure). You may use support and resistance, band indicators, demand/supply zones, volume strength, waves theory, etc. I recommend you use simple support and resistance (horizontal levels) and volume readings to determine this (it will be more clear when you watch the examples below).

VERY IMPORTANT: Don't trade if price is still "stuck" between the EMAs.

4) Re-Entries: If price is going against your position, start placing new orders against the trend. The re-entry signal is the 9 EMA crossing your latest order horizontal level, see example:



NOTE: The main premise is that the longer you are inside a breakout, the higher the chances of price returning to the "mean", represented by the EMAs. If you are not in a breakout you should be making profits every swing with this system as you are most likely inside a range (where countertrend strategies work best).

5) Exits: As soon as price touches the nearest EMA that would let you exit in profits (may be a 9, 20, 50 or 200 EMA).

In a ranging/slow market the 20 EMA is an excelent option. If you are caught in a breakout and have several losing positions you may want to wait for a 50 EMA or 200 EMA touch instead, as most of your trades will become profitable by then. In some rare occasions a 9 EMA touch is the better option (i.e: When you caught a good chunk of the top or bottom after a breakout):



IMPORTANT! Do not let the trades run while you are distracted or worse: overnight!

6) Volume and discretional considerations:

a) If volume is above the 20 MA, price may still have enough fuel to keep pushing in the current direction. You may want to use volume weakening (safest) or strengthening (risky) to enter new postions. Both can work and it mostly depends on your risk appetite and trading experience.
b) Other minor MAs crossing above/below the 200 EMA is usually followed by volatile moves, so don't overleverage during these scenarios.
c) You may want to use price action (i.e: bar formations) and/or other type of information such as: waves theory, support and resistance, volatility bands, volume, etc. to try and call the tops and bottoms to enter new positions. However, remember that "simple works best", and the main premise is that you are fading trend/breakout traders and waiting for the "reversion to the mean" phenomenon.

Here is a video of the strategy in action that includes examples of tough trends/breakouts. Although you should remember that the main idea is to trade (mostly) ranges:



Examples:

* Example 1 (easy long trade):

- Entry/Setup


- Exit


* Example 2 (another easy long trade):

- Entry/Setup:


- Exit, and more hypotetical setups:


* Example 3 (tough breakouts/trends):

- Entry and other potential setups:


- Recovery trade example:



- Exit:



Please let me know what you think and what's your experience with this type of system.

Definitely a good one for (large) ranging markets ... but once you are caught in a strong trend, all your previous gains will be wiped out.

Thanks for the reply! And yes, I have always been skeptical about systems that add to losing positions as well. However, I notice that strong trends in the lower timeframes are short lived when compared to higher time-frame trends (defined by the 20 and 50 EMA reversions).

I believe some things may help to reduce the risk of being caught in a larger breakout:

- A trend filter (converting it into a "pullback"/trend friendly system).
- Better entries (pick on volume weakness, support and resistance, new high/low failures, volatility bands).
- Trading market hours with less activity.
- Trading markets that tend to range more (if the spreads allows it).

I have created a few mildly-successful systems with a similar contrarian approach in the higher timeframes ("stop-and-reverse" like), but I am far less successful with scalping systems for some reason, and that's a shame because I am looking for ways to increase my trading activity. I am hoping a successful discretional scalper with a similar approach may shed some light into these issues

Hi Abade,
interesting idea.

Let me briefly summarize your strategy:
You wait until the moving averages have reached a decent distance and then look for entries (countertrend)?

If my assumption is correct, I would recommend you to have a look at MacD or AO, because these two indicators were developed for a similar idea (as far as I remember correctly).

I would worry less about ranging-markets with your strategy, because the moving averages do most of the work for you (if the 3 moving averages have enough distance, the volatility is high)

The bigger problem will be, as FerruFX mentioned, that you get caught in a trend and you permanently add more losers to your positions.
To counteract that, I would try to trade in the direction of the trend (H1,H4,D1...) which is easier said than done.

I personally use the T3MA ribbon indicator to identify trends, but a normal 20 EMA will do as well.

My strategy would be as follows:
1. HIGHER TF: identify trend (T3MA makes it really easy).
2. wait for the moving averages to line up (8<20<50 or 8>20>50)
3. wait for signal from macd (default settings should be ok, but feel free to experiment)
3.1 add only one position per macd crossover, if your position goes negative, wait until the next macd phase (assuming you are in a sell, wait until macd gives a buy signal and then look for sell signals again)

I have attached the T3MA ribbon and Macd crossover.

P.S:
As Murphy said: 'Anything that can go wrong will go wrong'.
Therefore it is even more important to trade with extremely small lots (0.1% of the account or less) when using countertrend strateys without stoploss.

why not use that vol weakness to go wih the current 5m or 1m trend? or atleast use volume to go counter trend by buying the wide spread climax candles at a SR, RN etc. also u could combine that with swing failure or market structure shift on that lower tf rather then just buying when price is going down and viceversa. if you wanna be a contrarian that s quite alright, just have a method around it in order to reduce that innevitable trend runnover.

Thanks for your reply! We wait until price (the current close) is in a "good enough" distance from the current MA's levels (mainly the 20 and 50 EMAs), as more distance usually means a deeper/faster reversion back to the "mean" which is represented by the moving averages. What a "good enough" distance is depends in the current market conditions. For example, you could use support and resistance, volatility bands or volume to determine "what" that is. In the first example you can see a recent support was used (marked in red):


However, we were "wrong" and such support was not respected, so we are now in a breakout. MA's are also crossing the 200 EMA, so a big move followed by a big pullback is expected. When this happens we start adding entries that have a higher probability of reaching a profitable point when touching back the 20 or 50 EMA's (price will slow down and reach them eventually):




Also note that you could have made a lot of money by entering near the green circles and exiting as soon as the current price touched the 20 OR 50 EMAs. Of course you don't have that kind of hindsight during live trading, but you DO have a "loose" entry policy with no stop loss that allows you to make money, even if your timing is a bit off.

You could make this strategy trend-friendly by adding your preferred indicators, however you would still be at risk of being caught in a trend reversal, and these can be very nasty and fast in the EURUSD (too fast for most indicators IMHO). Maybe the main issue/red-flag of this contrarian approach may also be the main strength/edge as you are basically doing the exact opposite of what is being taught online, however this must be proven empirically.

Yes! That's the beauty I see from this discretional approach, it gives you enough freedom to determine what a good entry point is (volume weakness, support and resistance, swing failures, etc), you don't need to be super-precise, but as you say, we need to mitigate the effects of the innevitable trend runnover. Studying the structure or using a trend filter may help but won't prevent the 100% of these runs, so I believe it's better to mitigate the risks by:

1) Using small positions.
2) Using a reasonable averaging method.
3) Avoiding news events and other types of triggers that may suggest a "larger than average" move.
4) Knowing the markets and how far breakouts (usually) move before returning to the EMAs.

The only "sure thing" is that price will create a new pullback back to the EMAs sooner or later and our job is to make sure we catch part of those turning points that happen just before a new 20/50 EMA touch (marked in green):

I have added a few examples to the main post and a more defined ruleset.

I describe the examples down here in case you missed them from the first post:

* Example 1 (easy long trade):

- Entry/Setup




- Exit




* Example 2 (another easy long trade):

- Entry/Setup:




- Exit, and more hypotetical setups:




* Example 3 (tough breakouts/trends):

- Entry and other potential setups:




- Recovery trade example:




- Exit:




Let me know what you think . I believe a few examples of untradable trends and breakouts in the EURUSD or GBPUSD M1 that is not related to news releases may help to improve this approach, thank you!

Abade,
I have been waiting for a while to see if anyone would discuss the King of Forex strategy and I have been using this system for over a year with very good results. I have added a few Indicators for my old eyes and methodology and am proud to say It Works daily. I amaze my friends with scalping the Market everyday especially us retired folks. So, keep going forward and enjoy. cpfleger

Amazing! I have been waiting for someone that is familiar with the strategy to talk about his experiences. Please, let me ask you three questions:

1) How do you manage "runaway" trends/postions with this strategy?
2) What kind of filters and/or improvements are you using?
3) What has been the worst "woops" moment you have experienced during that year?

Thanks for sharing.

Abade,

Retired trading is FUN....cpfleger

Let us know how that one develops

Edit: That one made you money, congrats!!



I notice from your charts that you used HA flip to enter your first position, and that saved you money!

Abade,
Evidence is in the screenprint, less talk and more walking, retired man. cpfleger

Well done! This makes me more confident about the main strategy premise. Thanks for sharing!

Abade,
Money is everywhere, have you caught some today??? cpfleger

Abade,
Mo money...a retired man is having too much FUN. cpfleger

Beer time...

Interesting, the RSI saved you from a bad first entry

kindly share your indicator and templete pls

This isn’t the Kings 1% strategy anyway. Totally the opposite. Eventually it won’t return to the ma’s