Forex Scalping System 4776l

Strategic Trading Systems Forex Scalping System Version I

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means electronic, mechanical, photocopying, recording, or otherwise without prior written permission. No responsibility is assumed by the publisher for any injury and/or damage and/or financial loss sustained to persons or property as a matter of the use of this course. While every effort has been made to ensure reliability of the information within, the liability, negligence or otherwise, or from any use, misuse, or the operation of any methods, strategies, instructions, ideas contained in the material herein is the sole responsibility of the reader. Copyright 2014 Strategic Trading Systems

Forex Scalping System Introduction............................................................................................................ Page 4 What is Forex Scalping?

Overview of the Forex Scalping System .............................................................. Page 5

Market Levels on the 5 minute chart as a guide for 1M trading……………….…Page 8 Types of Trading Days High and low of previous day Fibonacci levels Moving Averages Double top/bottom patterns Fast Run Up/Down and Large Bar/Spike Patterns.

Entry and Exit Patterns. 1M Chart……………………………....................................Page 14. Introduction Conservative patterns Moving average crossover Aggressive patterns Double tops and double bottoms Test of and resistance Fast run up and down market conditions Large bars, and spike bars General patterns indicating a possible entry or exit Forex Scalping System by Jon Levine. Version 1.2. 9/27/14

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Moving average position. Together and extended from price Entering multiple times

Trade Management .............................................................................................. Page 29 Stops Introduction Pivot and 50ema. Using intra-day Fibonacci retracements to monitor trend strength.

Money Management..........................................................................................…Page 38 Introduction How much money per contract Recommended ways to start scalping

Examples……………………………….....................................................................Page 40 Introduction Non Trend Day

Forex Scalping System by Jon Levine. Version 1.2. 9/27/14

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Introduction: What is Forex scalping: Forex scalping is a popular method involving the quick opening and liquidation of positions. Pure scalping is generally done on very short timeframes of 3-5 minutes. Our method lets the market decide to enter and exit so a position can last from 30 minutes to two hours, depending on market conditions. However trades that are not moving in the direction of the trade are closed out quickly to prepare for the next opportunity. We will also enter multiple times at retracements if a trend is established. The popularity of scalping is born of its perceived safety as a trading style. Many traders argue that since scalpers maintain their positions for a brief time period in comparison to regular traders, market exposure of a scalper is much shorter than that of a trend follower, or even a day trader, and consequently, the risk of large losses resulting from strong market moves is smaller. Indeed, it is possible to claim that the typical scalper cares only about the bid-ask spread, while concepts like trend, or range are not very significant to him. Although scalpers need ignore these market phenomena, they are under no obligation to trade them, because they concern themselves only with the brief periods of volatility created by them.

Is Forex Scalping for you? Forex scalping is not a suitable strategy for every type of trader. The returns generated in each position opened by the scalper is usually small; but great profits are made as gains from each closed small position are combined. Scalpers do not like to take large risks, which means that they are willing to forgo great profit opportunities in return for the safety of small, but frequent gains. Consequently, the scalper needs to be a patient, diligent individual who is willing to wait as the fruits of his labors translate to great profits over time. An impulsive, excited character who seeks instant gratification and aims to “make it big” with each consecutive trade is unlikely to achieve anything but frustration while using this strategy.

Some words on trade sizes and Forex scalping Finally, scalpers should always keep the importance of consistency in trade sizes while using their favored method. Using erratic trade sizes while scalping is the safest way to ensure that you will have a wiped-out Forex in no time Scalping is based on the principle that profitable trades will cover the losses of failing ones in due time, but if you pick position sizes randomly, the rules of probability dictate that sooner or later an oversized, leveraged loss will crash all the hard work of a whole day, if not longer. Thus, the scalper must make sure that he pursues a predefined strategy with attention, patience and consistent trade sizes. This is just the beginning, of course, but without a good beginning we would diminish our odds of success, or at least reduce our profit potential. .


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Overview of the Forex Scalping System This trading system is not for beginners. It assumes that you understand the basics of Forex trading and technical analysis, and understanding how to read a bar chart. Beginners can get an introduction from Forex Peace Army’s introduction course called www.babypips.com. I am not d with them. There are many different ways to trade the Forex Market. I have two other systems that uses five minute charts for day trading and hourly charts for midterm trading. This course is designed for individuals that prefer to take advantage of the smaller trends that are in the market regardless of whether it is a trending day, a non-trending day, or a range day. Using the one minute bar chart and three exponential moving averages, the trader can scalp five to 10 pips from the market many times a day and usually once or twice during a trading day there is a better move that can yield 20 to 40 pips a trade. The usual duration of a trade can be from 30 minutes to two hours. So in reality it is more like micro-trading than scalping in the sense that scalpers can take sometimes hundreds of trades that last from one to three minutes. I have found that the method we use here is less stressful and easier to use. There will be different entry and exit methods used depending on your risk tolerance. There are aggressive moves that can yield more pips but have a greater risk of not working because it requires you to enter before the market has confirmed a move. The conservative entries yield less pips but have greater odds of a profitable trade. The conservative trades I prefer most because it takes most of the thinking out of the trading decisions. Simply put, when the 10ema crosses the 21ema we enter a trade. We stay in the trade as long as the trade management rules keep us in it. Then when the 12ema crosses the 21ema in the opposite direction we exit the trade. You can also combine conservative and aggressive methods to get the most out of the market. As in any trading there will be times that the rules work well. There are also times that the market moves sideways giving us false signals. During these times we use other tools to help us determine whether to stay in the trade of exit and wait for better opportunities. Next you will see a two one minute charts and the trades created. One shows the conservative trades and the other the aggressive trades. This is just a preview of the method. I will go into more detail later about each aspect of the system and how it works. Forex Scalping System by Jon Levine. Version 1.2. 9/27/14

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Example 1: 1M chart showing conservative entries and exits. Conservative Trades


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Example 1a: 1M chart showing aggressive entries and exits.


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Market Levels on the Five Minute Chart as a guide for 1m Trading For the 1m trading system to work effectively we need to look at a larger timeframe to monitor major and resistance levels and price patterns. These levels consistently give clues as to where the market may move with the trend or counter-trend. We will use the 5M chart as a guide. The major and resistance levels and patterns we will use on the 5M chart are: A. The High and Low of the Previous Day. B. Fibonacci Levels drawn from the High and Low of the Previous Day. C. The 200ma. (Only on entry when no other levels are near) D. The 75ma and the 21ema to gauge trend. E. The Fast Run Up/Down price move and the large bar/spike bar move, which indicate a possible trend change. F. Double top and double bottom pattern mainly used in non-trending days.

The priority of the levels from strongest to weakest are as follows: Strongest Levels: High Previous Day and Low Previous Day. Fibonacci levels. Weakest Level: 200ma (used only for starting a trade if no other levels are near) Strongest Pattern: Double Top and double bottom. Weaker Pattern: Test of and test of resistance.


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MA’s: 21ema is stronger than the 75ma. Strongest Entry and Exit Patterns: Large bar and Spike bar. If Large bar or Spike bar is preceded with Fast Run Down or Fast run Up. Weaker Entry and Exit Patterns: Fast Run Down and Fast Run Up with no Large or Spike Bar. These are similar levels that are used in my day trading course but not traded the same. The trades we take and the rules we use are used on the 1M chart only. On the 5M chart all we need to do is monitor where price is in relation to the major levels.

As price nears these levels we note what price does at these levels. It may start a move with the trend or move counter-trend. It may also do nothing. The 75ma/21ema are not levels. They are guides to know if the market is trending and how much it is trending. This information can be used as when the market is in a trend, as the old saying goes, we do not fight it. Meaning we trade in the direction of the trend. The 200ma is used only to initiate a trade if not other levels are near. It is also used to note if the market is on the Bullish or Bearish side. If price is above the 200ma it is Bullish. If price is below the 200ma it is Bearish. The charts below are examples of the 5M levels and patterns. Our trading runs from midnight to noon Eastern Time. However the 1M trading system can be used any time of the day. Two patterns will be used on the 5M only to indicate a possible trend change. They are also used on the 1M and will be explained later. They are the Fast Run Up/Down pattern and the large Bar/Spike Bar pattern.


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5M Level and Pattern Limits and Rules: Trending Day: A. When the market is trending it is best to trade with the trend and wait to see if the trend changes at a major S/R level. Many times the trend will continue past all levels. But note that a start of a trend will usually start at one of the major S/R levels. The 21ema and the 75ma are used mainly on these days for trade entry. Non-Trending Days: A. We use S/R levels to initiate a trade. The DT/DB pattern is used for confirmation Range Days or times: A. If price on the 5M makes two tops and two bottoms near each other the market has moved into a range. Another way to look at it is a DT and a DB or vice versa. Enter and exit quickly at the tops and bottoms of the range. Once a range has started d not trade 10/21 crossovers. Trade only aggressive trades or stay out. Conservative trades will not make any profit in a range. Previous Days High and Low Levels: (Strongest S/R level) A. Draw lines on the current days chart from the high and low of the previous day. The previous day is from midnight to midnight. So if the current day is September 23 you would draw the lines from midnight on the 22nd to midnight on the 23rd.

B. Price can be 15 pips or less on either side from the HPD/LPD and be valid if price reverses, or es the HPD/LPD. Best for Counter-trend moves. Fibonacci Levels: A. The extreme Fib levels are the strongest. They are the 38.2% and the 78.6% Fibs. However price can hit any Fib level and reverse. Best for C/T moves. B. Price can be 4 pips or less on either side of the Fibonacci Level. Best for 1st entry only.

200ma: A. The 200ma works effectively to initiate a trade when no other levels are near only. It is also good to note if the market is bullish or bearish.


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Double Tops/Bottoms: A. These are common technical patterns that are used in trading. They can be seen all over the chart. They are most important when used with a level or for a possible trend change on a non-trending day. A double top is shaped like a ‘M’ and a double bottom is shaped like a ‘W’. See the Introduction to Technical Analysis in the back of the Introduction to Forex bonus ebook included for examples.

Fast Run UP/Down Patterns: A. These patterns are seen most of the time a price makes a quick attempt to reach a major level. Most of the time they indicate a possible trend change. We need to be watching for these patterns as price nears a major S/R level.

Large Bar/Spike Bar Patterns: A. As the Fast Run Up/Down pattern these bars are seen at major S/R levels and usually indicate a trend change. Watch for these along with the FRU/FRD patterns. See the Non-trending chart at S, C and after G and the 75ma retrace on the trending chart around 8:45 for examples.


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5M Trending day:


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5M Non-trending day:


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Entry and Exit Patterns. 1M Chart Introduction We will be reviewing the different entries that can be taken with the 1M system. I will illustrate the correct entry and exit. Then I will take a 5M day and break it down on the next chart the 1M trades to take. Conservative patterns Moving average crossover: On a 1M chart add three EMA’s. 10ema in red. 21ema in black, and 50ema green. Below is a basic example or a long and short trade using the 10/21 ma crossover only.


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Long Trade on the 1M 10/21ma crossover:


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Short Trade on the 1M 10/21ma crossover:


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Range condition on the 1M chart:


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5M chart showing the range trade from the 1M chart above and how to manage the range. Starting at E.


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Aggressive patterns The aggressive patterns we use will usually make more profits that the 10/21 crossover conservative trades. But they are riskier and harder to time. The odds of picking the wrong area is greater. But if you get it right you can add extra pips to a trade. Sometimes a lot more. Eventually after experimenting with both types of trading you may want to combine the two, depending on the circumstances. Some ways to differentiate when to trade conservative, aggressive, or a combination of both will be shown later under General Patterns. The various patterns we use in aggressive trading are: Double tops and double bottoms Test of and resistance Fast run up and down market conditions Large bars, and spike bars

Double tops/bottoms, Fast run up and down and large bar/spike patterns were explained back on page 10 and 11. To not be redundant please refer to that page as a refresher. The Test of Previous /resistance level will be explained next.

Test of and resistance. When price is moving on one direction and eventually reaches a major level on the 5M chart, price may end the move at that point and reverse and move the other way. This is called a test of or resistance.


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If price is moving up and reaches a major resistance level and reverses it is called a test of resistance. If price is moving down and reaches major level and reverses it is called a test of . The TOR and TOS patterns occur about as much as the DT/DB’s. Examples below.


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1M Fast Run Down, Test of , Fast Run Up, Test of Resistance, and Double Top


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Fast Run Down and Test of patterns. Also a double top.


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General patterns indicating a possible entry or exit Moving average position. Together and extended from price: The location of the MA’s can help you decide when a trade. The two main conditions to look out for is when the ema’s are close together and when they are far apart. When they are close together it is a good time to look for to enter a trade, either long or short. The aggressive entry and the conservative entry will not be that far apart. So waiting for a 10/21ema crossover is the best strategy at this time for greater odds of a good trade.

After a move has begun and a trend has started eventually the 10/21ema will be far away from the 50ema. As price reaches a 5M major S/R level, and the ema’s are extended far from the 50ema it may be a good time to exit an aggressive trade. If price is not near a major 5M level you would not exit. You would wait to see if price retraces back to the 10 or 21ema and then continues in the direction of the trend This is especially effective if the move ends with a Fast Run Down or Large bar pattern.


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Ema’s close together and far apart in a downtrend


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Ema’s far apart, test of , fast run up, and ems’s close together at the DT. Up-trend


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Entering multiple times: Another way to increase your pip count is to enter multiple times when price is trending up or down. You can expect price to retrace at least two to four times in a normal trend. However if price is trending on the 5M chart the 1M chart will show more than four retracements. At each or these retracements to the 21ema or the 50ema you can enter again in the direction of the trend. You want to wait for a TOS/TOR or DT/DB and then a bar that moves in the direction of the trend to enter. This way you can add up to three lots to a trade and make more pips as you take advantage of a trending move. Below are charts showing uptrends and downtrends and multiple entries.


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Entering multiple times in a down trend.


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Entering multiple times in a up trend.


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Trade Management Introduction Trade management is how the trade is managed or monitored as the trade is moving from one major level to another. Stops are used to protect us from taking a large loss if the trade we have entered goes against us. It also locks in profits after a trade has moved in our direction. Stops also protect us when news events cause the markets to act wildly. The three stops we use are the initial stop, the pivot stop, and the 50ema stop. Another tool we use is the Fibonacci retracement on intra-day levels to gauge trend strength or weakness.

Stops Initial Stop: The initial stop protects you when your entry choice is incorrect. If you enter a trade long expecting the market to take off in the direction you entered, and all of a sudden it turns and goes the opposite direction, you need to protect yourself from losing your capital. W ithout a stop placed in the market, your emotions will cause you to second guess yourself and wonder whether you should exit with a small loss or wait and see if the market turns. Sometimes it will and sometimes it won't. You must place an initial stop as soon as you enter a trade. You can enter a trade with a market order or with a limit order. It doesn't matter. Initial stops are placed 5 pips beyond the price pivot before your entry. This will make more sense after I show you some charts. As soon as you enter a trade, place your initial stop immediately!


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Initial Stop. Up Trend:


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Initial Stop. Down Trend:


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Pivot Stop and 50ema stop:: A pivot stop is a good trailing stop. A pivot is created after price has moved in the direction of the trade. If price is moving down it will eventually retrace and move up to one of the ema’s. It usually creates a ‘^’ pattern at the top of the retracement. Then price will reverse and move down, ing the area that it first retraced. After price moves further down the retracement is called a pivot. You would place the stop 5 pips above the pivot. You would do this each time a retracement occurs and price moves down further. In a normal move you can expect at least three of these retracements. The 50ema stop is only used after an initial entry and no retracement has been established to trail stops. Helps protect the trade if price goes against us after entry. Not used much. Pivot Stop Placement. Up Trend:


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Pivot Stop Placement. Down Trend:


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Using intra-day Fibonacci retracements to monitor trend strength: Drawing Fibonacci levels on the most recent high to low or low to high can give you an idea of how far price may retrace. We use four Fib levels: 38.2%, 50%, 61.8%, and 78.6%. If price retraces to the 38.2%, 50%, or 61.8% Fib level the trend is considered strong. If price retraces to the 78.6% Fib level or above the trend is considered weaker. We do not use these levels to take trades from. Just to monitor retracement strength.

Fibonacci Retracements in an uptrend:


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Fibonacci Retracements in an downtrend:


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Money Management

Introduction: Using Money management is critical to your trading success. Adhering to strict money management rules will keep you in the market longer and protect your capital, even through a string of losses. Money management consists of stop placement and managing the trade with trailing stops, or exit signals. Money management will keep you from having a huge loss if you are wrong in your entry. It will help you extract the maximum amount of profits from the market if used correctly. It will also make you very frustrated when the money management rules cause you to exit the market just before the trade you were in takes off in the direction you had anticipated. However, if you want to become a professional trader and make a living from trading you must use proper money management every time you take a trade. The statistical probabilities will be in your favor in the long run if you do.

How much money per contract If you are new to Forex trading start with 2% of your capital per contract you trade. If you trade a mini lot for $1.00 a pip, you will need a minimum of $500. However most brokers require a minimum if $2,000 for a mini . For a micro you can have as little as $300 in your and start trading. FXCM offers a new that offers up to a 60% discount on trades. This is the best for scalp trading. Normally the EUR/USD has a 2.5 pip spread. That is $2.50 per mini lot. They are charging only .06 cents per trade. You will need a minimum of $2,500 to open this . I am not d with FXCm at all. Go to: http://s202.t.en25.com/e/es?s=202&e=20091098&elq=dd3c4879ac1046c1bbe67de17753932f Forex Scalping System by Jon Levine. Version 1.2. 9/27/14

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Recommended ways to start scalping: When starting any new system I recommend starting with a demo for practice. It takes time to apply the rules of any new trading system. It is important to trade as if you are trading with real money and not slack off because it is not. After you have a win/loss ratio of 60% of greater you can go to a micro or a mini .


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Examples Introduction: I will be showing you examples of 1M trading using the 5M chart as a guide. First I will show the 5m chart and all the major and resistance lines drawn on the chart. Then below the 5M chart will be the 1M charts showing the correct trades for the day. You will see both aggressive and conservative trades on the charts and the patterns we use shown. The 5M charts are in Candlestick, mainly because most traders use them. The 1M charts are the open, high, low, close bar charts because candlesticks are too fat to condense three hours of a trading day in one chart. Use the type chart that you prefer.

Abbreviations: TOS =

Test of

TOR =

Test of Resistance

DB =

Double bottom

DT =

Double Top

AG =

Aggressive Trade

CN =

Conservative Trade

Ret =

Retracement

Fib =

Fibonacci % level

Init =

Initial Stop

Pivot =

Pivot Stop

MA X/O = Moving Average 10/21 Crossover. FRU =

Fast Run Up

FRD =

Fast Run Down

LB =

Large Bar

SB =

Spike Bar


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that is most important while watching and monitoring charts to watch price action first and foremost. Is price trending, making lower lows and lower highs (downtrend), is price in a range, or a non-trend. Do not use the levels to just automatically enter and exit trades without the proper setups and entry/exit signals. The levels are just guides. They can be ed easily as price moves to a level further away. The signals to watch are the DT/DB’s, TOR/TOS, Fast Run Up/Down, and Large/spike bars. Wait till you see a definite signal at a level and if the market is trending stay with the trend until a definite signal is given that tells you the trend may be over. We will review three different charts. A non-trend, a range, and a trending day.


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Non Trending Day, Moderately Bullish - 5M Chart


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Non Trending Day, Moderately Bullish - Four 1M Charts showing the 5M day above. Chart 1. Each chart has approximately three hours of data.


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Chart 2.


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Chart 3.


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Chart 4.


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Chart Set #2. 5M. Range Day turning into an uptrend late in day.


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1M Chart #1 of 5M chart above. Four sections. Each about three hours.


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Chart Set #3. 5M. Trending Strong Day.


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1M Trading Checklist:

One Minute Scalp Checklist 5-Minute chart as a guide:

Type of trading days. Trending, non-trending, and range. Or a combination of the three. Larger Levels to watch what price does at these levels. High Previous Day, Low Previous Day. Fibonacci levels. Double Tops and Double Bottoms(mainly used in non-trend days). 200ma (used to determine if market is bullish/bearish and as a entry level in absence of other levels. 21ema and 75ma used to gauge trend strength. Fast Run Up, Fast Run Down and Large Bars and Spike Bars.

Entry and Exit Patterns: Conservative: 10/21ema crossover. Aggressive: Double Tops and Double Bottoms Test of Resistance and Test of Fast Run Up, Fast Run Down Large Bars and Spike Bars. Trigger Bar: Opposite color up bar and down bar. Intra-day Retracement Strength. General: Multiple Entries at up to 3 Retracement Levels in a Trend.. Ma’s near each other for better entry and far apart for possible exits.

Stops:

Initial Pivot 200ema


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Conclusion: The trading system I have just showed you has never been shown before by me. I have studied, refined, and traded it for a year now. It is the best system I think for getting the most profit out of the market no matter what type of market conditions arise in the market. Trading this system takes undivided attention and more focus that you are probably used to. But the rewards are worth it. The great thing about trading like this is if you trade for a few hours and need to take a break, you are able to come back fresh and still make good profits for another hour or two. I have shown in detail three trading days. All of them are different in the market condition at the time. There are 15 charts total shown as examples. Almost every market condition has been addressed in these charts. Any more charts would just be overkill. As with any trading system it will time master it, but the time will be worthwhile when the see the huge profits come in that you would not see otherwise. Good Luck and Happy Trading.


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