Bob volman forex scalping system
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- 14.02.2020
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It offers highly repetitive intraday characteristics, a low dealing spread and is accessible to even the smallest of traders; however, since price action principles are quite universal, not too many adjustments would have to be made to take the method to another market with simi- lar volatility and attractive trading costs. In that respect, this guide may serve many non-Forex traders as well. No fancy indicators. One-click in and out. Everything preset. And opportunities abound in an almost repetitive loop.
Figure P. The vertical axis shows the price of the instrument; the horizontal axis displays the passing of time and the curved line in the chart is an exponential mov- ing average, the only indicator allowed. The boxes encapsulate some of the price action patterns that we will get to discuss later on. Each of the coming chapters will take on a part of the journey. Forex Price Action Scalping truly is about scalping.
It is written by a trader at heart, and at all times with the aspiring trader in mind. They not only acknowledge the presence of a trend, they try to capitalize on its continuation as well. Almost any trading method will incorporate at least a couple of clever with- trend plays to hop on or ride out a good move. Unfortunately, as any chartist will surely admit, things seldom materialize in the most desirable way.
It is all part and parcel of the trading game. However, in many such instances, the opportunities are not necessarily lost and with a little luck and patience we may just be able to pull a nice trump card from our sleeve: the multipurpose Block Break setup BB. This setup comes in many shapes and forms and we would probably not do it justice if we were to casually generalize on its appearance. A most simplistic description would be to characterize the pattern as a cluster of price bars tightly grouped together in a narrow vertical span.
Preferably, the barriers of this block of bars are made up of several Forex Price Action Scalping Excerpts touches each, meaning that the top and bottom side of the pattern clearly represent resistance and support. On occasion, depending on the speed of the market, this group of bars could appear and be broken in a matter of seconds, but the formation itself could best be seen as a miniature trading range.
If we were to draw a rectangular box around all the bars that make up this pattern, what should emerge is a distinctive block of price action in which a relatively large amount of contracts changed hands without price being really affected.
But the tension within should almost be tangible, like that of a coil being suppressed by a weakening force that is bound to give in. If prices eventually break free in the direction of the path of least resistance, we immediately enter the market on a break of the box. This makes the broken horizontal barrier the signal line to our entry point. Should prices break out at the less favorable side, then no action is taken just yet. When encountering this cluster of bars at the possible end of a pullback in the area of the 20ema, a trendside breakout would require similar action as would a break of a regular DD or SB setup.
In fact, if we would also wrap a box around a group of dojis that make up a typical DD, we would basically create a miniature BB setup. The same goes for the SB pattern as a whole, though be it that the entry in this setup usually shows up before the highs or lows of the complete pattern are taken out. But make no mistake, when it comes to the BB setup, we are not just dealing here with another trick to take a with-trend trade at the end of a pullback, although that is one of its functions.
What gives this pattern its unique quality and personal character is its multipurpose application. This setup could essentially show up anywhere in the chart, while still conforming to the requirements of a tradable event. Its abundant presence makes it one of the better weapons to tackle almost any market, trending or not.
There are some factors to assess, though, before we can start to regard this pattern as a valid setup. We cannot simply trade any odd block break and expect the market to take off for at least a 10 pip run. But what exactly is a favorable market? As we have already observed, a pullback in a trend, for one, leaves little room for discussion on that part. But how about a sideways market that just printed a nice double bottom and a higher bottom in support?
How about a market that broke so violently that countertrend traders cannot even force a noteworthy pullback in it? How about an uptrending market that shows clear signs of resistance, like double tops and lower tops? And what about a market that seems chaotic in any respect, apart from the fact that it successfully slammed back all attempts to break a round number zone?
The situations above, just randomly chosen, may be as different from each other as night and day, but they do have one particular characteristic in common: not so much that they paint a very vivid picture of the perpetual clash between the bulls and bears, but more that they show us who is currently winning.
In essence there are only three. In case this pullback is quite extended, the setup may at times show the characteristics of a countertrend trade. This block usually shows up in a very brisk move that just cannot seem to pull back. Whereas a typical pullback seems to move somewhat diagonally against the trend, this one merely travels sideways, forms a block, and then breaks out in the direction of the trend.
This block can be found in topping or bottoming price action and even in the midst Forex Price Action Scalping Excerpts of a sideways consolidation. It can be played with-trend as well as countertrend. In the coming charts we will see all of the BBs encapsulated by a rectangular box, aiding the visual process of identifying the highs and lows within each block.
Although it is not necessary to draw these boxes when engaged in a live session, it does come in handy to at least plot the signal line in the chart. That way we can keep a real good eye on the exact break, because the highs or lows that make up the signal line may be several bars apart. Note: When looking at the chart, it is quite tempting to focus mainly on the moving price action and on the possible development of a tradable setup. Yet the status of the overall picture deserves the most attention.
Whatever price bar is currently being formed, it can only derive value from its relation to the bigger picture. It is this wider view on the price action that ultimately determines our setups to be valid or not. Keeping track of the 20ema is just one way of assessing the current pressure in the market, and an excellent one at that.
But the whole array of actual tops and bottoms in the chart determines the overall pressure. More distinctive higher bottoms than lower tops: the pressure is currently up. More distinctive lower tops than higher bottoms: the pressure is currently down. Alternating tops and bottoms: the current pressure is evenly distributed. However, this one little pattern may very well represent the near perfect box, should there exist such a thing as perfection in the tricky nature of the market.
Let us see how exactly this pattern earned its credentials. Earlier on, the bullish character of the market was somewhat curbed by the resistance of the 1. After a little backing and illing, as aimless price action is often referred to, the market drifted lower in the next 30 minutes of trading and then established its most distinctive low so far 2.
Of course, we can only identify this low once the bulls start to buy themselves into the market again and take prices back up. Since it is our primary intention to trade this particular chart to the upside, we have to wait patiently for some sort of resistance to come in. Now that we have a high and a low to go by, it is just a matter of following the price action until anything tradable develops.
Preferably, we like to see a number of equal highs hitting the potential signal line, but the market is not always so kind as to serve a trader on his every Forex Price Action Scalping Excerpts wish. Should prices break out immediately, then that is just too bad. There are many ways to play the market and should a scalper have to forgo a particular setup, then he just moves on to the next tradable event.
Either to get in or to get out. Within the setup, a number of higher bottoms can be counted 4, 5 and 6 , lending extra credit to the possibility of a bullish breakout. As the coil is now being suppressed to the max, something has got to give.
We can imagine it to be the signal line, but as clever scalpers we will never act before our turn. Notice how gently the 20ema eventually guides the bars through the top of the box, literally pushing them out. We could say it is a miniature box within the box itself. The subsequent reaction to the break speaks volumes. With the 1. Note: Similar as in the previous chart Figure Would that not be worrisome? To a tiny DD pattern it most probably would. There may just be too little tension building up within the dojis to counter the resistance overhead.
But the BB pattern, in that respect, is quite different: it has tension written all over it. Which is also why the break of it stands to cause a sharp reaction. Once the defenders give up and step out of the way, the path is usually cleared for at least a number of pip. Aspiring scalpers, when slowly taking a liking to this method, are recommended to study the characteristics of boxes like those of Figures Hardly a session will go by without these very tell-tale patterns showing up in the chart, one way or another.
However, it is important Forex Price Action Scalping Excerpts to never lose sight of the overall pressure in the market, because that is what ultimately determines the future direction of prices. Obviously, assessing the overall pressure in a trending chart will not cause much problems. In more sideways progressions, this process requires a little more subtlety on the part of the chartist, as is the case, for example, in the next chart below.
Figure Still, the observant scalper may have already spotted a series of almost nonchalantly printed higher bottoms in this sideways progression 1, 2, 3 and 4. When that fourth higher bottom was printed, forming a cluster together with the handful of price bars next to it, things are starting to get interesting. Both moves seem to appear equally strong, but the one that emerged out of the cluster stands a much better chance of holding up. Not only does it stem from a slightly higher bottom, the fact that it broke free from a cluster puts a solid foundation beneath the current market.
This means that if prices were to retrace back to where they broke free from, as they often do, they are most likely to be halted right at the level of the earlier break resistance becoming support. After all, it is much harder for prices to dig themselves a way through a solid group of bars than when there is very little standing in their way. Notice how prices bounced off of the signal line, a few bars after the break, which clearly shows us the power of cluster support 6.
Have a look at the three very small dojis leading up to the break of the box 5. They are displaying in miniature the same pre-breakout tension as the complete box is displaying in the bigger picture of the chart just wrap an imaginary box around the highs and lows of the price action from to At the risk of being overly elaborative, I am pointing this out for a very valid reason.
If you learn to train your eye to recognize these subtleties in a live market environment, you will eventually be doing yourself a tremendous favor. The rise and fall of prices is not a result of somebody swinging a giant wheel of fortune.
There are actual people in the market, trading actual ideas, feeling actual pain and actual pleasure. You may never know for sure what motivates them to do what they do at any given moment in time, yet of one thing you can be sure: their actions are reactions to other traders actions, which is why most of the time everything happens in such repetitive manner. Markets may be random, as it is often stated, but traders surely are not.
Despite the upward pressure, the cluster below and the magnetic pull of the round number above, with-trend participation after the break quickly died out. Eventually, this trade would have had to be scratched for a loss where exactly to bail out on a failing trade will be discussed Forex Price Action Scalping Excerpts in Chapter 14 on Tipping Point Technique.
Although they clearly lost a round, we can expect the bulls in this chart to not just crawl up in a turtle position. Given all the higher bottoms earlier on, they will surely be on the lookout to buy themselves back into the market at more economical levels.
The most logical area to pick up new contracts would be in the 1. With the market traveling a few pip higher because of this buying activity, touching the 20ema from below, the bears were now offered a more favorable level to become a little more aggressive 8. And indeed, they managed to squeeze out one more low 9.
They were given little time to enjoy that feat, though, as a large number of sidelines bulls quickly stepped in. It is the information necessary to keep a trader on high alert for another bullish attempt to take control of the market. With no less than six equal highs testing one another, a scalper did not have to think very long about where to draw the signal line of the second box.
That is only an instrument in our own personal toolbox. In fact, in a somewhat sideways environment, buying above it could at times be more dangerous than buying below it. Therefore, from a technical perspective, both patterns here are very similar in nature: sideways action, support holding up, a buildup of tension and a subsequent break. Take a mental note of the two little dojis right before the break of the second box We will see this duo many times over throughout this guide.
Both bulls and bears will be very quick to act, though, should the proverbial jack pop out. As pleasurable as it may be to occasionally stumble upon the near perfect trade, it also poses a rather interesting challenge on the topic of volume versus predictability. If we were to assign a rating to each individual trade—by counting the number of valid reasons to either skip or trade a setup—and came to conclude that the probability factor is apparently not a constant but varies visibly from setup to setup, should this not force an intelligent strategy to alter the volume per trade in compliance with the degree of predictability?
If so, then that rules out adding Forex Price Action Scalping Excerpts anything extra, no matter how good-looking the trade, because the maximum amount of units are already at work. On the other hand, one could argue that if there is such a thing as a superior trade, then, naturally, there must also be its counterpart, the inferior trade though still possessing a positive expectancy ; when opting to trade the latter, could one not take off volume and tread lightly? And rightly so.
Whenever we picture ourselves to have an edge, each setup deserves to be treated with equal respect, no matter how shady or pretty its appearance. And that means assigning the maximum allowable amount of units per trade to fully capitalize on the principle of positive expectancy. Note: Contrary to common perception, the least important of all your trades is the one you are currently in.
Your current trade, on the other hand, has yet to earn its notch on the historical slate. It is just a trade in process. And it is totally irrelevant whether it will win or lose. Why is that? Granted, embracing a losing trade as if it Forex Price Action Scalping Excerpts were a winner may be stretching it a bit. But the point does show the importance of a proper understanding of distribution in a probability play.
All individual outcomes are just data. The only thing that truly matters is the collective result of all your scalping actions in the market. It can indeed be a mental challenge to have to sit out these times of inactivity, hoping for action and not getting any, especially to those traders who look upon their trading platform as a slot machine in a penny arcade. A word of caution may be in place here, because these sideways ranges do have the nasty habit of luring a trader in one of two very classic mistakes.
This warped sense of reality is typical for a trader who just needs action. The second classic mistake is made by traders who on the surface seem to stay composed rather well in a sideways market. Up until that one amazing moment that boredom abruptly kicks in. For reasons unbeknownst to themselves they suddenly have to get up to make these phone calls, do their exercises, watch the news on the TV or even take a stroll outside. Anything to get away from that screen and that market! It is a pity that traders are so caught up in the notion that trading trending markets is the only way to go.
Contrary to popular believe, sideways markets deliver excellent opportunities, for the simple reason that they have to break out eventually, just like a trending market will eventually come to a halt or even reverse. With the moving average traveling sideways and price bars alternating above and below it, there is not much to make of it.
This is your typical round number zone tug-o-war in the absence of a clear incentive 1. But of one thing we can be sure: unless it is a national holiday, late Friday evening, or lunchtime in an already dead Asian session, price will not stay put for hours on end. Sooner or later some party will give the market a push and that will be incentive Forex Price Action Scalping Excerpts enough for others to react.
The trick is to recognize the buildup that most often precedes it. This is why it is so important to familiarize yourself with pre-breakout tension. What will help is to draw, or imagine, a box around any clustering price action that might lead to a break. By extending the signal line to the right, we can see that the pullback following the break successfully tested the breakout level as well as the broken round number of 1.
That will certainly have inspired a number of bears to just throw in the towel. And a number of bulls to quickly enter the ring. However, despite this potential for double pressure, markets do not always immediately pop. If you look closely, you can see that the top barrier of this second BB setup is not exactly running across the absolute high 2 but one pip below it, across the equal extremes of four consecutive bars.
Here it seems logical to put more weight to the four equal highs than to that one single high sticking out on the left. It would be overly prudent to wait for this high to be taken out, too. But let us ignore our setup for a moment and see what the market has to say about this: it put in a series of distinctive higher bottoms within the course of two hours; it broke a round number zone and saw it successfully tested; it built up towards a possible bullish breakout and now it breaks a cluster of four bars with equal highs.
I think it is telling us to trade. Once again, the breaking of a round number zone trapped traders on the wrong side of the market. In the previous chart, it was a downward break through the zone that not long after turned bullish, here it was an upward break that soon turned bearish. Probably no more than there is to any other break or move that fails or falls short: a lack of follow-through. It is not uncommon to see enthusiasm dwindle in rather subdued markets, or in situations where the round numbers are more of a symbolic nature than that they actually represent true technical levels of resistance and support.
In these cases, it is fair to assume that not too many stop-losses reside above or below the levels. As a result, the price action remains calm; as much as those in position do not see the need to get out, those on the sidelines are not exactly scrambling to get in, either. Interestingly, in the Forex Price Action Scalping Excerpts majority of cases there is indeed a pattern to be spotted. Everything is very easy in hindsight, yet if you managed to grasp the concept of the forces in play that caused the upside break in Figure Let us examine up close what exactly went on from the moment the third top was set 4.
It started to go wrong for the bulls when the reaction to this top a tiny countermove was not being picked up by new bulls in the 20ema a few bars later. That would have been a perfect opportunity to swing prices back up. From there on, they could have created themselves a nice squeeze by not giving in to whatever bearish pressure and then force themselves a way through the top barrier of the range.
In fact, the three earlier tops 1, 3 and 4 would have made for an excellent barrier to trade that upside break from. However, instead of working on that upside break, the market set out on its way to the bottom of the range again 5 and now even showed a classic triple top in its wake.
These are not bullish signs. But there was hope still. After all, the round number zone was cracked to the upside and successfully tested earlier on, and that should at least amount to something. If somehow new bulls found it in their heart to aggressively step in above the 1.
And that would look quite bullish. Forex Price Action Scalping Excerpts Sometimes it only needs one bar to turn pleasurable hope into the idle variety. How about that little doji 7 that stuck its head a pip above the high to the left of it 6. A higher high in a bullish market after a possible double bottom in round number support, that should have attracted new bulls to the scene.
What kept them away? We can imagine it to be the triple top pattern to the left; but it is not our business to decipher or explain the actions or non-actions of our fellow traders. Everything is just information. As observant scalpers our task is not just to monitor a chart, but to look for clues in it.
The more crucial the signs we can assemble, the more we can solve the puzzle of who is possibly toppling who in the market. The best indication to determine the value of a particular chart event is to consider its place in the chart in relation to whatever price action preceded it. To give an example, the tiny false upside break of 7 would have been considerably less indicative had the market not printed that triple top shortly before. With prices now trapped below the 20ema, the market was on the brink of being sandwiched into a bearish breakout through the bottom barrier of the range.
However, in many such instances, the opportunities are not necessarily lost and with a little luck and patience we may just be able to pull a nice trump card from our sleeve: the multipurpose Block Break setup BB. This setup comes in many shapes and forms and we would probably not do it justice if we were to casually generalize on its appearance. A most simplistic description would be to characterize the pattern as a cluster of price bars tightly grouped together in a narrow vertical span.
Preferably, the barriers of this block of bars are made up of several Forex Price Action Scalping Excerpts touches each, meaning that the top and bottom side of the pattern clearly represent resistance and support. On occasion, depending on the speed of the market, this group of bars could appear and be broken in a matter of seconds, but the formation itself could best be seen as a miniature trading range. If we were to draw a rectangular box around all the bars that make up this pattern, what should emerge is a distinctive block of price action in which a relatively large amount of contracts changed hands without price being really affected.
But the tension within should almost be tangible, like that of a coil being suppressed by a weakening force that is bound to give in. If prices eventually break free in the direction of the path of least resistance, we immediately enter the market on a break of the box. This makes the broken horizontal barrier the signal line to our entry point. Should prices break out at the less favorable side, then no action is taken just yet. When encountering this cluster of bars at the possible end of a pullback in the area of the 20ema, a trendside breakout would require similar action as would a break of a regular DD or SB setup.
In fact, if we would also wrap a box around a group of dojis that make up a typical DD, we would basically create a miniature BB setup. The same goes for the SB pattern as a whole, though be it that the entry in this setup usually shows up before the highs or lows of the complete pattern are taken out. But make no mistake, when it comes to the BB setup, we are not just dealing here with another trick to take a with-trend trade at the end of a pullback, although that is one of its functions.
What gives this pattern its unique quality and personal character is its multipurpose application. This setup could essentially show up anywhere in the chart, while still conforming to the requirements of a tradable event. Its abundant presence makes it one of the better weapons to tackle almost any market, trending or not. There are some factors to assess, though, before we can start to regard this pattern as a valid setup. We cannot simply trade any odd block break and expect the market to take off for at least a 10 pip run.
But what exactly is a favorable market? As we have already observed, a pullback in a trend, for one, leaves little room for discussion on that part. But how about a sideways market that just printed a nice double bottom and a higher bottom in support?
How about a market that broke so violently that countertrend traders cannot even force a noteworthy pullback in it? How about an uptrending market that shows clear signs of resistance, like double tops and lower tops? And what about a market that seems chaotic in any respect, apart from the fact that it successfully slammed back all attempts to break a round number zone? The situations above, just randomly chosen, may be as different from each other as night and day, but they do have one particular characteristic in common: not so much that they paint a very vivid picture of the perpetual clash between the bulls and bears, but more that they show us who is currently winning.
In essence there are only three. In case this pullback is quite extended, the setup may at times show the characteristics of a countertrend trade. This block usually shows up in a very brisk move that just cannot seem to pull back. Whereas a typical pullback seems to move somewhat diagonally against the trend, this one merely travels sideways, forms a block, and then breaks out in the direction of the trend. This block can be found in topping or bottoming price action and even in the midst Forex Price Action Scalping Excerpts of a sideways consolidation.
It can be played with-trend as well as countertrend. In the coming charts we will see all of the BBs encapsulated by a rectangular box, aiding the visual process of identifying the highs and lows within each block. Although it is not necessary to draw these boxes when engaged in a live session, it does come in handy to at least plot the signal line in the chart. That way we can keep a real good eye on the exact break, because the highs or lows that make up the signal line may be several bars apart.
Note: When looking at the chart, it is quite tempting to focus mainly on the moving price action and on the possible development of a tradable setup. Yet the status of the overall picture deserves the most attention. Whatever price bar is currently being formed, it can only derive value from its relation to the bigger picture. It is this wider view on the price action that ultimately determines our setups to be valid or not.
Keeping track of the 20ema is just one way of assessing the current pressure in the market, and an excellent one at that. But the whole array of actual tops and bottoms in the chart determines the overall pressure.
More distinctive higher bottoms than lower tops: the pressure is currently up. More distinctive lower tops than higher bottoms: the pressure is currently down. Alternating tops and bottoms: the current pressure is evenly distributed. However, this one little pattern may very well represent the near perfect box, should there exist such a thing as perfection in the tricky nature of the market. Let us see how exactly this pattern earned its credentials.
Earlier on, the bullish character of the market was somewhat curbed by the resistance of the 1. After a little backing and illing, as aimless price action is often referred to, the market drifted lower in the next 30 minutes of trading and then established its most distinctive low so far 2.
Of course, we can only identify this low once the bulls start to buy themselves into the market again and take prices back up. Since it is our primary intention to trade this particular chart to the upside, we have to wait patiently for some sort of resistance to come in. Now that we have a high and a low to go by, it is just a matter of following the price action until anything tradable develops. Preferably, we like to see a number of equal highs hitting the potential signal line, but the market is not always so kind as to serve a trader on his every Forex Price Action Scalping Excerpts wish.
Should prices break out immediately, then that is just too bad. There are many ways to play the market and should a scalper have to forgo a particular setup, then he just moves on to the next tradable event. Either to get in or to get out. Within the setup, a number of higher bottoms can be counted 4, 5 and 6 , lending extra credit to the possibility of a bullish breakout. As the coil is now being suppressed to the max, something has got to give.
We can imagine it to be the signal line, but as clever scalpers we will never act before our turn. Notice how gently the 20ema eventually guides the bars through the top of the box, literally pushing them out. We could say it is a miniature box within the box itself. The subsequent reaction to the break speaks volumes. With the 1. Note: Similar as in the previous chart Figure Would that not be worrisome? To a tiny DD pattern it most probably would. There may just be too little tension building up within the dojis to counter the resistance overhead.
But the BB pattern, in that respect, is quite different: it has tension written all over it. Which is also why the break of it stands to cause a sharp reaction. Once the defenders give up and step out of the way, the path is usually cleared for at least a number of pip. Aspiring scalpers, when slowly taking a liking to this method, are recommended to study the characteristics of boxes like those of Figures Hardly a session will go by without these very tell-tale patterns showing up in the chart, one way or another.
However, it is important Forex Price Action Scalping Excerpts to never lose sight of the overall pressure in the market, because that is what ultimately determines the future direction of prices. Obviously, assessing the overall pressure in a trending chart will not cause much problems. In more sideways progressions, this process requires a little more subtlety on the part of the chartist, as is the case, for example, in the next chart below.
Figure Still, the observant scalper may have already spotted a series of almost nonchalantly printed higher bottoms in this sideways progression 1, 2, 3 and 4. When that fourth higher bottom was printed, forming a cluster together with the handful of price bars next to it, things are starting to get interesting.
Both moves seem to appear equally strong, but the one that emerged out of the cluster stands a much better chance of holding up. Not only does it stem from a slightly higher bottom, the fact that it broke free from a cluster puts a solid foundation beneath the current market. This means that if prices were to retrace back to where they broke free from, as they often do, they are most likely to be halted right at the level of the earlier break resistance becoming support.
After all, it is much harder for prices to dig themselves a way through a solid group of bars than when there is very little standing in their way. Notice how prices bounced off of the signal line, a few bars after the break, which clearly shows us the power of cluster support 6. Have a look at the three very small dojis leading up to the break of the box 5.
They are displaying in miniature the same pre-breakout tension as the complete box is displaying in the bigger picture of the chart just wrap an imaginary box around the highs and lows of the price action from to At the risk of being overly elaborative, I am pointing this out for a very valid reason.
If you learn to train your eye to recognize these subtleties in a live market environment, you will eventually be doing yourself a tremendous favor. The rise and fall of prices is not a result of somebody swinging a giant wheel of fortune. There are actual people in the market, trading actual ideas, feeling actual pain and actual pleasure. You may never know for sure what motivates them to do what they do at any given moment in time, yet of one thing you can be sure: their actions are reactions to other traders actions, which is why most of the time everything happens in such repetitive manner.
Markets may be random, as it is often stated, but traders surely are not. Despite the upward pressure, the cluster below and the magnetic pull of the round number above, with-trend participation after the break quickly died out. Eventually, this trade would have had to be scratched for a loss where exactly to bail out on a failing trade will be discussed Forex Price Action Scalping Excerpts in Chapter 14 on Tipping Point Technique.
Although they clearly lost a round, we can expect the bulls in this chart to not just crawl up in a turtle position. Given all the higher bottoms earlier on, they will surely be on the lookout to buy themselves back into the market at more economical levels.
The most logical area to pick up new contracts would be in the 1. With the market traveling a few pip higher because of this buying activity, touching the 20ema from below, the bears were now offered a more favorable level to become a little more aggressive 8. And indeed, they managed to squeeze out one more low 9. They were given little time to enjoy that feat, though, as a large number of sidelines bulls quickly stepped in.
It is the information necessary to keep a trader on high alert for another bullish attempt to take control of the market. With no less than six equal highs testing one another, a scalper did not have to think very long about where to draw the signal line of the second box. That is only an instrument in our own personal toolbox. In fact, in a somewhat sideways environment, buying above it could at times be more dangerous than buying below it. Therefore, from a technical perspective, both patterns here are very similar in nature: sideways action, support holding up, a buildup of tension and a subsequent break.
Take a mental note of the two little dojis right before the break of the second box We will see this duo many times over throughout this guide. Both bulls and bears will be very quick to act, though, should the proverbial jack pop out. As pleasurable as it may be to occasionally stumble upon the near perfect trade, it also poses a rather interesting challenge on the topic of volume versus predictability. If we were to assign a rating to each individual trade—by counting the number of valid reasons to either skip or trade a setup—and came to conclude that the probability factor is apparently not a constant but varies visibly from setup to setup, should this not force an intelligent strategy to alter the volume per trade in compliance with the degree of predictability?
If so, then that rules out adding Forex Price Action Scalping Excerpts anything extra, no matter how good-looking the trade, because the maximum amount of units are already at work. On the other hand, one could argue that if there is such a thing as a superior trade, then, naturally, there must also be its counterpart, the inferior trade though still possessing a positive expectancy ; when opting to trade the latter, could one not take off volume and tread lightly?
And rightly so. Whenever we picture ourselves to have an edge, each setup deserves to be treated with equal respect, no matter how shady or pretty its appearance. And that means assigning the maximum allowable amount of units per trade to fully capitalize on the principle of positive expectancy. Note: Contrary to common perception, the least important of all your trades is the one you are currently in. Your current trade, on the other hand, has yet to earn its notch on the historical slate.
It is just a trade in process. And it is totally irrelevant whether it will win or lose. Why is that? Granted, embracing a losing trade as if it Forex Price Action Scalping Excerpts were a winner may be stretching it a bit. But the point does show the importance of a proper understanding of distribution in a probability play. All individual outcomes are just data. The only thing that truly matters is the collective result of all your scalping actions in the market.
It can indeed be a mental challenge to have to sit out these times of inactivity, hoping for action and not getting any, especially to those traders who look upon their trading platform as a slot machine in a penny arcade. A word of caution may be in place here, because these sideways ranges do have the nasty habit of luring a trader in one of two very classic mistakes. This warped sense of reality is typical for a trader who just needs action. The second classic mistake is made by traders who on the surface seem to stay composed rather well in a sideways market.
Up until that one amazing moment that boredom abruptly kicks in. For reasons unbeknownst to themselves they suddenly have to get up to make these phone calls, do their exercises, watch the news on the TV or even take a stroll outside. Anything to get away from that screen and that market! It is a pity that traders are so caught up in the notion that trading trending markets is the only way to go. Contrary to popular believe, sideways markets deliver excellent opportunities, for the simple reason that they have to break out eventually, just like a trending market will eventually come to a halt or even reverse.
With the moving average traveling sideways and price bars alternating above and below it, there is not much to make of it. This is your typical round number zone tug-o-war in the absence of a clear incentive 1. But of one thing we can be sure: unless it is a national holiday, late Friday evening, or lunchtime in an already dead Asian session, price will not stay put for hours on end.
Sooner or later some party will give the market a push and that will be incentive Forex Price Action Scalping Excerpts enough for others to react. The trick is to recognize the buildup that most often precedes it. This is why it is so important to familiarize yourself with pre-breakout tension. What will help is to draw, or imagine, a box around any clustering price action that might lead to a break.
By extending the signal line to the right, we can see that the pullback following the break successfully tested the breakout level as well as the broken round number of 1. That will certainly have inspired a number of bears to just throw in the towel.
And a number of bulls to quickly enter the ring. However, despite this potential for double pressure, markets do not always immediately pop. If you look closely, you can see that the top barrier of this second BB setup is not exactly running across the absolute high 2 but one pip below it, across the equal extremes of four consecutive bars.
Here it seems logical to put more weight to the four equal highs than to that one single high sticking out on the left. It would be overly prudent to wait for this high to be taken out, too. But let us ignore our setup for a moment and see what the market has to say about this: it put in a series of distinctive higher bottoms within the course of two hours; it broke a round number zone and saw it successfully tested; it built up towards a possible bullish breakout and now it breaks a cluster of four bars with equal highs.
I think it is telling us to trade. Once again, the breaking of a round number zone trapped traders on the wrong side of the market. In the previous chart, it was a downward break through the zone that not long after turned bullish, here it was an upward break that soon turned bearish. Probably no more than there is to any other break or move that fails or falls short: a lack of follow-through. It is not uncommon to see enthusiasm dwindle in rather subdued markets, or in situations where the round numbers are more of a symbolic nature than that they actually represent true technical levels of resistance and support.
In these cases, it is fair to assume that not too many stop-losses reside above or below the levels. As a result, the price action remains calm; as much as those in position do not see the need to get out, those on the sidelines are not exactly scrambling to get in, either. Interestingly, in the Forex Price Action Scalping Excerpts majority of cases there is indeed a pattern to be spotted.
Everything is very easy in hindsight, yet if you managed to grasp the concept of the forces in play that caused the upside break in Figure Let us examine up close what exactly went on from the moment the third top was set 4. It started to go wrong for the bulls when the reaction to this top a tiny countermove was not being picked up by new bulls in the 20ema a few bars later. That would have been a perfect opportunity to swing prices back up.
From there on, they could have created themselves a nice squeeze by not giving in to whatever bearish pressure and then force themselves a way through the top barrier of the range. In fact, the three earlier tops 1, 3 and 4 would have made for an excellent barrier to trade that upside break from.
However, instead of working on that upside break, the market set out on its way to the bottom of the range again 5 and now even showed a classic triple top in its wake. These are not bullish signs. But there was hope still. After all, the round number zone was cracked to the upside and successfully tested earlier on, and that should at least amount to something.
If somehow new bulls found it in their heart to aggressively step in above the 1. And that would look quite bullish. Forex Price Action Scalping Excerpts Sometimes it only needs one bar to turn pleasurable hope into the idle variety. How about that little doji 7 that stuck its head a pip above the high to the left of it 6. A higher high in a bullish market after a possible double bottom in round number support, that should have attracted new bulls to the scene.
What kept them away? We can imagine it to be the triple top pattern to the left; but it is not our business to decipher or explain the actions or non-actions of our fellow traders. Everything is just information. As observant scalpers our task is not just to monitor a chart, but to look for clues in it. The more crucial the signs we can assemble, the more we can solve the puzzle of who is possibly toppling who in the market.
The best indication to determine the value of a particular chart event is to consider its place in the chart in relation to whatever price action preceded it. To give an example, the tiny false upside break of 7 would have been considerably less indicative had the market not printed that triple top shortly before. With prices now trapped below the 20ema, the market was on the brink of being sandwiched into a bearish breakout through the bottom barrier of the range.
For my own personal comfort, I would like to see prices get squeezed a little bit more before breaking down. Preferably, I would like to see the market print a couple of dojis right on the bottom level of the range as in a regular BB setup. It must be stated, though, that a conservative stance is not always the most successful approach. It would be nice if we could really put a rule of thumb on these false breaks, particularly on the tease variant, but alas, it often depends on the situation at hand.
Here the market was extremely slow and the price Forex Price Action Scalping Excerpts action very subdued almost every bar a doji. That makes me want to wait for superior conditions just a little bit longer than, for instance, in case of a speedy market, where I might run the risk of fully missing the break on account of being too conservative.
Note: As for the difference between the false break trap and the tease break variant, imagine for a moment the low 5 to have dipped a pip below the range barrier. That would have turned it into a false break of the earlier bottom of 2 and not a tease.
And most of them will have no choice but to sell back to the market what they had bought at bottom prices just moments before. Add to this a number of sideline bears eagerly stepping in and we have ourselves the perfect ingredients of double pressure and thus follow-through. At times, the anticipation of this little chain of events is very straightforward.
At other times, the assessment of the squeeze can be a lot more subtle and it may leave a scalper wondering whether or not to trade. Particularly when the space between the 20ema and the barrier line is no more than a few pip in width, the tease break may be almost indistinguishable from a valid break.
As we have seen already in several examples, the 20ema, just like in the chart above, can still guide prices back out in favor of the trade. Take a moment to compare the string of black bars after the break in this chart with the string of white bars after the break in Figure What do these moves represent?
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