WHEN STUPIDITY MEETS REALITY

“If markets were a person.”


Careful what you wish for, cuz if you get it you may not like what it looks like up close and personal; and that dear amigos is what we got on our hands in the “ever so friendly” gold & USDJPY markets. If emotions were scaled on a grid from 1 – 10, both markets would be somewhere in the 40’s right now.

We’ve gone from watching paint dry to “speed of light” moves once again; seemingly out of nowhere, and with very little if any warning, gold spiked $5 in about 3 seconds in the wee hours of Europe and before New York is even thinking about trading; anybody with a buy stop and you have my condolences on your fill at the top. And for the record, this is simply “one” scenario the version 2 volatility algorithm [scalper & regular or combination of the 2] was updated to fix and deal with when trading these filthy animals; you hit that buy button when gold, Yen, or Cable are rallying, or hit the sell button when they are dropping, and you my friend are in a world of hurt and pain. By utilizing minor contra trends within a stronger short term trend for entry … by definition … you are entering your position [long or short makes no difference] at the most optimal point for profit [read highest probability]… the only thing that will cause a short term loss is if the short term trend changes at this inflection point, and while this happens occasionally, it doesn’t happen all day long. The point is this: our entry into a long position is buying the break at the turn of red into green after at least 3 M1 red candlesticks with all 3 algorithm slope lines pointing higher [positive], and our entry into a short position is selling the break at the turn of green into red after at least 3 M1 green candlesticks with all 3 algorithm slope lines pointing lower [negative]; and after a long move either in time or price, I’ll make a judgment as to whether or not to make additional trades before some kind of retracement in price.  By doing this, I am buying the breaks and selling the rallies inside a short term trend, no matter what that trend is or where it is going.


Turning to today’s trading, BOE [Bank of England] interest rate decision and presser early in the New York session; even though they did everything expected with no surprises, the early move up to the 1.27 area got smacked down hard, resulting in new lows. We’ll see what the U.S. brings … remember when it comes to gold, there isn’t anything Asia & Europe can do on the upside that the manipulators in New York can’t undo and reverse, and most likely will. Another day of frantic buying overseas, and with buy stops run, what’s left on the upside for New York? USDJPY? This market is all over the place; up… down … back up … back down … 40 – 80 PIP runs commonplace before entirely reversing and trapping orders on the other side.

Given the “nuttiness” of gold & USDJPY, I’ve moved over to GBPUSD, where make no mistake this market can hurt you like any other, but the moves are better suited to the algorithm without the hysteria and panic seen every 10 minutes in gold & USDJPY. “I like nuts, just not insane nuts, Ok”? Directly below the trades today in Cable.

Total of 7 trades; 4 clear winners, 2 losers and 1 scratch; it adds up to about 25 PIPS, with some more if you “free traded” one or more of the positions; I’m assuming maybe you didn’t, which is OK … hindsight has no business in trading. 

By 9 A.M. – 9:30 A.M. New York time today, GBPUSD has already put in a 160 PIP+ range for the day, with an HVALUE = approximately 120 PIPS; what does recent trading history suggest is left for New York the rest of the day? Easy Peezee: “nothing but chop and heartburn”. Sure, we could get some moves later in the day, but the horse is out of the barn, and it isn’t likely this market is going to run anywhere ± 30 PIPS from where it is now. Best time to trade this market is from about 4 A.M. – 11 A.M Caribbean Paradise Time [1 hour ahead of New York]; this time slot gives you the best opportunity for algorithm signals that go somewhere, and also gives you the best probability of seeing HVALUES and daily ranges increase from Asia. There are always stops being run above and below support and resistance, and your best chance of capturing a really good move is in this time slot. That’s not to say the New York session can’t produce some good moves; they do and will, just not as probable.


From my PAMM discussion from yesterday, I want to highlight the importance [which I have done before] of getting somewhat close to institutional spreads and the lowest round turn [RT] commissions possible; I think we can all agree, nobody is handing out free money here, and nobody is in business to lose money just so you can trade. I want the LP bank and the brokerage house to prosper from my trading; I want them to make a good return on their investment, from the janitor sweeping the floor at night to the guy or guys owning the place. What I object to is getting “mugged”, and being the one paying for their daughter’s pony; “be frickin’ reasonable for Christ’s sake, instead of pointing a gun at my head on every trade”!

With the scalper algo combined with the regular volatility algorithm [the “free trade” concept], I’ll most likely do 10 trades a day; so, let’s round that down some and that equals about 2,000 trades a year. If I’m paying just 1 PIP extra in “net” costs, it’s going to impact my PAMM clients to the tune of approximately 200% of their account balance!
 
Yes, read the last sentence of the last paragraph again; so if you had $10,000 in the PAMM, and I agree to the cost structure that allows the LP & brokerage house to take an extra PIP, you and I have just signed up to hand over 200% of our account balance this year to them; “and I’m gonna go out on a limb here and assume you don’t really want to do that”. 

I can state “flat out”, you will not see a better trading cost structure anyplace else; there are a whole host of other surprises in store as well, but until everything is finalized, I’ll hold off on details for today. In fact, and I’m not exaggerating this one bit, the cost of trading the PAMM is cheaper than if I was standing in the old pits of Chicago; that’s something I never, ever thought would be possible. “Ain’t technology wonderful”?

Beach beckons … until tomorrow.

Have a great day everybody!

-vegas

 

 
 

THE DELUSIONS OF CROWDS

“Can you spot the scumbags?” [Hint: All of them.]


It’s been a wicked last couple of days, especially those long gold & short USDJPY; practically the entire universe was of the opinion 1) stocks were going to collapse, 2) gold was going to soar [even though a certain somebody who shall remain nameless told you the “bullion wall” was getting built at 1210 – 1215 by dealers], and 3) USDJPY was on its merry way to 111, where all the shorts could cover and call it a quarter. “Err, not quite”.

Some things never change; and one of these “things”, is that when everybody thinks something [like traders in a pit who can’t wait to buy tons of stuff on a rally, or sell stuff in the hole on a break, and then stand there and tell you the losses are “Ok”.], most likely outcome is panic in the opposite direction. “That’s why we have the algorithms folks, to keep your donkey out of trouble; do you think I developed it for giggles?” 

And so the USDJPY story goes again today, as last night’s attempt to go lower failed miserably on the Chuckleheads in Asia trying to take gold back above 1205 [which failed], with the ensuing fast selloff just as New York traders are coming in to the trading day. It’s like every single day is another installment of the bull/bear storyline, with plenty of panic to go around as USDJPY jumps and plummets with every 50 cent move in gold. Quite frankly, I don’t care what they do with it cuz the scalper’s algorithm keeps me on the right side of the market with profits, and if I keep my trading to the busiest times of the day [11:00 – 23:00 LMFX server time], have patience & discipline to wait for the algorithm signals, and then execute what I’m supposed to do, then I know at the end of the day I have the necessary profits. Everything else is secondary and not important.

Directly below the trades today in USDJPY via the scalper’s algorithm.
 

EXIT QUESTION: When you make about 1% a day [on average], what’s your return on capital at the end of the year? 

“Admit it Flounder, you’re stumped!”


Well … at the end of the year you would be up approximately 1,100%. And how much is 1% using 10X leverage? … About 10 PIPS. And so, let me post this again today, so you can see again what simple math tells you where you will be weeks into the future with your trading account. Directly below the “roadmap” to get you out of the “Pudding Business” and “escape to success”. For your part, all you gotta do is follow the algorithm; or, if you prefer, let me do it for you in our LMFX PAMM [17% incentive fee only on cumulative profits], which should be ready in about 8 weeks or so [last I officially heard from management].

[click too enlarge]


I’ll grant you your opinions about trading; what I will not grant you is that the scalper algorithm trades are “chump change” or somehow not worth bothering to bend over and pick up; if your attitude is “well yea, anybody can do this … really it’s only 10 PIPS [maybe more if the market cooperates in a free trade], but I’m swinging for the fences”. MY SHORT TO THE POINT RESPONSE: “If you think roughly $5 million Dollars in 3 ½ years, starting with $1,000, is not somehow ‘significant’, then I can’t help you. If it was easy, you’d have done it already”.

The “keys” of course are 1) not getting “whacked” with large losses, and 2) hitting your weekly PIP goal. Given the fact the market gives you roughly 10 trades per day with the signals and the success rate is between 70/30 – 80/20, all you have to do is “do it” and the PIP goal is pretty much there every day.

Now, I fully realize there isn’t one of you in 10 million who are going to let $1K build into $5 million over 3 ½ years without significantly increasing the quality of your lifestyle, and I’m not suggesting you let everything “ride”; at some point, you make the decision that the money in your account is the necessary means for income, and that’s when your life changes. Where that’s at is different for everyone, and it makes no difference if you do it yourself, or let me do it via the PAMM; it just depends on how you want to handle it.

Beach beckons … until tomorrow …

Have a great day everybody!

-vegas

OPEN A DEMO AND/OR LIVE ACCOUNT [CHOOSE THE “ZERO ACCOUNT”; REFERENCE ID# 6952 WHEN OPENING YOUR ACCOUNT] AT THE LMFX LINK IN THE “DOWNLOAD LINKS” SECTION OF THE WEBSITE TITLED “OPEN TRADING ACCOUNT – DO IT NOW!”

GOLD MAKES A COMEBACK

“Hey, I’m thinkin’ I like gold a lot more now!”

Yup, gold has made a roaring comeback … well maybe … the jury is still out. While over the last few days to maybe a week, trading conditions have improved, a couple of things to note; 1) spreads during the off New York session hours are higher [sometimes as much as 100% higher], and 2) New York trading still looks disjointed, with bids/offers jumping erratically up/down so that the LP can fill your order wherever the hell they want. Ok you say, use limit orders; “fine, that works great when you get filled, but what do you say when your limit sell liquidation order misses a fill by 4 cents on the bid side and now the market is falling”? Well, I’ll tell you what happens; you get filled a couple of bucks lower over 4 cents.

But what concerns me most about gold is the New York session; traditionally, since gold is a U.S. based market, it should … should … have the majority of the price discovery in U.S. hours. So, what do I see again, for the umpteenth millionth time today? Why an almost $18 range from overnight; what’s left but the shouting for New York? Any bets New York today will be deader than a Clinton Global Initiative pep rally?

Not that USDJPY has been a “liquidity paradise” either; gaps here are everywhere, and the early morning liftoff from the lows at around 13:50 LMFX server time left some butthurt with those who overstayed their short positions just a tad too long. Still, with the lowest cost of doing business of anything you can find outside of other FX U.S. Dollar pairs, since gold & USDJPY are pretty much correlated at the moment, why pay 150% more to trade gold when any move is going to be mirrored in USDJPY? Of course this can change, and most likely will at some point, but for the moment you can get your gold move in USDJPY.

We are only a couple of days removed from Trump assuming the Presidency, and if people think the transition from Nov. 8^th to the inauguration was going to be some smooth process, with the obligatory “happy talk” from 1) Chalky, and 2) the Trumpster himself, and business as usual as you’ve known it since you’ve been alive … well … fugetaboutit!

What this means for us as traders is more volatility, and the necessity of remaining disciplined and showing patience in our trades. It’s a long trading day in a market like USDJPY, which can start early and end late if you wish, and a lot happens over the course of the day in this $3 trillion notional a day market. Directly below, the trade of the day in USDJPY via the scalper’s algorithm.

 

Now, regardless of prior trades today from the short side, and there were plenty; here is the aftermath of the explosion off the low taking USDJPY higher. All 3 lines with a positive slope [one more down minute and it wouldn’t have been], the 3 M1 down candlesticks, and the next minute we get “green” and the buy signal; result is a 20+ PIP profit in about 3 minutes; slightly more if you hung on with the “free trade” philosophy I wrote about in earlier blog posts. If you didn’t, no worries; and if you made slightly less than 20 PIPS, again no worries … the key here is “entry” … you can be the world’s biggest screw up [and believe me, I’ve known a few] on liquidation and still end up with more money than you dreamed before you started. Remember, trading requires no memory.

Oh, it’s that time of day … beach beckons … my toes need sand between them and my eyes need to see turquoise water. I’m outta here … Until tomorrow.

Have a great day everybody!

-vegas

UPDATE 14:00 NEW YORK SESSION: Well, just like I said earlier; here we are 7 hours into the NY session and gold has an approximate $4 range; big whoop. We go from bat excrement crazy in the “wee hours” to mind numbing nothingness. THIS is the problem with gold trading at the moment; USDJPY not much better, although more movement than gold. Beach looks better every second.

OPEN A DEMO AND/OR LIVE ACCOUNT [CHOOSE THE “ZERO ACCOUNT”; REFERENCE ID# 6952 WHEN OPENING YOUR ACCOUNT] AT THE LMFX LINK IN THE “DOWNLOAD LINKS” SECTION OF THE WEBSITE TITLED “OPEN TRADING ACCOUNT – DO IT NOW!”

 

  

PROOF: MEET PUDDING

“Always willing to ask the important question nobody else dares”?


It’s Holiday time [again] here in Amerika, as MLK Monday gets federal & state apparatchiks a paid day off while the rest of the country basically works. Markets are closed in the U.S. making it a 3 day weekend for traders; perfect time for taking a look at the Scalper’s Algorithm results from earlier today and see how the algorithm handled 1) a shortened trading day due to the Holiday, and 2) the inevitable “chop” that you know will settle into this market. EXIT QUESTION: “How will the scalper’s algorithm handle a shortened day with heightened chop a definite possibility”?

Directly below, in succession, USDJPY from about 04:30 – 14:00; white arrows indicate buy/sell initiated positions in the direction of the arrow via the rules in the trading manual.

[Note: place mouse on chart and click to enlarge.]


Ok, the way I see these 6 charts, I’m lookin’ at 14 winners, 2 losers, and 4 scratches; but let’s just say that the scratches were losers [not much, but a little cuz you got out a little late or you got a bad fill, and after you add commissions you lost a little]. So, if you make this assumption, you’re looking at about a 70% win/loss ratio from today; which is about what I said earlier when I wrote it would be about 70/30 to maybe 80/20 on the high side over time.

Out of these 20 trades, it’s impossible to know what you, individually, would have made; 9 of the winners were clear, slam dunk awesome trades that should have “netted” at a minimum 5 PIPS+. It’s hard for me to see a collective gain of less than 10 PIPS no matter how you eventually ended up trading everything. The signals are clear enough, but the important things to remember are 1) that all 3 signal lines have to have the same slope; up for buys, down for sells before initiating a position with the M1 signals, and 2) when the 3 signal lines are divergent, you leave trades alone because the probability for “chop” is far greater than when the market is trending somewhere.

And all this on a day, I can assure you, is nothing to write home to Mom about in terms of trading; about normal in terms of Asia & Europe, with the afternoon European session tapering off early due to the Holiday in the U.S.

And just for you Newbies, in case you missed it some blog posts ago, directly below is the table which should guide you in your short term trading to allow you to escape the “Pudding Business” and “escape to success”. The x-axis top row is in weeks of trading, the left y-axis is the number of PIPS you need to capture per WEEK, and the meat of the table is the size of your account at 10X constant leverage with no additional deposits/withdrawals.

It’s mid morning here in Paradise, a Chamber of Commerce day if ever there was one; U.S. markets are closed, markets [while officially open] are deader than the Clinton Foundation’s sales desk for donations. The dog is ready … I’m ready … I’m so outta here … until tomorrow.


Have a great day everybody!

-vegas

OPEN A DEMO AND/OR LIVE ACCOUNT [CHOOSE THE “ZERO ACCOUNT”; REFERENCE ID# 6952 WHEN OPENING YOUR ACCOUNT] AT THE LMFX LINK IN THE “DOWNLOAD LINKS” SECTION OF THE WEBSITE TITLED “OPEN TRADING ACCOUNT – DO IT NOW!”

 
 




 

FRIDAY THE 13TH MARKET DYSFUNCTION

“In order; Buzzardfeed, MSNBC, & CNN. Boo Frickin’ Hoo!”


The political realm has spilled over into the market realm; paralysis has set in ahead of the U.S. 3 day MLK Holiday. Amazingly, the entirety of the trading world is stunned … yes stunned … that stocks can’t go up 10% per month throughout Trump’s presidency, although since Chalky is leaving to once again pursue “community organizing”, or maybe a gig at the useless U.N., you would think most markets would cheer.

I wake up this morning to see, after 13 hours of mind numbing nothingness, the SP500 had a 3 index point range and the DOW30 has a 25 point range, gold is … well … gold and doing zero, and USDJPY is sitting trying to figure out which side of the ledger to screw with RE stops; some choice, huh?

So, here we are in USDJPY & gold, attempting to handle the utter obliteration in gold of about $250 per Oz. since Brexit, and a “rip your face off” rally in USDJPY from about 100 to the 118 area [in half the time] that I have a hard time remembering in recent history it has gone so fast, and everywhere I look analysts [God help us] are now acting like it’s the end of the trading world as we know it. For sure, markets needed to “correct”, so this is hardly unusual.

This time, though, may be different as President Trump takes office in one week, kicks a black guy out of a white house [“why yes, pun intended”!] and starts to pursue a new course for this country. And with that, we are apt to see an increase in volatility which should … should … make for better gold trading & USDJPY trading conditions. Although, never underestimate Kuroda & crew in the land of “The Rising Sun” to mess things up with their own “Peter Pan” version of reality.
 
Today we got crickets the whole first 13 hours or so, and then all hell breaks loose on the retail sales & PPI numbers in USDJPY … market is “crowded” on the short side of Yen, and thus the meteoric rise when selling dries up. “Nothing like big, fat, juicy losses right before a weekend to make things right .. heh”? And so, in 4 minutes USDJPY makes a new low, screams to the old high, sells off, and here we sit where we were about 5 hours ago around the 114.50 – 60 area.

From the mailbag, I’ve gotten a ton of emails RE the scalper’s algorithm; one thing I would like to add. If you are so wanting, you can make the plum & yellow lines in the regular USDJPY volatility algo ”black” [thus invisible; go to colors and change] and take the indicators from the scalper’s algorithm [2] and place them over the volatility algorithm; what you will get is the scalper’s algorithm with exhaustion lines.

Next week, I’ll be posting a ton of charts from each day with trades from the scalper’s algorithm with the exhaustion lines. As for today, as if you needed any convincing the scalper’s algorithm is pure gold, after the retail sales report and PPI were out of the way, directly below the white arrow buy signals from the scalper’s algorithm manual.

Please understand both algorithms for USDJPY can easily stand the test of performance on their own; they are very similar but also have very subtle differences. Bottom line is that they both will be close [in terms of time] for buy/sell initiation, the scalper’s algorithm more attuned to both sides of the market in the very short term.

When you combine the “free trade” element to a trade in the scalper’s algorithm, now you’ve subtly shifted your approach; now, it’s nice to have the exhaustion lines up on the same chart without the need to change to another.

For example, suppose you get a signal to buy and you get long at 114.100 … by the time you get the close window order box up, the market is 114.170 bid … you figure, “well, if it goes under 114.130 I’ll liquidate no questions asked, but let’s see what happens with my gain”. So, it stays there and goes higher up to 114.230 … “well, if it goes under 114.190 I’ll liquidate, but again let’s see what happens”. Then it goes up and hits the exhaustion line at 114.350 and you liquidate; what started as a “scalp” ends up a “free trade” that makes you 25 PIPS.

Waiting for at the least 3 M1 counter trend M1’s before you enter is the reason you have an upper probability advantage in the very short term; this is where most traders get “antsy” and lose discipline, and in their haste to “rake up" all the money, they lose sight of the fact that you always have to have probability [from a market history perspective] on your side to be successful over the longer term. Easy to explain, not so easy for many to do in the heat of battle.

It’s that time of day … beach beckons … the dog is “antsy” to say the least … and most importantly, it’s Friday and I could care less if the world melts between now and Sunday night. I’m sooooo outta here … until Monday.

Have a great day everybody!

-vegas

OPEN A DEMO AND/OR LIVE ACCOUNT [CHOOSE THE “ZERO ACCOUNT”; REFERENCE ID# 6952 WHEN OPENING YOUR ACCOUNT] AT THE LMFX LINK IN THE “DOWNLOAD LINKS” SECTION OF THE WEBSITE TITLED “OPEN TRADING ACCOUNT – DO IT NOW!”

 
 

SCALPER’S ALGORITHM CONTINUED

“USDJPY: A scalper’s dream market”.


I am continuing today to highlight the scalper’s algorithm, and directly below is the first hour of trading in New York from about 8:30 A.M., with subsequent algo signals & commentary. This should give you a “feel” in addition to what is in the manual for successful scalping.

And, a little bit later after the momentum in USDJPY has once again dramatically changed for the 3^rd time since last night, directly below the scalper’s algorithm from the short side.
 

Everything you want [and more], and everything every other market is watching and reacting to in real time.
 

In addition, I would also add that when the market moves dramatically in either direction, and price moves substantially away from the deviations from the algorithm mean [plum & yellow lines], you are more likely to see larger M1 corrections and also more candlesticks in the correction direction before the trend resumes, and so tread carefully with small candlestick corrections in this particular case. Not a rule, just a hint.

It’s hard to put into words what I’m currently seeing taking place in the stock indices and gold; pathetic comes to mind, but that’s really an insult to pathetic. “VIX slamming” is the current rage in the cash markets, and that has spilled over into futures & CFD’s; I have no idea what it’s going to take to get the lethargy out of stock indices; from my perspective in markets [and it’s been a long one], I haven’t seen this level of disinterest and inactivity since at least the Summer of 1992. Brokerage houses & LP’s are doing “hand stands”, so happy their spreads & commissions are making them a fortune while nothing is happening; at one point yesterday, it took 48 seconds for the SP500 to move 0.10 index point.

Gold, pretending to trade, but not really; if you watch the action closely, there is no “give and take” with bids/offers. If you get on the wrong side of this trade when USDJPY turns, it’s a nightmare scenario for your liquidation, as you become your own worst enemy selling into a sliding market. And if you’re trading any size at all, the LP will most certainly screw you like a Black & Decker drill bit going through soft wood. Add to this, I’m wondering why the New York session has basically died; I’ve seen bigger ranges on Christmas Eve. My only conclusion is the one I have talked about before; no order flow cuz retail specs have left this market in droves [and won’t be back for a long while]. In essence, you’re left sitting at the gold “poker table” with 3 other players; 1) LP bank, 2) bullion dealer, and 3) commercial hedger. Sure, explain to me how exactly you win here?

From the wonderful action in USDJPY [and did I not call this market weeks ago as the one to be in?], it looks very much to me as though the world is about to call the FEDS bluff once again … “go ahead, raise rates, I dare ya!” … unless President Trump unleashes historic economic growth, and the stats come in, USDJPY looks to be “rolling over” and the meteoric rise we saw after the election is being slowly unwound. This “fits & starts” action up here above 115 … with sprints [not jogs] to the highs, followed by just as fast moves down, tells me it’s going to take one hell of bunch of stats and hawkish “FED speak” to get traders to bid USDJPY back up over 118. I don’t see anything slowing down this “freight train” going forward in 2017; plenty of opportunity abounds in this market in either the volatility algorithm or the scalper’s algorithm.

Beach beckons … I’m outta here … until tomorrow.

Have a great day everybody!

-vegas

OPEN A DEMO AND/OR LIVE ACCOUNT [CHOOSE THE “ZERO ACCOUNT”; REFERENCE ID# 6952 WHEN OPENING YOUR ACCOUNT] AT THE LMFX LINK IN THE “DOWNLOAD LINKS” SECTION OF THE WEBSITE TITLED “OPEN TRADING ACCOUNT – DO IT NOW!”

 
 

SCALPER’S ALGORITHM POSTED

“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!

-vegas

OPEN A DEMO AND/OR LIVE ACCOUNT [CHOOSE THE “ZERO ACCOUNT”; REFERENCE ID# 6952 WHEN OPENING YOUR ACCOUNT] AT THE LMFX LINK IN THE “DOWNLOAD LINKS” SECTION OF THE WEBSITE TITLED “OPEN TRADING ACCOUNT – DO IT NOW!”