This is a long post but I have several things I wanted to explain here. Sorry about that but hope you get some good ideas and the post is instructive and helpful.
A note: to see the 24 hour chart version and see the range phase BEFORE to opening of today you can look at my post #1405 (the first chart in that post) for a 24 hour chart view of the Gap up open that shows up on the two RTH's charts below.
Ok I am back. Laid down and rested between trades 6 and 7. Feel a little better. I know the chart looks "busy" with all the annotations but I wanted to post it and so folks could see the bigger picture and all the trades. Again, this SIM but live and it will serve to drive home some concepts. This is 5 min RTH's.
Concepts:
It is almost imperative to be a successful scalper of 1 to 8 points in the ES I have to maintain a high win rate. Here I took 8 trades. 7 Winners and 1 loser.
a) Trade# 1 in a gap open BO (it broke out of something you can be sure of that even though the chart doesn't show what from the left). Trade #1 I took a long position on the third bar around the time of it's close. I then added more as price went against me. The correct PA SL is either at the bottom of the Opening bar. Depending on what day it ends up being there can be deep PB's on a Gap up open day. So, anytime the market is in a hurry wide SL's are correct. Otherwise, in the rush of things my SL can be hit before I see a favorable move to get me into profit.
So I am long, then add more, then exit when both entries are in profit. What counts in SL's isn't my initial SL but my actual risk. How far the market went against me before it gave me my profit. Even though I often use a wide initial SL when I go to figure RR after the trade ends (which I usually don't) I use MAE "what the trade actually went against me" plus 1 tick before it went in my favor. As far as I am concerned that was the only risk I incurred.
The wide stop loss is there as a PA SL in the appropriate place even if wide because of the uncertainly of the markets (it's nature!). It doesn't mean I will allow price to hit my wide SL. I will likely exit before that happens, if I deem PA is proving my premise to be wrong. But a PA stop needs to be wide enough to keep me in the trade while price moves probing back and forth. Then there is the concept of having a SL in place on a server in the event that trading goes down at the broker or data feed. At least there will be a SL to protect oneself even if wide. You will see what I am talking about in trade#4.
b)Trade#2 BO continues so I get back in long, average down again with a 2nd entry and exit when both are in profit. You may ask why not "hold". Well, because one does not know how far the BO will go until there is an actual PB that puts price in a range. So again, I lock in profits.
c)Trade#3 Another long just a straight scalp. We are 8 bars up since the open. 7 bull bars and 1 bear. No actual PB's. Only an implied PB. It is
likely we will get an actual PB then price will go into a bull channel and the channel will morph into that some sort of range. That is what is expected at this point and time on the trade#3 bar. But that didn't happen and we see that the market did the unexpected in trade #4. Remember, in the markets we are playing in a band of 60/40. And at times 70/30, in some circumstances and in very rare occasions 90/10. That means we can be wrong 40%, 30%, 10% of the time. And I have to know "what" to do when the unexpected happens. That leads us to Trade#4.
d) Trade#4 On the 9th bar from the open we get an actual PB. I am expecting a bull channel next but instead on the 10th bar we get a reversal BO south of the previous bull trendline. But too late, I am already averaging down on bar 10. I expect price to recover and the channel to start. So I make an initial long entry on that bear bar (10th bar from open). As price moves against me I add more on the same bar. As it keeps moving against me I add a third entry long on the same bear bar. So now I am averaged down waiting for the move back up.
But it ain't going back up. So what do I do? I draw in the 50% retracement (pink or magenta lines) to see just where price is at, in the retracement, in terms of that total bull move since the open. After my third entry on bar 10 from the open I see that by bar 12 price has gone south of that 50% retracement. That my friends is NOT a good sign. Especially, when I am averaged down. I may lose the wife's visit to Dillards and my shirt too unless I am thinking strongly about mitigating this damage.
So I decide I will let it go a bit more against me but if it reaches close to 70% retracement, I am dumping this position. By bar 12 (that second bear bar of the reversal) price has breached the 50% retracement line. It is headed towards a 60% to 70% retracement. The odds are now against me and I am averaged down. I sense I have no choice..not if I want to keep my shirt. So, I dump the position losing all the profit from trades 1 through 3 and even more. So here I sit a the end of trade #4 with a loss (not too big but still a loss on my hands). That leads me to trade #5.
e) Trade#5 By my exit time (bar 12...lower red triangle) I had deemed that my original premise was wrong. Instead of a bull channel after that bull move from the open, the unexpected happened. I am on the wrong side of PA. Nothing to do but get on the right side and double-up on my position size to recuperate my loss, and maybe, get me back into profit on a smaller move south than the move that socked me with the loss (because I am doubling up on my position size).
So, on bar 12 after a bounce back up on that same bar I initiate a multi-contract entry. It moves against me and on bar 15 I add a second entry. At this point I am almost double-up on my previous position size I had when I suffered the loss. Now I have the odds back in my favor that the bull bars (14 and 15) are just a PB and price south will continue and rescue me out of this mess. My SL is at the top of that big bear bar that started the darned slide down. It has to be to allow for more averaging down if needed. So I am at almost double the contracts.
Price goes sideways for a few bars (that is good for me) with bear bar..bull bar..bear bar (probing both bulls and bears) bulls want price to head back up. Bears want the slide south to continue. On bar 19 the bears win another good size probe south and I see the opportunity to again do what I preach i.e. "grab that profit", and I do. I exit the entire position (green triangle markers on bar 19.
So, I end trade #5 not only getting back my loss but close to twice the profit I had before the loss of trade #4. That is, nearly twice the amount of profit I had at the end of trade#3. This, my friends, is the power of averaging down, in the right circumstance. The only rule I have as a scalper that I cannot change, it is carved in stone for me, is to follow the market. Probabilities are one thing. Possibilities are many things. It was probable after that opening BO 60% we are going into a bull channel so I averaged down on that big bear bar BUT INSTEAD of the probable happening the "possible" happened. That ended up being the unexpected.
If one is a scalper and that happens one has to act very quickly. A trader can't hope pain away. He can't beg the wind to blow price in the opposite direction. I had no choice but to mitigate the damage done and get the odds back in my favor. Especially, since I was averaged down.
No trader should ever average down unless they know what they will do if things go wrong. I just maintain that concept at that at the forefront of my mind at all times because, the market can at any time, do the exact opposite of what I think it should do. My position cannot and should not be carved in stone. AS A SCALPER IT IS ALWAYS BEST TO FOLLOW THE MARKET, REGARDLESS OF WHAT ONE'S OPINION IS, OR WAS. At least for a scalper!
A scalper has to learn to mitigate and especially so, if averaging down. It takes a lot of practice to trains oneself to mitigate because one's nature is to "hope" the market comes back and renders a profit. But, we scalpers cannot afford to trade on hope. We have to trade with what the market gives us.
An interesting thought. Just suppose, after I averaged down..trade#4.. on that big bear bar (bar 10) price suddenly went in my favor going into a bull channel, as I expected. Would I have not been positioned very well with my averaged down position? Of course. That is the power of averaging down!
d) Trade#6 I had some other things to attend to so while I was now ahead of the game it seemed like a good time to take care of those things. Unfortunately, I haven't been feeling good today and the stress (yes there is stress in trading) of digging out of a hole (trade#4) did not alleviate my physical condition any. Even after getting back in a profit the idea of the loss still lingers. They always eat on me. That I cannot deny. I just deal with it. I just do what I have to do, even when I don't want to do it. Because it is the correct and needful thing to do. The market..that bastard took money (even if play money) from me ...it won a battle but it has not won the war. I retreated a bit to gather myself but as general Douglas MacArthur said "I am came through and I shall return". And as Patton said "we are going to go through him like crap through a goose".
That leads me to trade #6, a short. I took a short entry in the top 1/3 of an established range (gray box) as it was more than 20 bars sideways movement. I added a second entry short as it moved against me. I waited for a probe down and got that 1 bar later or two bars later if you want to look at the bear bar after my exit. This is SIM you know.
Now notice the channel down (the blue lines). We got the reversal that turned into a bear channel at the first PB i.e. bar 15 from the open. I didn't number the bars so you will have to count them from the 8:30 a.m. bar. Remember, an ACTUAL PB's in a strong move is the FIRST sign of a channel.
The reversal acts like a BO but in the opposite direction. The opening BO from an overnight range and was a gap up open therefore it was a bullish BO starting at bar 8:30 a.m. The reversal at bar 10 created a bearish BO. A BO from what? Well, from the previous bull trendline, if one wished to draw it in. Now remember, the market cycle and its phases? Range..trend (trend consisting of the BO and the channel) ...then back to range..then repeat. So we got RANGE-BO-CHANNEL THEN BACK TO RANGE. But instead of a bull channel a bear channel because of the reversal. REMEMBER THIS! RARE IS THE SESSION WE DON'T SEE a clear market cycle.
So, the reversal now serves as a bear BO. What is that likely to lead to? Yes, a bear channel on the first PB. What will the channel then lead to? Yes, a range. Look at the chart do you see it?
So what was I playing in trade#6. Price was in a bear channel. It did not yet have enough sideways motion to call it a range. It was getting there though. In trade #6 I played it as a BO of the top of the bear channel that would likely fail within 5 bars and price would head back down towards the channel, at least enough for a scalp. Count the bars. Fours bars after the BO of the blue channel price was starting to head down. Since I had averaged down, I need price to just move enough for a scalp of 1 to 8 point. IT did on the next two bars and I was out with a profit on both entries of trade #6.
Do you see the power of utilizing averaging down in scalping combined with correlating the larger, intermediate, and immediate contexts? The larger was a channel. The intermediate was the 3 legged trend up that began at bar 10:50 at the bottom of the dark blue channel line and traded up through the top of the channel to my entries. This too was a profitable multipoint scalp. The wound of trade#4 is fading in my mental history LOL... We can see the bear channel has morphed into a range rather quickly. Here is another tidbit. Often times reversals will rather quickly go into a range. The channel if any evolve may not last long. Kind of like in this case. A short channel before the last range of the session. And the latter part of the channel actually becomes the first part of the range (see the range box and channel lines).
I took some meds and lay down for a while then came out of retirement for trade#7 ROFL. By the end of trade #6 we are for sure in a range.
e) Trade#7 Just a straight multi-point scalp initiated in the bottom 1/4 of the now established range. This is again the technique of fading the out edges of a range. It was a several point scalp.
f) Trade#8 was a profit of several points again, utilizing the tactic of fading the outer limit of the range at the bottom 1/4.
I told you I'd be back!
Summary:
8 trades. 7 winners. 1 loser. High win rate! A scalper needs a high win rate. That is why he has to grab them profits. He can always go back in after his exit. If he doesn't, then he more often than not, he will be kissing a paper profit goodbye, as the probing in the markets, by the institutions, hands him a profit (which he refuse to take..guru doctrine LOL) so the market just takes it right back. Wanna make it as a scalper? Grab them profits! Keep a high win rate!
There are scalping opportunities of 1 to 8 points in ES all day long. As long as one's mind can hold up to doing it, without getting weary, there are generally at least 40 good scalps on a 5 minute chart. I may not avail myself of all of them, but they are usually there. Notice price trades right back up to the top of the range just before the close. Range trading.
A trader must also be ready for anything the market throws at him. Remember that bull BO from the open. I expected a bull channel instead we got a reversal or two BO back to back. The second BO was a BO south of the trendline of the first BO. So in a way we can say the larger context starts over with a BO south in the form of a reversal that gives trading opportunities, followed by a channel i.e. that bear channel (blue) morphs into a range (blue or gray box).
So the phases of the cycle give not only channel trading opportunities, but also range trading opportunities and BO trading opportunities. So remember, it still the larger context to look at first. The phases of the cycle just resets when the first opening BO turns into a reversal BO skipping a bull channel. Or you can say it still made a channel just a channel in the opposite direction. Most of the time the order is RANGE to BO to Channel in the same direction as the BO then back into a Range. But there are variations. It really doesn't matter. There are techniques to learn to trade each phase of the cycle. The key is to learn all these techniques, practice them, and to be able to the identify what phase the cycle is in, so one knows what techniques to use.
And have a mechanism in place to rectify things when one gets caught out of sync, like I did today. Today was a SIM. But it doesn't matter the process is the same. SIM or real.
You might want to try this and see. Start your live platform with real trading. Start another instance of it in demo. You may have to get a demo password from your broker and a demo install. Put the two chart windows side by side (demo and live) and prove to yourself they will track precisely together. Any trades you take on the demo you could take on the real account. The only difference is you usually have to trade one tick or more through a demo entry or exit to get filled like in all the cases of the 8 trades except the short exit of trade 6.
View attachment 264810
View attachment 264826
