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Monday, January 9, 2017


“You have to be a frickin’ robot to be a great scalper!”

The “-vegas EURUSD & USDJPY Scalper’s Algorithm” is now posted in the “Download Links” section of the website over in the right hand column; as always, my goal is to be as concise as possible while imparting the necessary knowledge you need to be successful without being overly long and/or attempting to cover every last thing imaginable that might “pop up” when trading. Given the time and [especially] the resources, I could have easily made this a 500 page treatise and taken you on a journey guaranteed to keep you up at night and demanding more; as it is, successful scalper’s [in any market; futures pits, bank proprietary spot trading desks, or sitting quietly in front of a computer screen in someplace like Bora Bora] rarely, if ever, want to talk about the how/what/when/where/ & why of scalping and their success doing it.

Today’s blog is about the absolute 3 key critical components necessary for scalping success; 1) the concept of time and arbitrary constraints, 2) keeping trading costs as low as possible, and 3) the necessity of you being a robot.
When I was on the trading floor, the vast number of people who attempted to scalp FX and/or the SP500 futures failed miserably; I’d say it was around a 90% fail rate, and month after month the bodies kept coming and month after month the bodies got carried out the door; but, there were traders who “figured it out” and were very successful. What separated the bodies getting carried out from those with staggering incomes? Simple; the nature of time, and setting arbitrary constraints on a beast [the market] that doesn’t even know you exist.

I could almost always tell which floor Newbie scalper’s would “make it” versus which wouldn’t within a day; the ones who were doomed to failure were those who came to the conclusion of “take 2 ticks profit, cut losses at 2 ticks; trade 100 times; hope I got a 55/45 win ratio and go home with 20 ticks in my pocket”. 99 out of a 100 trading days it will never happen like this, so in effect they have put themselves into a far worse position of reality than a salmon swimming upstream in a 20 MPH torrent with 2 dozen bears waiting just up the bend; good luck getting to the finish line alive.

At its most basic level, scalper’s must have some sense which way the proverbial market stream is flowing; there’s an easy way too make money everyday, and then there’s the tough way. Why choose the latter or get stuck in it? By setting some arbitrary tick or PIP goal, you are attempting to “box the market” into something it not only isn’t, but also can never ever be; which just happens to be your insane vision of reality and how a market works, all the while presuming market conditions remain calm for you to “get in” and more importantly “get out” about 100% of the time like you want. Guess what? Ain’t gonna happen.

And worse still, most scalper’s, in their attempt to shrink time, think that by doing so they can accomplish 2 things; 1) lower risk, and 2) make more money by having random fluctuations help them; in reality, it’s exactly the opposite. They eventually get caught on the wrong side of a gap move which increases risk and more than likely gives a “false positive” and a trade the other way that quickly goes against them; so much for the “2 tick” theory.

All successful scalper’s know it’s a “dance” with probability theory and the market they are trading, and the optimization of profit potential given the volatility of the marketplace. The key to success isn’t shortening your time frames; the key to success in scalping is finding the optimum time frames for analysis that give a very high probability of the short term trend at this instant so you can justifiably say, I’m on the right side of the market right now”; given that, you wait for the counter moves inside the short term trend, and then you make your trades given the information you know.

What it all boils down to is correct “time”; trade from the “easy side” and watch the market move in your direction effortlessly, like being carried down a stream on an innertube in summer while you sit and enjoy the scenery; trade from the other way, not so much.

You don’t need to be a rocket scientist to see your risk, in this approach, is at the short term trend changes; but the bottom line is this, and you have to ask yourself this “logic question” before you start, “does the EURUSD or USDJPY have more scalp trades or more short term trend changes during the trading day”? Intuitively, you and I both know the answer.

The second critical area is trading costs; again, if you’re scalping, you’re going to be doing multiple trades per trading session, the amount could be anywhere from 5 – 10 on the low side to dozens on the high side if you stay at it for hours during the day. You simply have to be on an MT4 ECN trading platform with the lowest spreads and reasonable round turn commissions or you are giving money away and defeating the purpose of being here.

My standard has always been what the trading floor in Chicago offered to members versus what we pay now to be online. Up until this past year, it was very difficult for U.S. traders to get treated fairly by offshore brokers and their LP banks; high spreads and commissions very much the norm. We are at the point right now where EURUSD and USDJPY “net” costs to trade are pretty much equal with exchange member’s rates. LMFX offers these 2 markets with a cost over the exchanges of roughly $1, maybe $2 if you get a lousy fill, per 100,000 traded. For me personally, I don’t necessarily have to have the absolute best rate in the world; a tenth of a PIP here and there isn’t going to be the reason I make or lose money. What I do know is that LMFX’s “zero account” offers ECN spreads in both pairs from a tenth of a PIP to around 4/10ths of a PIP during the trading day when Europe and the U.S. are open, and combined with a round turn rate of $8 per 100,000 puts the net cost around 1 PIP to maybe 1.1 or 1.2 PIPS.

Could there be other houses that are out there that offer lower fees? Sure, maybe, but again I have to ask do they accept U.S. clients? The vast majority don’t or won’t, and there is no way in hell I trade with a U.S. broker for multiple reasons I have stated before. And even if you can find another offshore broker, they won’t be significantly lower than LMFX; the industry norm right now for highly competitive trading houses & LP’s is right at that “net” cost of  approximately 1 PIP.

The money here is not insignificant; if you do 10 scalp trades a day on a 1 lot [100,000 base currency unit], and pay ½ PIP more in “net” costs, you are handing the brokerage house & LP bank 10*$5*240 = $12,000 for the year. And if you somehow traded 20 times per day, you’ve just handed them $20K+. Who willingly does this?

I remember once, back in the day when I was coming off the trading floor, and a reporter for the WSJ [Wall Street Journal] asked me what it took to be a great trader; easy I said, “have no memory”.


If you are going to scalp, you have to be a frickin’ robot devoid of emotion, totally lack any memory of any trade you have ever made, and only concentrate on the trade you are getting ready to make or the one you are in and looking to liquidate. THAT’S IT. END. OF. STORY. You have your algorithm for scalping; you know the rules; you know when to initiate the trade and you know when to close it; now simply do it. No thinking; no hemming or hawing; no distractions from news or TV; simply be there to make the trade. And when you’re done, forget everything you did today as it has no bearing on anything you will do tomorrow.

The only thing you do to prepare for the day is to check for upcoming economic or news releases that might affect your market and stay away from those times until things settle down and you can resume trading. There really isn’t anything else you pay attention to as a scalper.

From mid morning, directly below a screenshot of the scalper algorithm in action; white arrows are the “sell” signal M1. This pretty much is the way the algorithm works the entire day, although in this stretch of time there weren’t any rough patches of chop.

Taking a look at gold briefly … seriously, a $2 range after 2+ hours from the open? … I thought gold action would be picking up here in the new year, and maybe it still will, but this is pathetic … you can’t trade this stuff if New York isn’t going to put in a range worthy of the risk of being wrong, cuz if you are wrong, you can’t get the intraday volatility necessary to make anything back into your account. Hope & prayer aren’t trading strategies.

Meanwhile, in USDJPY we’ve seen a 140+ PIP range; plenty of action here to take advantage of trading opportunities. With the likely day’s range in, nothing left but a smattering of position squaring heading into the afternoon … stock indices dead in the water [so far] … EURUSD offering no help either way with a 40 something PIP range and literally doing very little … and the aforementioned gold which is in “zombieland” wandering around aimlessly, most likely looking for whatever retail specs who are still trading it. What looks good to me? Easy: the beach … I’m outta here … until tomorrow.

Have a great day everybody!



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