30 Days to Profitable EUR/USD Scalping....

Disclaimer: This was my first FAILED attempt to show that scalping on very short time frames can be profitable for the retail trader.

Disclaimer2: You will NOT be able to formulate an EA from what I share here. This thread will follow 30 trading days of a new Scalp account. The focus will be on methods, but also mindset and scalping framework. Much will be subjective but hopefully of some value.

Disclaimer3: This journal has been completed with 30 trading days recorded. Unfortunately, the account is not profitable. At best, I was profitable to about +7%. It declined to -25% by Day 30.
Read along if you are thinking about starting a small account to scalp intraday, perhaps my experiences will save you from errors and mistakes so that your journey will be a positive one.

If you'd like to skip the first month, the drawdown, and many method changes...
jump to Page 4, Post #51 or so.


Feb 2010: +5.96%
March 2010: -30.71%
April 2010: +10.10%
May 2010: -29.64%
June 2010: +10.01%
July 2010: -16.74%
(account discontinued July 13th 2010)

A very short trading day.... I peeked in after 12 PM EST, obviously some Euro news today. The spread was higher than usual on Oanda, and the market was a bit more wild than usual.

I use Pivot Points (influenced by Acumen, see his thread here at FF) for insight on where there may be discernible action. We were between R1 and R2 pivots and I was initially "fading" near the R2 pivot and buying dips otherwise. The movements were much more "jiggly" because of the news today than most usual afternoons. I stopped after 8 trades, I didn't feel I could limit my risk very well.

I have a hard stop loss of 7 pips on each trade (with Oanda's spread 0.9 pips) usually about 8 pips if stopped out. I try to keep losses much smaller than this (2-3 pips).

I will take small profits especially if the trade does not move in my favor initially. Generally, my profits are smaller than my average losses but my winning trade percentage is higher.

Rule 1 (Mindset)

My dialog with myself is something near to this - "Where can I get in without too much risk, with only a small chance of taking my max loss (8 pips)?"

I may formulate an opinion on momentum or horizontal resistance or a trend line break and be looking to sell. Then I ask myself the above question and search out that point.

It is not - "This thing is going south, I need to be short" nor "I bet I can make ten pips on this."

"Where can I get in without too much risk?"

I didn't have a chance to look at the markets until the afternoon. Few trades today as well, I may have a look at the Asian open. Chart below shows why I love pivot points. The blue line at the top of the chart is the central PP for the day (classical). I get them from FXStreet, calculated after 12 midnight EST, and put them on my charts the night before I trade. The circled area shows the bounce off that pivot point almost to the pip. Though there were a couple other touches earlier in the day that penetrated about 5-6 pips higher, still... an interesting area of price action.

The afternoon price action was more volatile than usual again today. Like I stated previously I use a max stop loss per trade of 8 pips (including spread). Though to be profitable with the often small winning trades I take, I have to actively cut most losses long before this 8 pips.

Rule 2

If your max stop is hit twice in one day, stop for the day. This means one of two things, you aren't cutting losers quick enough or the volatility is too fast for you. Two, three, or four pip losers should be average. That wide 8 pip stop is for that weird exceptional case when you may be off a bit on entry but are fairly certain if you give it room it will come back. (near obvious resistance, trend line break, etc.)

This didn't happen to me today, I stopped trading because of some observed volatility. Check out the chart below, the circled area to the right...
I was seeing the High and Low of these bars within 3-4 secs, spike up 5-6 pips and come back right down. Using tight stops, which I am... this is like picking up pennies in front of a steamroller.

If I trade Asian Open (spreads are 1 pip or less) I may post a chart of anything interesting, otherwise until tomorrow... good luck out there.

No chart today, it was pretty quiet afternoon, I traded from 1 PM to almost 3 PM EST. Just a few pips profit, gave some back after a small breakout on the 1 min chart, when I was trying to play a range.

On the 1 min time frame, I give the greatest consideration to horizontal support and resistance.

Next, I consider price action around pivot points. If we are negative on the day I may fade moves upward toward pivots, and likewise buy at support of a pivot on downward moves with the EUR/USD positive for the day. Though, I am open to both long and short scalps on any kind of day.

I use a 5 min chart to draw trend lines, this would be third in consideration. Trend lines on a 1 min chart are a bit chaotic and subject to alot of random price movement. So, if there is a trend line break on a 5 min chart, I may try to find a good price with what appears to be little risk, to enter a trade. Those are the only time frames I look at, 1 min and 5 min.

Though I have a 80 WMA on my 1 min chart, I don't use it for trade entry. It is more of a visual aid - a reminder of where price has been, and is now.

Recap:

1. Horizontal Support and Resistance
2. Pivot Points
3. 5 min Trend lines

That's all I use, no candle formations on 1 min chart, I don't find them reliable on such a short time frame over the long term. (Pin bars, Dojis, Hammers, etc.)

I had more screen time today, about three hours. It did not result in more trades, it seems I was more selective today. My chart from today shows the "Worst Missed Opportunity", I was trying to play a bounce from the psychological level of 1.3600. I got in at a price of 1.3602. Great price and I was "in the money" (beat the spread) almost instantly. I "twitch" closed the trade at 0.8 pips profit. It was never "out of the money" and is much higher at the time of this writing (more than one hour later). Should of, could of, would of.... I won't beat myself up for missed profit or a missed trade, there will be more.

But... this was poor scalp management, that is what I need to fix before next time. I'll post the chart, then next post...talk about my 3 ways to manage a scalp.

I try to sort my trades into three groups, from a profit and risk management perspective. This is active while I am in the trade.

1. The trade goes your way almost instantly, (30 seconds or less) and never goes negative (including spread) again. These are the best trades and you should focus on "squeezing" them for the most pips possible.

2. The trade never goes your way, you are never "even money" to flat the trade including spread. These are the worst, it never "ticked" in your favor and you're out 2-3 pips, start thinking about getting out the best you can.

3. The trade goes your way at some point, you are "in the money" briefly, but now reverses (or is back and forth). These are the ones I will give the most "room" to move around. After 5 minutes, you should probably be thinking about an exit plan if still "out of the money".

That's it! That's all I think about while managing a scalp. Again, this is pretty particular stuff (EUR/USD scalping on Oanda with a normal 0.9 pip spread).

The post before this one, shows total disregard for Scalp scenario #1 above.

At this moment, for this journal, I'm trading $2 a pip, 2 minis on the EUR/USD with a max stop of 8 pips (including spread).

The account started with $1000, I was trading this level and higher on a $2500 account and felt comfortable.

So one max "stop-out" would be about $16 or 1.6% of account.
I have the rule about quitting trading for the day if you hit your max "stop-out" twice. If that happens, something is up, volatility is crazy, you're gambling, or you're being lazy and not taking small losses.

My personal psychological limit is around 20 pips using this style at this level, I tend to get "gun shy" with a profit of around 20 pips. One of the purposes of this journal is to push myself past this and to have more disciplined screen time.

So in regards to this, my other "stop-loss" for the day is 25 pips. If I am down 25 pips at any point... I close any losing trades and stop for the day. I don't want to "dig a hole" that I can't climb out of in a day or two.

I set no profit targets, though I'd like 3-6 hours screen time per day, and to push past my 20 pips "psych" level. I'm just getting back into things and I'm slowing working back to the point where I can sit focused and 100% committed while scalping.

Over the past 11 months, I've experimented with different time frames and styles. These have also produced different winning trade percentages.

Even with a winning trade percentage of 60%, you will likely have a losing series of 10 or more trades. In just under 1000 trades, it's happened to me at least twice that I have records for.

It can happen more often than probability indicates if you start to make mistakes after the first 5-6 losses. You will have strings of 5-6 losses more often. So, keep yourself together.

Keep the losing trades as small as possible.

My quote for the week-end comes from from Ari Kiev, Trading to Win, -

"During the trading day you should concentrate only of doing what is necessary for your strategy rather than thinking overly much about your goals or the consequences of trading."

I'm not recommending the book, it isn't that great...but I do re-read it from time to time. I'm terribly guilty of watching my P&L, analyzing my previous trades, browsing FF, etc. when I need to be looking for opportunities to exercise an edge... and just Trade.

U.S. Bank holiday on Monday (tomorrow), so I convinced myself to trade just tomorrow morning while Europe is still open (8 AM- 11AM). I did trade the Asian Open tonight for the first 3 hours.

I rationalized this by saying that if the spread was 1 pip or less, then I should be trading. I've never had much luck with the EUR/USD during the Asian market, though I did have some initial success with the USD/JPY when I traded that. My first forex trades were solely USD/JPY (March '09-June '09).

I promised I would put in more regular screen time, so I traded 3 hours tonight and will trade 3 hours tomorrow. China has a bank holiday today also, and I think that stifled volume even more. I hadn't really considered that effect on the Asian open, I was just thinking that tomorrow afternoon should be a no-trade after Europe closes, because of the U.S. bank holiday.

Basically, for 3 hours, I was net down about 8 pips, my last trade was 58 min long, a short for a gain of under 6 pips. Painfully long trade for a scalper, when most of my wins are under 2 minute trades. Chart below, mostly just bounced around a 5 pip range near central pivot (blue line). The arrow connects my 58 minute position trade. It doesn't deserve to be called a scalp, making me wait that long .

U.S. Bank Holiday, and I traded the open as planned, while Europe was still kicking (7:45am-10:45am EST). Made back the pips lost last night, it was a struggle with low volume. No charts today as I don't think days like today are very instructive, unless you count the perseverance of "sitting on your hands" doing nothing.

Let's talk about entries and something I haven't mentioned before. I only take one trade at a time, no averaging. I've tried to average or have multiple trades (up to 3), all with a standard stop loss. Some would say it is very hard to find the perfect spot to enter and this would help increase your success. For me, I couldn't manage it.

Having three trades go against you at the same time creates a lot of psychological pressure. Generally, I wasn't averaging my initially winning trades...so you set yourself up for potentially more loss than gain. Perhaps others can do better.

So, one trade at a time, manage it the best you can. Close trade, and move on to the next.

Rule 3

Don't chase price. Don't chase movement. When I think the market is in a range, I generally pick two prices. Somewhere I will get short, and somewhere I will buy. I have these in mind, while I watch the screen. Yes, over a period of 5 minutes or maybe 10 minutes, I change my opinion. The key here is that I decide ahead of time, and wait for price to come to me. If it doesn't come to my previously decided price, oh well... perhaps over the next few minutes I will see something new and re-evaluate.

The key here is not to chase every 3-5-10 pip move, the market is not always trending, and certainly not always "breaking out".
If there is a trend on the 5 min TF, pick a price that looks like a low risk pull-back spot, and wait for it to come to you. If we are range bound on the 5 min TF, look for support and resistance on 1 min or 5 min chart, and pick spots that you think are good prices. Then, wait for them to come to you.

To help pass the time while I wait for my price, I listen to music while I trade. Until tomorrow... good luck!

(Still experimenting with MyFXBook settings, but it seems if you subtract 5 hours from the time stamp of trades in my History you will have the correct EST time of my trades.)

I draw pivot point lines on my charts the night before, as well as lines for "Psych" levels (psychological levels) within those pivot ranges at *.--00s and *.--50s. As I stated at the beginning of my thread, I mainly drew from Acumen's thread and experience with these. Read/view his material here:
http://www.forexfactory.com/showthread.php?t=98028


Now the interesting part which I did not know (though I probably should have). Why are these areas of price action? Up until today, I have heard basically that orders are clustered around the "round" numbers. That is true, but there is more to it.

I found this tidbit on another thread from a published bank paper, which I believe to be true.

Spot transactions constitute about 30% of the total volume in the global FX market, forward transactions account for around 10%, while the swaps and options markets account for more than 50%. Why is this significant?

Options are priced at the *.--00 and *.--50 levels!
That is a little more solid evidence for why these are important levels.
Perhaps it has been mentioned by everyone, but I never really knew the REASON why, though I took it as truth.

Traded 8:00AM-10:45AM EST. Fast market today, more than I am used to, I could feel it from the first couple trades. Was down pips after the second trade, and never recovered. I also got stopped out before 8:30AM news (MFG Index), when the spread widened to 10 pips for the news release while I was in a trade. I've traded so many afternoons I've forgotten the dangers in the morning. The fx market was fast right before the stock market opens also (9:25AM EST).

At my best, trying to "fight back", I was down perhaps 6 pips on the day and we had a breakout from R2 straight to R3. I was trying to trade some of it, again much faster market than I am used to. I knew my "max stop" had been hit more than twice and finally found myself down 23 pips.

Time to stop for the day. Given up gains I made last week...but this is part of the process of getting back into the swing of things. I need these experiences, especially of the volatility of the first half of the trading day.

My last trade, as I tried to close out, double-filled from Oanda (delayed from the stop-loss) and my manual exit. I closed it for a small loss (sigh).

The morning is volatile, far more than the afternoon. We had news at 8:30AM EST (Building Permits, Housing Starts), and 9:15AM (Industrial Production). Today I was alert and avoided the widening spreads at those times .

This was one of those days when you really think your pre-set stop loss is too tight. There was one occasion where I really wanted to remove my stop-loss, but I did not. Up 4 pips to down 4 pips within the same minute, it seemed I was taking losses and trying to let winners run a little while they actually reversed on me.

Eventually, I took a look at the 5 min TF chart, and asked myself "What is the trend?" It was absolutely clear, no doubt, from the European open at 3 AM EST until now, downtrend ... all the way. So I wanted to be short, but I needed to get short and not get stopped out. After a small upward retracement (when I tried to scalp a long), I closed out for a small loss and reversed. We didn't make any new local high even though it seemed strong at the time.

The short went "in the money" quickly, that is always a good sign. At one point I was up about 12 pips, and took a retracement to almost flat...but I held. "The trend is down, you are early, you will make more than 12 pips..." I told myself. "They (the "big boys") are making it as hard as possible for you to hold your short." It didn't take too long, I had my pips again and it was struggling to move lower...then it broke a previous recent candle low (I had my mouse pointer placed at this point). "If it breaks here, it's going to fall apart", I had said out loud. I got one right, I held it for almost 40 pips. Did I cover at the low? No of course not, it preceded to go lower, to the S1 pivot.

At some time, you have to take some money "off the table", and that is what I did.

I will probably sit-out the afternoon, we have FOMC Meeting Minutes released at 2 PM EST, and without the European market volume, I imagine the banks and "big boys" will have lunch and wait for that release. I will put in the screen time and watch the action though. If I see a perfect set-up, clear range trade with little risk, I may take it.

Chart of today's "big" scalp, left-side is where I was getting "chopped" up earlier.

The link in my signature is access to my "system" page at http://myfxbook.com. If you haven't checked out that website, I highly recommend it. It's free and fantastic for analyzing your trades.
I would trade the Asian session Open if it weren't for the Chinese New Year bank holidays continuing. Last Sunday evening was tough and I'd expect volume to be similar (see Day 5, Part 1 post). I work evenings most days of the week and Sundays and Wednesdays are my only opportunities to trade Forex at a different time (evening EST).

Have you taken a look at your style, system, or EA and it's drawdown?
From a professional perspective, a drawdown of 30% or more (any peak-to-valley) would shake most investors. Searching through http://www.autumngold.com, I found some strictly forex CTAs or funds. It was no surprise that the ones with the most capital had very low drawdowns ( <10% on any year).
The other thing to consider is the basic math of larger drawdowns and how they affect your overall returns.

Example: Starting balance $10,000
now sustain a 30% drawdown - balance $7,000.

What do you have to earn to get back to break-even?
You have to have a gain of 42% on your $7,000 to get back to $10,000.

I would love to have <10% drawdown from any equity peak...while producing an attractive return. I'm hoping high win-percentage scalping (though with smaller edge) will facilitate this.

I skipped much news this morning and didn't login until 11AM EST.

First chart is a quiz, what would you do here? I was asking myself the same thing. Downtrend all morning from 9:30AM till about 12 noon EST. Then you have this mess, and I asked myself...at the circled area... "What to do?"

Looks as if Buyers have entered and they are winning. I tried to get long and actually, lost some pips...then a short (to feel out the market), right after 13:20 on the chart, there is a little spike upwards which I have to cover for a loss. The buyer is still around it seems. So I go long again, and catch a mini-breakout, I take profits too soon, because it is the afternoon. I'm usually counter-trend range trading...I expect larger moves in the morning.

Because we were in between the central pivot and S1 almost all day, I didn't have great plans and was trying to formulate something. I drew some trend lines (---dashes---) but I'm very skeptical of 1M TF trend lines. I waited till about 2PM EST, and as the market flattened out...I formulated a plan around the current range. The purple lines are both my sell and buy points. I drew those after 2PM and waited for price to come to me. It took about 30 minutes, and I got a short opportunity, but to tell you the truth...after I entered it didn't move fast enough for me. The "feeling" comes from doing many of these kind of trades ( = screen time ), it didn't move how other successful trades like this go. I scalped a quick pip profit. The price actually went a few more pips down then a quick push to a new high...then falling into a range again.

I formed a plan, did my best with the trade...sometimes it just doesn't work out.