The Emotionally Congruent Trader

Calm
Confident
Relaxed
At Peace
Patient
Comfortably disciplined
Consistent
Keeps losses small
Ready
Takes sizable profits when in-hand
Gets in on the good trades
Sticks to risk management rules
Enjoyment
Validation

The Trader in Conflict

Anxious
Fearful
Stressed
Frustrated

Over trades
Struggles with discipline
Inconsistent
Suffers large losses
Hesistant
Watches profits disappear
Misses out on profits
Deviates
Guilt
Regret

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Traders often will say they are scalping but hold out for the longer term profits. Scalp means takle a smalll portion. It requires a mind set of I am takiung 10-15 here and then when the trade goes for 100 not getting mad and jumping back in. You need to discipline yourself and keep the heart out of it.

1) Central Bank Intervention;

The central banks of many countries are active in the foreign exchange markets, both to manage the size and diversity of their foreign currency reserves, and to dampen down excessive liquidity in their own currencies. Most visible amongst these is the BoJ, who have often over the past few years been very aggressive buyers of USD/JPY whenever the yen looks like it’s getting too strong (in the eyes of the Japanese MoF). As this is often at or near the same levels time and time again, this activity is imho arguably non-random.

2) Fixing Trades;

There is a growing use of pre determined times to execute larger trades. Several services exist to provide a ‘benchmark’ rate at a certain time each day, and a customer with business to transact that requires a clear audit trail showing how the price was arrived at can choose to ask their bank to execute this trade ‘for the fix’. This means that the Bank in question undertakes to do the trade with their customer at the fix rate (sometimes with a spread built in, sometimes not). Obviously, if the order is a very large one, the bank is liable to start executing the business in the market a little earlier, in order to complete the trade at or near fix time. e.g. for a large EUR/USD sell order, if, for example the EUR/USD market is at 1.2050 when the bank is given the fix order, and is at 1.2000 whe the fix is published, the bank will hope to have sold Euros from 1.2050 all the way down to 1.2000, rather than scrambling to sell the Euros immediately prior to the fix. Obviously this raises a potential conflict of interest for the bank, as the lower it can drive the market at fix time, the more money it will make. Thus fixing times can be a little volatile, as the banks will attempt to quickly push the market in their favour right before the fix. Main fix times for London traders are 12:00 (Frankfurt Fix), 13:15 (ECB Fix) and 16:00 (WM Reuters Fix). In my experience, corporate customers often favour the FFT fix, while institutional names favour the WM fix (for reasons not worth delving into here). No-one likes the ECB fix as the rates are too volatile relative to where the market actually is at 13:15, for structural reasons. Note all times are London time. Again, I think there’s a good case to be made for this constituting non-random activity.

3) Squaring up;

Simple really, if there’s been a big afternoon move (particularly on a Friday or before a holiday) then many people will square their positions prior to London, or often NY closing. This particularly applies to bank spot desks, many of whose traders do not always run overnight positions. Thus there is often a little counter-move prior to the close. Again, I think this is far from random.

Hope this clarifies a little. They were the best three examples I could think of at the time but I’m sure I could drum up more if I could be bothered. But I can’t.

I think if one follows the following steps, maybe scalping can be successful. When talking of scalping I’m refering to gaining about 5-15 pips and doing it on a high percentage of successful trades.

Step. 1 You have to have a broker with a narrow spread of preferably no more than 2 pips. Maybe you could get by with 3 pips.

Step. 2 Make sure it is a broker that has straight through passing of your order to the interbank network. Stay away from MM’s like REFCO/FXCM who hold on to your order, trade against you and widen the spread in their favor after you open a position, especially if they suspect you’re scalping.

Srep. 3 The best place to open a position is when price first reaches good support/resistance for the first time because it will get rejected a high percentage of the time, so you would fade these first attempts at good support/resistance points. If you want to be more conserative, only take scalps that are in the same direction of the overall trend or bias for that day. This should make winning trade percentage much higher. If the trade doesn’t go in your favor pretty quickly, get out and wait for the next one. You have to cut your losses quickly.

Step 4. Only trade during the busy periods, such as London 2:00 AM – 5:00 AM or New York 7:00 AM – 11:30 AM. You have to have enough volume in the market to get prices to move.

Step 5. Set a daily goal (in pips). Once you reach it, stop trading for the day. Don’t get greedy and end up giving back what you made. Also set a daily loss limit and if you hit it, stop trading for the day.

I know my plan sounds rather simple, but like I said simple is sometimes best. The keys to this strategy is determining good support and resistance points for that day and when to get out and take profits. From my observations good S/R do not get taken out on the first attempt a very high percentage of the time, especially if it is going against the trend. I think taking profits comes with experience, you have a “feeling” when a move or retrace is starting to die out. Fibs. are a possible good tool for this. As for time frames, probably 1 and 5 min. are best for scalping.

Anyone got any ideas or thoughts, feel free to post.

Thanks;

JohnFX

Many times the trades only last a minute or 2. Takes skill, experience and practice when using real money.

It’s like learning to ride a motorcycle and then buying the fastest crouch rocket out there.