Happy Scalping Mi Amigos
Before I get into the “guts” of the scalper algorithm, I want to set the stage [so to speak] to give a needed sense of perspective to many of you closet scalpers out there who are wondering just how to correctly go about “scalping” an FX market.
Back in the day [late 70’s to very early 80’s] when I started trading there was one place, and only one place, you could go to trade FX; if you didn’t like the rules or structure, tough toenails. Standardized futures contracts [125,000 per 1 lot] in dollar pairs was it for retail accounts, no matter how much money you could put into an account.
At that time most retail accounts paid anywhere from $12 to as much as $75 per 1 lot to trade, with most around the $25 level. An exchange membership cost about $250,000; that got you floor access and most locals [floor traders who trade for their own account] paid anywhere from $0.75 to as high as $1.25 per 1 lot, with scratches [buys and sells at the same price] costing 0.
Since everything was standardized, a 1 pip move on every exchange traded contract was worth $12.50. With that kind of cost structure, you don’t need to be a rocket scientist to see that locals could scalp and most retail accounts found it a losing game.
Today, the only thing that has changed is mostly the structure; the vast majority of electronic brokerage houses have spreads in the 2.0 – 3.5 pip range for most actively traded currency pairs in any amount you want.
The most crucial element to being a successful scalper is the spread you face and any commissions added onto that. [I’m assuming, of course, you have a successful algorithm beforehand.]
My staff and I have chosen to now trade at Assets FX in Finland. Below [in no particular order of importance] is a list of FX spreads in the Asian session for those pairs that consistently trade with spreads less than 1.5 PIPS. Whatever the spread is in the Asian session, rest assured it will be the same or lower in the European and U.S sessions later in the trading day.
USDJPY 0.30 – 0.70 PIPS
GBPUSD 0.50 - 1.00 PIPS
EURUSD 0.50 – 1.00 PIPS
AUDUSD 0.50 – 1.00 PIPS
USDCAD 0.50 – 1.00 PIPS
EURGBP 0.30 - 1.00 PIPS
EURAUD 1.00 – 1.50 PIPS
EURJPY 0.40 – 0.90 PIPS
AUDJPY 0.50 – 1.00 PIPS
GBPJPY 1.00 – 1.50 PIPS
In essence, with these tight spreads [the commissions are virtually meaningless, being 0.26 of a PIP], you’ve become a local without the cost of an exchange membership. If I couldn’t get these low spreads, I wouldn’t attempt to scalp; the reasons should be obvious to you.
I’m releasing this algorithm to give traders flexibility in their trading.
I will give one example of what I mean. Suppose you are an active trader that runs a small business. Next week, you have Monday and Tuesday free, but the rest of the week you will only be able to spend maybe 3 – 4 hours each day [Wednesday, Thursday, and Friday] for trading.
With the release of the “-vegas Scalper Algorithm”, you now have some options for your trading next week. You could trade the “Long Term –vegas Big Bang Algorithm” Monday and Tuesday, and then switch to the “-vegas Scalper Algorithm” the rest of the week; this is just one of many options you could use.
[Note: the "-vegas Scalper Algorithm" is available for FREE download in the FILE DOWNLOAD LINKS section of the website (Vegas Scalper.mq4). If you have any problems downloading, or you want me to send it to you directly, email me at firstname.lastname@example.org ]
The “-vegas Scalper Algorithm” gives you the flexibility to use either the daily candlestick chart, the 4 hour candlestick chart, or the 1 hour candlestick chart as your basis for determining long or short positions. Personally, I like the 4 hour candlestick chart, so I will use it in my example. Realize though, that theoretically there is no reason why the 4 hour should be better or worse than the daily or the 1 hour; it’s a matter of personal choice.
Instead of using the 5M candlestick chart, we use the 1M candlestick chart. The yellow/plum signal lines are the same as with the “Long Term –vegas Big Bang Algorithm". The signal cross over and under are the same also for generating signals.
What is different is the AQUA LINE [the red line is still an exhaustion point in every Risk Model (RM).
You need to set a base unit of trade for yourself, and on every trade you need to do 2 units. So, for example, if your base unit is 10,000, every trade starts with a 20,000 position.
If the 4 hour candlestick is “green” [meaning up no matter by how much], we only initiate new long positions and ignore short signals; if the candlestick is “red” [meaning down in price no matter by how much], we only initiate short positions and ignore long signals.
Here is a screenshot of EURJPY:
[click on chart too enlarge]
Note that the 4 hour is green, so only long positions are being taken right now in this 4 hour time period. When the plum line crosses over the yellow line a new position is taken with 2 units of trading [whatever that is for you]. If the market price touches or exceeds the upper aqua line you must liquidate half [1 unit] of your position; the other half you let ride in a “free trade” until either exhaustion [red line] or the plum line crosses under the yellow line.
With this “free trade” you never, and I mean never, let this go from profit to loss; if it starts to turn against you then simply get out.
Personally, I would not scalp in front of major news events, and I would ignore the Asian session if I could. Better opportunities await you from Europe and the U.S.
Remember, scalping is just that; you’re trading for small gains and that is the purpose of the aqua line. But if the market starts trending straight on the 1M candlestick, why predetermine your gain with the other half of your trade? Let it ride until the signals tell you it’s over.
The Holiday Season is here, and markets may [or may not] be listless and somewhat dead for the next 3 weeks. This is a perfect time to do your research on the Assets FX MT4 trading platform [live or demo makes no difference] and take a serious look at the markets you may want to scalp trade.
It’s somewhat difficult to scroll back with the 1M candlestick charts back into the past, so the best alternative is to look every day at what happened in the pairs you are interested in scalp trading. Make a few trades with the demo, because it will factor in the miniscule commission of [round turn] $2.60 per 100,000 traded pro rated.
This scalping algorithm should be fairly easy to everyone who is familiar with the “Long Term –vegas Big Bang Algorithm”. If you have any questions, write me at email@example.com and I will respond as quickly as events allow me.
Have a great day everyone.