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A Guide to Creating a Minimalistic Scalping Strategy

  • #41
  • Apr 22, 2017 12:48pm Apr 22, 2017 12:48pm
I signed up to thank you for this system, I love the simplicity. I back tested it for last week and it was very profitable, my personal conisderations where with respect to trading only in the direction of the previously established trend.

Ignoring the signals that went the other way, the most profitable trades I found were when there were a signal going to the opposite direction to the trend, which failed and then gave a signal back in the direction of the trend.....kind of like a pull back in a higher time frame.

I'm not sure I see the use in the pivot levels, it just fills your chart with noise, the Round Numbers I believe are far more important. But this is a belief I hold for all my trading techniques, I just don't use pivot levels.

The only other considerations were not to take a signal that occurs just before the top of a range, not to trade before 8am GMT or after 11am GMT, not to trade at all that day if no significant movement occurred before 10am.

Additionally, I would only enter the trade if there was a significant area of congestion within 5 pips of the entry in order to place the SL on the otherside of that. I would move SL to BE once the price moved far enough away and continually move the SL behind the next significant level of congestion and close once the 55SMA was touched.

I'd be interested to hear your thoughts on my above observations (when the moderators approve my first post).
  • #42
  • Apr 22, 2017 2:04pm Apr 22, 2017 2:04pm
Quoting mades
Typical ma cross doesn't work, doesn't matter if you use 2, or 3 MAs. It has been tested many many times in the past. Especially if you decide to do something like 1:3 ratio (10 pip sl vs 30 pip gain) you will get wiped out really soon, check for example this friday EURUSD during NY session which didnt even have 30 pip range. Sessions like this happen now all the time. I trade a lot on 1 minute and you need much more sophisticated smoothing MAs and indis (like regularized EMA, HA smoothed averages, One More Average, BB stops, etc) in order to overcome...
You are a scalper? AWESOME, check my chart, this is real account for Friday, because I can't go back in time and prepare this and who would bother on demo?

You have a good point with the movement of the EURUSD - it is terrible but I can help with that.

I suggested the use of the CSM = Currency Strength Meter. It will show the strongest currency and the weakest currency, trade those 2 as a PAIR

This way you can expect some movement. The 7 trades as shown were some time after London opened, price had moved down and the CSM was higher than 5.0

I held that last one almost too long but it came back down for me! Also, I think one needs to have a bias on overall direction for the day.

As for the comment on Moving Averages crossover not working, for me at least, this is not trading the MA's, they are only a visual clue for direction.

The way I see it, some indicators can be used as indicators and others as a TOOL for trading, the brain still makes the decision.

Have you tried any CSM yourself? I hope that you will and find better opportunity than just the EURUSD or other ranging pairs.

All the best, be careful on Monday, trade responsibly

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  • #43
  • Apr 22, 2017 2:20pm Apr 22, 2017 2:20pm
Quoting ionut_blue
Crystal clear now.Thank you. IS JUST ONE LITTLE PROBLEM...the spread (on that pair for example...my spread is huge).I think this strategy will work only with eur-usd and maybe Usd-Jpy (pair with the lowest spreads).
JUST GET RID OF THAT ONE LITTLE PROBLEM - who is in charge here? You or the Broker?

Obviously, time to rethink your broker, especially if you have options depending on where in the world you live mainly!

I for one am not sending my hard earned cash half-way around the world to some crack pot country with no regulations!

And allows the broker to operate solely for the purpose of trading against you, it's true, check it out, plenty of websites for that!

There is a reason professional traders use ECN brokers, think about it.

You think paying commissions is hard to do, well, you're paying more than with your spreads and you don't even see it!

Time for action
It takes a lot for me to IGNORE you, but you can try.
  • #44
  • Apr 22, 2017 2:26pm Apr 22, 2017 2:26pm
Quoting Plainview
{quote} Hi Erebus, Be careful of 55 EMA. Exponential move faster and is more aligned with price. It should be two fast EMA cutting through slower SMA hence my system is fast 12 EMA cuts slower 26 EMA and then cut slow 55 MA. You have great possibility that price will continue in indicated direction. You ENTER market and stay as long as it continues in this direction. Simple as that.
Thanks for your view, great thread here!

I only mentioned that I used the Alligator in case some one noticed the difference on the chart, not to change your advise.

I used it because it is quick and easy to apply the 3 MA's, that's all.

As you already pointed out, the MA's are used as a TOOL and not as the trading signal.

Wishing you and all readers a great trading week
It takes a lot for me to IGNORE you, but you can try.
  • #45
  • Edited 3:28pm Apr 22, 2017 3:05pm | Edited 3:28pm
Ok, i'll try answer briefly:

Erebus: I'm using currency strength meter together with POC and pivots which I find really valuable. I'm also noticing interesting patterns like one day there is smooth movement on USD crosses followed by days of inactivity and smooth movement on exotic crosses (this week for example). Grats to your results but you go with 15-25 pip SL against 3-5 pip TP which might of course work if you can get it right ~90% of the time. Still at 90% winning rate,there is a 39% probability you get stopped twice in a row over a course of 50 trades (source: http://www.trade2win.com/boards/atta...-years-t2w.jpg) which would mean 40 pips or wiping out 8 winners. How about a system which would tell you to sell and let it ride all the way down to have only 1 trade instead of 6? I'm trying to keep my ratio at least 1:1 with over 50% winning rate. Market sentiment is changing rapidly with volatility dropping and sudden ugly zigzag spikes (take Kuroda's speech on bloomberg on thursday and UJ action) so it's getting harder and harder for scalpers and we need to adapt with the newest tools available to us.

Plainview: For any system in order to properly test it, you need to take every signal there is (being mechanical trader), which is usually the Achilles heel of MA cross systems. If you add discretionary trading into it, you of course improve but thats more your skills and experience than working mechanical system. The biggest problem with MA systems (and scalping systems overall) is not where to enter but where to exit and I'm myself still struggling with it. I know TMA. I know also other MAs. The latest developed MA formulas (like the regularized EMA) are much better at smoothing than just regular EMAs.

Don't get my wrong: I'm a fan of trend following strategies based on MA. Part of my strategy is to use 2 different MA types creating a space between them as "no trade zone"and only trade once price is above/below this no trade zone. I got burnt in the past using just simple MA crosses whether it was SMA, EMA, two or 3 or even 4 crosses, 1/5 or 15M tf. Maybe I just wasn't good enough to utilize them properly. Happy and succesful trading everyone.
  • #46
  • Apr 22, 2017 4:39pm Apr 22, 2017 4:39pm
Quoting mades
Ok, i'll try answer briefly: Erebus: I'm using currency strength meter together with POC and pivots which I find really valuable. I'm also noticing interesting patterns like one day there is smooth movement on USD crosses followed by days of inactivity and smooth movement on exotic crosses (this week for example). Grats to your results but you go with 15-25 pip SL against 3-5 pip TP which might of course work if you can get it right ~90% of the time. Still at 90% winning rate,there is a 39% probability you get stopped twice in a row over a course...
Thanks for your observation, very true, I don't doubt your statement or reference at all.

But the context was- I saw an opportunity and I took it - I don't trade that way everyday!

My bias was totally down for this pair, which might even be counter-trend as there were previous 4 days going up which had reached the average weekly range (50)

Plus the main reason; the Strength Meter showed the pair to trade and which way to trade it.

More on average weekly and average daily range in coming posts

The reason for those stop loss where they are, simple, that's the way I traded on the day. I didn't want them getting hit (do you ever? ) was willing to take the risk.

And I know what you are saying on staying in longer but again, that is different method for a different analysis.

I think this is a myth of Forex, always go for 2 to 1 risk reward. It is dreamed up by brokers and traders that know what they are doing!

WHY??? the longer your trade is on, the more chance of the stop loss getting hit.

Much the same as casinos, they have they edge, they just need you to stay & play.... and lose!

The EA that I use to place trades, I can set the take profit as a ratio of the stop loss, eg. 1 to 1, 1 to 2, or even 3 to 0.50

Each trade had different take profit, in pips, because of where I placed the stop loss line, but I think I was using ratio of 3 risk with 1 reward

So, as always, it's a delicate balance of risk to reward, if the stop loss to close, you lose, if the take profit too far, you probably lose.

When you know that exact ratio that always wins, please share!

PS: by exoctic I hope you actual mean the minor pairs?

7 Major: These currency cross with USD x AUD, CAD, CHF, EUR, GBP, JPY, NZD

21 Minor: All the cross pairs of the above

Exoctic: Other currencies, eg. NOK, TRY, MEX

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  • #47
  • Apr 22, 2017 6:47pm Apr 22, 2017 6:47pm
Oh I'm sorry I of course meant normal crosses not real exotic currencies.

I understand the discretionary part of your trading but that is something which can't be emulated.

Regarding R:R ratio, professionals count their winnings in R's. R means your standard risk. It can be 1R (1:1), 2R (2:1), or 0.25R (1:4). You can calculate your expectancy based on the number of trades you did and R's you gained. I recommend Van Tharp's book on position sizing which deeply discusses professional money management techniques. The fact is, that 2:1 ratio means you need to be right only about 40% of the time (if you risk moderately).

I honestly try to stay away from personal bias so I prefer mechanical trading. My bias is unfortunately usually wrong because markets always try to do the unexpected.

Many people think entry is the most important part of the trade but that's not true. It's exit which defines whether you win or lose. The art of knowing when to exit is the highest one I know in this game.
  • #48
  • Apr 22, 2017 7:31pm Apr 22, 2017 7:31pm
Quoting mades
Oh I'm sorry I of course meant normal crosses not real exotic currencies. I understand the discretionary part of your trading but that is something which can't be emulated. Regarding R:R ratio, professionals count their winnings in R's. R means your standard risk. It can be 1R (1:1), 2R (2:1), or 0.25R (1:4). You can calculate your expectancy based on the number of trades you did and R's you gained. I recommend Van Tharp's book on position sizing which deeply discusses professional money management techniques. The fact is, that 2:1 ratio means you...

I totally agree exit is more import. Market doesn't care about our R:R it will stop whenever it wants so its up to us to stop our trade when market tells us to that is when price action kicks in.
  • #49
  • Apr 22, 2017 10:15pm Apr 22, 2017 10:15pm
Hey guys, if you downloaded from Post 28, I included the wrong Magnified Price, names are similar, sorry, try again
It takes a lot for me to IGNORE you, but you can try.
  • #50
  • Apr 23, 2017 1:43am Apr 23, 2017 1:43am
something interesting about EMA
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  • #51
  • Edited 4:25am Apr 23, 2017 3:00am | Edited 4:25am
Quoting mades
For any system in order to properly test it, you need to take every signal there is (being mechanical trader), which is usually the Achilles heel of MA cross systems. If you add discretionary trading into it, you of course improve but thats more your skills and experience than working mechanical system. The biggest problem with MA systems (and scalping systems overall) is not where to enter but where to exit and I'm myself still struggling with it.
Hi Mades,

Thanks and thank you everybody for adding your comments and evolving the tread forward. There are some issues with MA Crossing that you and others pointed out. I put them into this 5 points:

  1. MA cross are most commonly indicating correct price trend
  2. After enter signal there are commonly pullbacks that need to be taken with calm
  3. After MA cross, when price follows, there is no obvious point of exit
  4. During ranging market MA crossings are giving false signals
  5. There may be need of additional confirmation or filter

Elaborate on those points can take a lot of writing but be sure moving averages can offer a lot more insight into the market than many people believe. Combined with a key market sense you can have profits but keep the indicators to a bare minimum.

One of primary functions of a moving average are to identify trends and reversals, and measure the strength of an currency’s momentum and determine potential areas where an currency will find support or resistance.

Moving averages are lagging indicators, which means that they do not predict new trends, but confirm trends once they have been established.

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One of the best methods to determine the strength and direction of an currency’s momentum is to place three moving averages onto a chart and then pay close attention to how they stack up in relation to one another.

The three moving averages have varying time frames in an attempt to represent short-term, medium-term and long-term price movements. On 1M that will be corresponding to averaged price movement, current strength and current trend. See how strong upward momentum is seen when shorter-term averages are located above longer-term averages and the two averages are diverging. Conversely, when the shorter-term averages are located below the longer-term averages, the momentum is in the downward direction.

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As you know, nothing in the forex markets is guaranteed - especially when it comes to using technical indicators. If a currency pair bounced off the support of a major average every time it came close, we would all be rich.

But there is one thing that convinced me to this method. It is it's age. This is calculating method that goes beyond markets. It's proven mathematical functions give awareness to traders where price might go. This combined with Pivot Points (in my case) give me an Edge since many currency pairs do tend to fluctuate between these pivot levels and MA gives me sense of direction to which pivot price is going.
  • #52
  • Apr 23, 2017 4:38am Apr 23, 2017 4:38am
Quoting Erebus
{quote}Do you know about True ECN brokers?
I know that "True ECN brokers" with his 0-point spread is the dangerous trap in the Forex trading. That is enough to never.., never trade on an ECN-account! Read more about an aftermath of spikes to you when you trade on an ECN-account.
  • #53
  • Apr 23, 2017 4:42am Apr 23, 2017 4:42am
Quoting Rammstein73
{quote}never trade on an ECN-account!
And why is that Rammstein73?

I find it quiet strange since I am with ECN broker for last 4 years, as I mentioned earlier. Never had any problems.

Best,
  • #54
  • Edited 6:19am Apr 23, 2017 4:58am | Edited 6:19am
Quoting Plainview
{quote} And why is that Rammstein73? I find it quiet strange since I am with ECN broker for last 4 years, as I mentioned earlier. Never had any problems. Best,
You will get the big problem when the giant spyke will appear against your trade :-)))) That is not question of possibility this event, but just of time. Everybody has to know that. There is no other problems.
  • #55
  • Edited 7:35am Apr 23, 2017 6:11am | Edited 7:35am
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For those interested, I have initiated a pinescript based on Plainview's parameters in Post 1.
The idea is to create alert conditions so that we can get an email when the parameters are met. Feel free to recommend changes and improvements.

// Define the 3MAs
study(title="Scalping with 3MA",overlay = true, shorttitle="Scalping3MA")
inp1stMA = input(12, title="1stEMA-Fastest", type=integer)
inp2ndMA = input(26, title="2ndEMA-Slow", type=integer)
inp3rdMA = input(55, title="3rdSMA", type=integer)
//EMA1 = ema(close, inp1stMA)
EMA1 = security(ticker,"1",ema(close,inp1stMA)) // This EMA is hardcoded to M1
//EMA2= ema(close, inp2ndMA)
EMA2 = security(ticker,"1",ema(close,inp2ndMA)) // This EMA is hardcoded to M1
//SMA3 = sma(close, inp3rdMA)
SMA3 = security(ticker,"1",sma(close,inp3rdMA)) // This SMA is hardcoded to M1
// Define colors for the 3 MAs
c1 = EMA1[1] > EMA1[2] ? green : EMA1[1] < EMA1[2] ? red : yellow
c2 = EMA2[1] > EMA2[2] ? green : EMA2[1] < EMA2[2] ? red : yellow
c3 = SMA3[1] > SMA3[2] ? green : SMA3[1] < SMA3[2] ? red : yellow
// Plot the 3 MAs
Plot1=plot (EMA1, color = c1, linewidth = 1, title = "1stEMA")
Plot2=plot (EMA2, color=c2, linewidth=1, title='2ndEMA')
Plot3=plot (SMA3, color = c3, linewidth=3, title="3rdSMA")
fill(Plot1,Plot2,c1,transp = 90)
// Define bull and bear
bull = crossover(EMA1,SMA3) and EMA1>EMA2
bear = crossunder(EMA1,SMA3) and EMA1<EMA2
// Plot buy sell signals
plotshape(bull,"Buy",shape.labelup,location.belowbar,green,text="Long")
alertcondition(bull,"Scalping Long","Scalping Long")
plotshape(bear,"Sell",shape.labeldown,location.abovebar,red,text="Short")
alertcondition(bear,"Scalping Short", "Scalping Short")
//End of Script Scalping3MA
  • #56
  • Apr 23, 2017 6:59am Apr 23, 2017 6:59am
Let's give this a whirl - Prefer trading longer periods but this is similar to something I have been experimenting with on both the Euro Dollar and Dollar Yen.
  • #57
  • Edited 12:26pm Apr 23, 2017 9:17am | Edited 12:26pm
Quoting SnoopyAKQJT
{image} For those interested, I have initiated a pinescript based on Plainview's parameters in Post 1. The idea is to create alert conditions so that we can get an email when the parameters are met. Feel free to recommend changes and improvements.
Hi SnoopyAKQJT,

Well done. It will be helpful for visual backtesting and one can set alarms in TradingView.

If your code with parameters from Post #1 could be interpreted in MQL for Meta Trader or in JAVA for jForex we could do a mechanic back testing with some set parameters for R:R ratio.

Anyways it looks great! Thank you.

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EDIT:
Guys, if you are going to provide this thread with your EA for Meta Trader or any indicators please be sure to attache code and/or uncompiled file like mq4. We are here to help each other, full open.
  • #59
  • Apr 23, 2017 1:20pm Apr 23, 2017 1:20pm
Thank you Erebus for sharing the Currency Strength Giraia indicator!

Can you or anyone else here that has experience with this CSM tell us what time frame this indicator is using for its calculations? As we all know a pair can be in a strong uptrend on the Daily or Weekly & the same pair can be in a strong downtrend on the 1 minute or 5 minute.

I notice no change in strength or weakness of the signals if you change time frames so it must be set to a certain time frame. It would be nice to know what time frame this indi is referencing.

Thank you in advance for any info!
Find The Pain Points On Your Chart & Trade Off Those Levels
  • #60
  • Apr 23, 2017 6:59pm Apr 23, 2017 6:59pm
Quoting GPips
Thank you Erebus for sharing the Currency Strength Giraia indicator! Can you or anyone else here that has experience with this CSM tell us what time frame this indicator is using for its calculations? As we all know a pair can be in a strong uptrend on the Daily or Weekly & the same pair can be in a strong downtrend on the 1 minute or 5 minute. I notice no change in strength or weakness of the signals if you change time frames so it must be set to a certain time frame. It would be nice to know what time frame this indi is referencing. Thank you...
+++++++++++++++++

If you watch CSM values, during your brokers beginning of new day, you will notice how much strength flip flops immediately after new days beginning.
All CSM's I've ever used (except for subgraphs) are giving you relative value based on the time from beginning of brokers new day. So even if one currency has a strength spike, later in NY session, it may only move up 2 or 3 base points, relative to where it was.
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