THE “-vegas FX SCALPER ALGORITHM”

                                    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 vegasalgo@yahoo.com ]

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 vegasalgo@yahoo.com and I will respond as quickly as events allow me.

Have a great day everyone.

-vegas

CASTLES IN THE SAND

                                      Foundation For Trading?

We have all been to the beach and seen kids playing in the sand. They always seem to build some kind of sandcastle with pail and bucket. It’s fun to play, but would you lay money on the structural soundness of the sandcastle as the tide comes in and water starts rising? I didn’t think so.

But many of you base your trading on just such a foundation. Why? I submit that too many of you are blinded by the “glitz” of trading. You’ve picked the color of that new Mercedes without thinking critically about how you are going to get there.

Almost everything you read or touch, when it comes to trading, will promote “profits”, “big moves”, “untold riches”, etc. ad infinitum nauseum. Well, if it’s so easy making a fortune using common technical indicators [something most traders do], how come almost nobody is wealthy?

In other words, where are all the retail customer yachts?

I challenge you to find other “traders”, “system promoters”, “Expert Advisors” [EA’s], and those that spend most of their time trying to invade your wallet, and ask yourself if they talk at all about their limitations. Or is it mostly about money?

                                   Safe To Go Into The Water?

Red flags, warning bells, sirens, and the voice inside your head screaming at you should be your first clue that many things aren’t what they seem.

I can tell you flat out that professional traders, not those pretending to be professionals, spend 99.99% of their time dealing with failure scenarios and what to do if SHTF. Those that have been trained properly, and been around the proverbial block a few times shoot first and ask questions later.

Meaning specifically that money is money, and no matter the scenario, if I’m up money in a position, there is no way in hell it’s going to turn into a loser. Period. End. Of. Story.

                           Built To Last Forever. What Happened?

Forget the quantitative analysis, math PhD’s, and every indicator you can throw at me. It doesn’t matter. Non computable problems will always come up in trading. Why do you think 10% of the people make 90% of the money? [Hint: they deal decisively and definitively with non computable problems.]

So while the boat is sinking, and profitability is going out the window, you sit on the promenade deck and want to arrange the chairs to your liking. There comes a moment in time when you have to push the button and save profitability. There won’t be any signals; there won’t be any warning clouds on the horizon. All that is there is a winner that is about to become a loser.

Sorry, in my universe it doesn’t happen. Do I sometimes get caught by dealers who stop-hunted me and I end up making only a few Pesos and then get to watch the market resume its trend? Yes, of course!! Do I care? Nooooooo! It happens; I deal with it.

All I can ever ask for in trading is a probability distribution that is skewed in my favor. Mostly I win, but sometimes I lose. It’s the nature of the beast.

So, the next time you make a trade based on the foundation of that sandcastle on the beach, ask yourself if the probability of success is in your favor.

Today’s Action & Wrap Up

We came into the day in “buy mode”, after having watched the market rally in the Asian session. Our first buy signal came at 6:15 AM [Chicago time] at 1636.50. Stop was placed at 1632.90, about 70 cents lower than the most recent low from a few candlesticks prior to our getting in the market.

Gold rallied up to the 1641 level, and then started to back off. Now, at this point we are up anywhere from $4 - $5 on the trade. I haven’t moved my original stop yet, but do you think I’m going to let this puppy turn into a loser?

I know, from “The Power of $1.50”, that if I trade correctly I will be rewarded handsomely in the long run. There is NO WAY this gain is turning into a loser. I’ll take it one step further; there isn’t any way I’m not going to make a couple of pennies on this trade.

If it runs, and continues to go up, of course I will use the signals the algorithm gives to guide me in getting out. However, if like the Titanic, it starts leaking water, I’m going to bale on this at either breakeven or slightly above. No way is a $5 winner going to turn into a $2 or $3 loser. This is Trading 101 and the concept of the “free trade”. LEARN IT, LOVE IT, LIVE IT!

So, at 7:20 AM [Chicago time] when prices started turning lower with a vengeance, it was an easy liquidation to make. I’m saving the trade from being a loser after being up about $5 / oz, and I’m out at 1637.00. Gain on the trade of $0.50 / oz. [I could have easily picked breakeven, or 30 cents, or any other price close to where I eventually got out and it would be consistent with what I am saying. The point is, I ain’t letting’ it become a loser. At least I got somethin’ out of it for my efforts!]

Our second trade came at 7:50 AM [Chicago time] at 1638.50. Stop here was placed at 1633.90, which is just above the most recent lows around 1633.60.

During this second trade, the algorithm is going back and forth between buy signal and liquidation signal. The key here, and the reason we don’t act on these, is that there is no run in prices. Prices are basically going nowhere, + or – about $2 on either side of the signals. My stop hasn’t been hit.

So, we wait. I WON’T ALLOW MYSELF TO GET CHOPPED UP. I’M BASICALLY TELLING THE MARKET, “HEY EITHER GO IN MY DIRECTION OR STOP ME OUT.” The market goes a little for us, and then it goes a little against us; back and forth for about an hour and a half before it goes out on the upside.

Now, on this breakout, and run in price [from 1635 to almost 1645], we get a confirmation top at 1643.00 [discussed in the manual and Appendix IV]. Gain on this trade of $ 4.50 / oz.

With the first trade, we now have $5.00 /oz gain on the day. Thank you Mr. Market, we will play again tomorrow; time to call it a day.

                                       When He Wins, He Eats

It’s been a long day since the start of trading; all told, it was a little less than 10 hours. Not every day is profits in 90 minutes. The key to making money today was discipline and being patient bear. DON’T THINK, JUST DO WHAT YOU ARE SUPPOSED TO DO; FOLLOW THE ALGORITHM.

Have a great day everyone.

-vegas

THE “FREE” TRADE

                             Not Quite What I Meant, But Close

There exists a concept in trading that you must master: the “free” trade. It will make life sooooooooo much easier and profitable. It is what makes good traders great traders and what allows a good income to mushroom into real wealth.

I spent about 10 years in various trading pits. No matter the market, or whether it was in a bull trend or bear trend, most traders fall prey to counting money. They enter a trade with the specific intention to make a predetermined amount of money. Why do traders do this?

“Oh hey Mr. Market, I need to make $389 on this gold trade to make a car payment tomorrow. I know you will understand and move my way so I got wheels to get to the exchange next month. Thanks in advance.”

Or….

“Look Mr. Market, it’s like this: that cute babe over there who is a clerk in the hog pit has the hots for me, OK? I need $500 for our date this weekend. I know you want this for me.”

                               What We Get = What We Want * 0

You had better plan on a monthly bus ticket and some cheap movie tickets!

While you are away from any market, you decide how much leverage to use in a trade. You don’t do this while you are involved in a market. You make the trade and stay with it as long as your parameters say the trade is good.

                                         Well, Not Usually

There is a famous scientific experiment done many years ago involving fleas. Scientists took new-born fleas, placed them in a jar and placed a piece of glass over the opening.

Fleas, as most people know are prolific jumpers. They immediately started jumping and hitting the glass at the top of the jar. Within a few days, they were still jumping, but none of them were hitting the glass. A few days later, scientists removed the glass and left the jar open. None of the fleas left the jar.

Why limit yourself to a predetermined amount of money when trading? Allow the market to give you what it has to offer!!

A “free trade” is one in which you are up money so that none of your original capital is at risk. When you find yourself in this position, which the algo puts you in most of the time, you are free to concentrate on when is the appropriate time to get out.

You don’t initiate the trade with the idea of a “I’m going to make a hundred bucks on this puppy” trading philosophy. You let the trade take you where it wants to go.

You have now freed yourself, and are a flea no more!!

Today’s Action & Wrap Up

We started the day in “sell mode”, but never got a sell signal as gold rallied mildly most of the Asian session into Europe. At 7:00 AM [Chicago time] the algo went into “buy mode” [as explained in the manual]. [For you Skeptic Cats out there, I emailed every algorithm trader and announced “buy mode” status at 7 AM (Chicago time), just to make sure they all understood the signals correctly.]

At 8:35 AM [Chicago time] we got our first buy signal at 1666. Within the hour we got a confirmation top [and liquidation of long position signal] at 1673. A very nice quick, net gain of $ 7 / oz. on the trade and for the day.

Time to live life! Go catch a movie or something. Spend some time with your family. Go tell your spouse what a genius trader you are: hey, you deserve it!!

Ka-Chinggggggggg [Again]

Now, I know many of the algo traders are having OMG moments here as I write this. For those of you who are trading on Hope & Change, discover what everybody here knows: the algorithm works baby!

Have a nice day everyone.

-vegas