Reality check! Scalping: what kind of results can you really expect?

Last week I asked whether you’d be interested in learning some short-term trading methods (scalping)…

Well it turns out I’d completely underestimated how many traders want to trade like this!

I got an enormous number of emails asking for more information, so it looks like I will be spending time preparing something for you.

I’m going to tell you a bit more about scalp-style trading today. It might sound intimidating if you’ve not traded like this before – like you need to be some kind of lightening-fast keyboard ninja or something – but that’s not the case. Not when you scalp like I’ll show you, anyhow.

So let me start by telling you what it is and what it isn’t…

Now first of all my techniques are not what I’d consider ‘pure’ scalping.

To me a proper scalper is a trader who takes tiny 1 or 2 pip trades.

He might buy at the bid price, and turn right around and sell at the ask price. This is how the full-on pit scalpers did it.

Before computer trading took a full stranglehold, the bulk of order flow went through the pits and the guys in there provided the liquidity. They were the buffer between the external buyers and sellers. The pit traders might trade directly on behalf of the brokerage houses and institutions, but because of their privileged position they could also trade on their own account, and many of them did. Some of them made a long career flipping relatively small positions many, many, times a day.

So why do I refer to my short-term stuff as ‘scalping’?

Well, it’s just what the wider Forex community has latched onto in terms of a label. Most Forex traders would define a 10 or 12 pip trade as a ‘scalp’ trade. So why fight the tide? If this is what traders call scalping these days, then scalping it is!

What I’ll be showing you…

The methods I’d like to show you all aim to exploit the market’s reaction to pre-determined price levels you’ve identified.

You’ll look to take your pips off the table as the market makes a short-term reversal or ‘bounce’ off one of our many levels level and you’d typically enter trades using LIMIT orders.

You choose your spot, wait for the market to do its thing, and pick your orders off. You’re not chasing around after the market.

I think of it as a game of chess rather than the adrenaline-fuelled shoot-em-up computer game a lot of Forex traders seem to be playing.

We’re aiming to align ourselves with the smart money and be a few steps ahead of less sophisticated traders. And don’t worry about having to use complicated indicators, chart patterns or anything like that. These methods are simple for one very good reason: they were honed and developed on the trading floors of Chicago’s futures exchanges.

I don’t know if you’ve ever seen film footage of traders in action in the pits in their heyday – but to trade there was a cross between a bar brawl and a game of poker.

Forget computer algorithms and multi-monitor chart displays… These guys needed stuff they could make work even while getting elbowed in the back of the head.

It needed to be no more complex than a few basic calculations and some numbers they could scrawl down in pencil on the back of an order card.

And most critically of all…

It had to work.

These traders paid upwards of $300,000 for their ‘seat’ at the exchange (or they were paying a hefty monthly lease for one). So they weren’t messing around ‘playing the markets’ – it was dog-eat-dog; survival of the fittest.

And under those testing circumstances it’s amazing how the froth and fairy-dust tends to drop away!

How scalping probabilities can work for you:

You’d typically be looking for between 12 and 50 filled trading opportunities every week – maybe more, maybe less, depending on your personal appetite for activity.

You’d be aiming to establish a foundation win/loss ratio of 55:45 with a 1:1 (or better) risk/reward ratio, but aiming to improve that win/loss ratio as practice and experience begins to pay-off.

Those 55:45 stats offer a 10% edge on your scalping campaign, even with the minimum 1:1 risk-to-reward ratio. I.e. over the long term – that calculation returns ten pence every time you put a pound out there into action for you.

Your task would be to put that same pound to work for you time after time as you identify opportunities throughout the week, thereby maximising your bottom-line net return.

Here’s an illustration of how things could start working out for you as you kick-off your trading operations:

What you’ll need…

You just need a brokerage account that lets you access the Forex markets with a low Bid/Ask spread – ideally one pip or less on EURUSD during European and US sessions.

Even a demo-account is good enough while you’re finding your feet. You can have one of those set up in minutes at most online brokers.

You need to be looking at that low spread (one pip maximum) on EUR/USD during the London and New York sessions and there are plenty of brokers out there ready to offer you this. You also need your broker to support pending orders without any restriction on where you can place them.

This is basically an order that you can leave working away on your behalf i.e. you place your entry order and also type in the number of pips away you want your stop-loss and your profit target. You then leave your entry order working.

Once filled, your broker automatically places your two exits orders – your stop loss and your profit target – without you having to monitor the market or fiddle around placing more orders.

The orders are sat broker-side, on their servers. You don’t need to worry about your own computer getting disconnected from the internet or any other client-side tech issues. Your orders are in and it’s your broker’s responsibility to work them for you.

In terms of live charts for you to trade-off – your broker will provide these, usually via the ‘Metatrader’ platform that comes free with almost all brokerage accounts.

But is it really for you?

So what do you think?  Does it surprise you that short-term trading might involve so many losing trades?

Can you see how an average of 10 or 20 pips a day might put an end to all financial concerns, or does it all seem too trifling to even bother with?

Take a minute to think about that… Because how you’ve been conditioned to think about trading is going to have a bearing on your fate here.

I’ve deliberately revealed some hard-hitting home truths in this email. It’s designed to filter out traders for whom this wouldn’t be a good fit. Please don’t put yourself forward to receive these scalping methods if the example figures have left you agape.

But if you’re still avidly reading away, itching to know more… then watch this space!

More information will follow soon.

Be Prepared: Market Moving Data Coming This Week (London Time)

Wednesday 18th November:

13:30    USD    Building Permits

19:00    USD    FOMC Meeting Minutes

Thursday 19th November:

09:30    GBP    Retail Sales

13:30    USD    Philly Fed

Friday 20th November:

08:00    EUR    ECB Draghi Speaks

Monday 23rd November:

08:30    EUR    German Manufacturing PMI

15:00    USD    Existing Home Sales

Tuesday 24th November:

07:00    EUR    German GDP

09:00    EUR    German IFO Business Climate

13:30    USD    Gross Domestic Product

15:00    USD    CB Consumer Confidence

Keep an eye on the clock around central bank speak – US Federal Reserve on Wednesday evening and European Central Bank (Draghi) on Friday.

Until next time, happy trading!