al-brooks-course
09 - Scalping series- #01 Rules for Scalping
Raw transcript and slide notes for 09 - Scalping series- #01 Rules for Scalping.
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- Transcript segments: 405
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Transcript 001
Time: 00:02
Bilingual Transcript
00:02 - 00:02
EN: Hi, everyone.
00:02 - 00:03
EN: I’m Al Brooks.
00:03 - 00:05
EN: Thank you so much for your attention.
00:05 - 00:08
EN: I’m creating a series of videos on scalping.
00:08 - 00:12
EN: The first video is going to be about the rules for scalping,
00:12 - 00:15
EN: and then the other videos in the series will be about how to scalp.
00:15 - 00:18
EN: I hope that you find the material useful.
00:21 - 00:25
EN: This is the first of a series of videos that I created on scalping.
00:25 - 00:27
EN: In this first video,
00:27 - 00:30
EN: I want to talk about some general rules that scalpers should follow.
Slide 001
Time: 00:32
Bilingual Transcript
00:34 - 00:36
EN: Today I’m trading with a 2-minute chart.
00:36 - 00:38
EN: Every bar is 2 minutes.
00:38 - 00:40
EN: This is 2 minutes later, 2 minutes later,
00:40 - 00:44
EN: and the red line is a 10-bar Exponential Moving Average.
00:44 - 00:48
EN: When I’m scalping, I often put up a 10-bar Exponential Moving Average
00:48 - 00:51
EN: instead of my usual 20-bar Exponential Moving Average.
00:54 - 00:56
EN: A scalp, it simply is a quick profit,
00:57 - 00:59
EN: and you often enter and exit on the same bar.
01:01 - 01:03
EN: For example, if you sold with a stop 1 tick
01:03 - 01:07
EN: below the low of that bar, you’d get filled right there.
01:07 - 01:12
EN: If you were scalping, you might have a limit order to exit with a 2-point profit.
01:13 - 01:16
EN: And if you did, you would’ve been filled right here,
01:16 - 01:20
EN: 2 points below your entry, all within the same 2-minute bar.
01:23 - 01:26
EN: Can you scalp for 1 tick? No.
01:26 - 01:28
EN: You’ll certainly lose money.
01:28 - 01:32
EN: These are minimum sizes that traders should use when scalping.
01:32 - 01:35
EN: You should never scalp for less than 1 point in the Emini.
01:35 - 01:39
EN: In the Forex market, you should never scalp for fewer than 10 pips.
01:39 - 01:43
EN: And for the stock market, you should never scalp for less than 10 cents.
01:49 - 01:53
EN: In general, the profit that you’re going to make as a scalper
01:53 - 01:55
EN: is about half the size of an average bar,
01:55 - 01:58
EN: and the risk is about the size of an average bar.
01:59 - 02:01
EN: If you sold below the low of this bar,
02:01 - 02:03
EN: you might have a stop above the high of the bar.
02:03 - 02:06
EN: Now, if the risk is twice the reward,
02:07 - 02:11
EN: you have to be right 67% of the time just to break even,
02:11 - 02:14
EN: and that’s excluding commissions and mistakes.
02:15 - 02:19
EN: You really need to be right 70% or more of the time just to break even,
02:19 - 02:22
EN: and most traders cannot do that consistently.
02:22 - 02:28
EN: But a great scalper can win 90% of the time, and he can make a lot of money.
Slide 002
Time: 02:30
Bilingual Transcript
02:31 - 02:36
EN: This is a time & sales window for the Emini, and I want you to focus on the size.
02:37 - 02:40
EN: You’ll see that most of the position sizes are small.
02:40 - 02:44
EN: This is a 2-second period between here and here.
02:44 - 02:48
EN: That’s 2 seconds, and this is sampled data.
02:48 - 02:51
EN: This is not all the trades that took place in 2 seconds.
02:51 - 02:53
EN: Far more trades took place.
02:53 - 02:56
EN: However, it shows the point that I want to make:
02:56 - 03:00
EN: that most of the trading is done with very small position sizes.
03:04 - 03:10
EN: You know that 95% of all of the volume traded in the Emini is done by institutions,
03:10 - 03:15
EN: and 75% of it is done by high frequency trading firms, which are scalping,
03:15 - 03:19
EN: and they might scalp for 1 tick, or 2 ticks, or 3 ticks.
03:22 - 03:26
EN: How can an institution with hundreds of millions of dollars in the account
03:26 - 03:30
EN: or in the fund make any money by trading one contract?
03:31 - 03:32
EN: Well, they can’t.
03:32 - 03:34
EN: But that’s not what’s happening.
03:34 - 03:37
EN: It might look like that’s what’s happening, but that’s not what’s happening.
03:40 - 03:45
EN: The institution is repeatedly trading one contract and building a position.
03:45 - 03:48
EN: Very often, the position will be several hundred contracts,
03:48 - 03:51
EN: maybe even thousands of contracts big.
03:51 - 03:55
EN: You’ll sometimes see a very large position – maybe 407 contracts
03:55 - 03:59
EN: or 809 contracts – being traded, and some of that
03:59 - 04:02
EN: is from institutions closing their positions.
Slide 003
Time: 04:05
Bilingual Transcript
04:09 - 04:13
EN: If high frequency trading firms are trading most of the volume
04:13 - 04:16
EN: and most of them are scalping, shouldn’t you be scalping as well?
04:16 - 04:17
EN: You know they’re making money.
04:18 - 04:22
EN: No, you cannot do that because you cannot scalp the way that they do.
04:26 - 04:30
EN: They have carefully tested algorithms, all their trades are automated,
04:30 - 04:33
EN: they have tremendous flexibility in choosing their position size.
04:34 - 04:40
EN: For example, a trade might end after just five entries, five contracts.
04:40 - 04:45
EN: The computer may determine that the algorithm is no longer valid and it will exit.
04:45 - 04:48
EN: At other times, the trade may go on a long time.
04:48 - 04:53
EN: They may enter 300 times or even 1,000 times before they take profits.
04:53 - 04:57
EN: So a huge variation in position size.
04:57 - 04:58
EN: You cannot do that.
05:02 - 05:06
EN: If you want to trade like a high frequency trading firm, fine.
05:06 - 05:08
EN: Get a $200 million account,
05:08 - 05:12
EN: hire a group of quantitative analysts to write your software,
05:12 - 05:14
EN: pay them $500,000 each a year,
05:15 - 05:17
EN: and then you can trade like a high frequency trading firm.
05:18 - 05:22
EN: Obviously that’s not realistic, and you cannot trade like that,
05:22 - 05:26
EN: even though most of the trades that you see taking place are traded that way.
Slide 004
Time: 05:29
Bilingual Transcript
05:30 - 05:32
EN: This is a couple hours of trading.
05:32 - 05:34
EN: The Emini, 2-minute chart.
05:38 - 05:41
EN: In general, if you’re looking for a stop entry,
05:41 - 05:44
EN: you’re looking to trade in the direction of the trend.
05:44 - 05:49
EN: If the market’s below the Moving Average and you have a bar closing on its low,
05:49 - 05:51
EN: turning down from below the Moving Average,
05:51 - 05:55
EN: it’s reasonable to look to sell on a stop 1 tick below the low of that bar.
05:55 - 05:58
EN: Here’s another bar turning down from the Moving Average.
05:58 - 06:00
EN: You sell below the low of that bar.
06:00 - 06:04
EN: Here’s a third one, and you could sell below the low of this bar.
06:04 - 06:07
EN: I’m not going to go into the reasons why the probability is less,
06:07 - 06:11
EN: but if you did sell below that bar, you’d get filled here.
06:11 - 06:14
EN: You could scale into shorts, selling more as it goes up
06:14 - 06:19
EN: as long as it does not go above that bar or the ii, consecutive inside bars.
06:19 - 06:23
EN: You could take your profit when the market fell back to your original entry price.
06:23 - 06:27
EN: You could get out around breakeven on your first sell and then,
06:27 - 06:30
EN: if you scaled in, you’d make a profit on your higher sells.
06:34 - 06:37
EN: If you’re looking to buy with a stop,
06:37 - 06:40
EN: what you want to see is the market above the Moving Average.
06:40 - 06:43
EN: You want to see a bull bar turning up from the Moving Average,
06:43 - 06:46
EN: and you want the bar to be closing on its high.
06:46 - 06:48
EN: Then you’ll buy 1 tick above the high of that bar.
06:48 - 06:50
EN: Several more examples.
06:50 - 06:53
EN: Here we tried to reverse, but it’s going back up.
06:53 - 06:57
EN: A bull bar closing near its high, turning up from around the Moving Average.
06:57 - 07:00
EN: You buy above the high of that bar and get filled right there.
07:04 - 07:08
EN: Sometimes the market is far from the Moving Average and it reverses.
07:09 - 07:12
EN: Sometimes you can take a reversal trade.
07:12 - 07:15
EN: An ii, consecutive inside bars, in a bear trend.
07:15 - 07:19
EN: Often the final bear flag, which means you’ll soon get a reversal.
07:19 - 07:23
EN: And here we have a decent size bull bar closing on its high.
07:23 - 07:27
EN: You could buy on a stop 1 tick above the high of that bar, and then get filled here.
07:31 - 07:34
EN: I’m going to talk more about these types of trades
07:34 - 07:37
EN: in Part 2 of this series of videos on scalping.
Slide 005
Time: 07:40
Bilingual Transcript
07:43 - 07:49
EN: Now, this is a video on scalping, but most traders should swing trade and not scalp.
07:49 - 07:53
EN: You need a positive Trader’s Equation, and by Trader’s Equation,
07:53 - 07:57
EN: what I mean is your percentage of winning trades times
07:57 - 08:00
EN: the size of your average win has to be greater
08:00 - 08:04
EN: than the percentage of your losing trades times the size of your average loss.
08:05 - 08:08
EN: You’re not going to be calculating that every time you put on a trade,
08:08 - 08:10
EN: but you have to be aware of it.
08:16 - 08:20
EN: It’s difficult to structure a trade with a positive Trader’s Equation
08:20 - 08:23
EN: when you’re scalping because the reward is usually less than the risk,
08:23 - 08:27
EN: and therefore you need to win more than 70% of the time.
08:27 - 08:31
EN: In fact, a good scalper is going to be winning 80% to 90% of the time.
08:35 - 08:37
EN: It’s easier just to swing trade.
08:37 - 08:41
EN: If you take that short, you hold onto the trade until the trade is no longer valid.
08:41 - 08:44
EN: You have a credible buy signal here and you’d get out there.
08:45 - 08:50
EN: This is a small profit, but sometimes swing trades result in very big profits.
08:50 - 08:53
EN: Reward’s much, much bigger than the risk,
08:53 - 08:59
EN: and therefore you can win 40% of the time, 30% of the time, and still make money.
Slide 006
Time: 09:05
Bilingual Transcript
09:06 - 09:09
EN: When you look at this chart, it looks like, “Gosh, it’s easy.
09:09 - 09:14
EN: I sell here, I exit with 2 points here or above this bar, and I’ll make money,
09:14 - 09:18
EN: and I just keep doing that all day long.” This is 1 bar.
09:18 - 09:19
EN: Every bar is 2 minutes.
09:19 - 09:23
EN: This is just a few minutes later, and you’d make a pretty good profit.
09:24 - 09:26
EN: However, when you look at this chart, nothing’s moving.
09:27 - 09:29
EN: This is a picture of the market,
09:30 - 09:35
EN: and a picture can be very different from your experience in real time.
09:36 - 09:42
EN: For example, this really good-looking buy signal bar may have been a bear bar,
09:42 - 09:45
EN: and then in the final second, suddenly closed on its high.
09:45 - 09:47
EN: And this bear bar closing on its low,
09:47 - 09:50
EN: may have been a doji bar with a close in the middle.
09:50 - 09:54
EN: It may even have been a bull bar, and then in the final couple seconds,
09:54 - 09:56
EN: suddenly closed on the low of the bar.
09:56 - 09:58
EN: If you’re looking to place an order below the low of this bar
09:58 - 10:02
EN: and the market is falling quickly, you don’t know exactly
10:02 - 10:05
EN: where the low of the bar will be until the bar closes,
10:05 - 10:09
EN: and by then the market may be several ticks below the low of the bar.
10:13 - 10:16
EN: I’m highlighting perfect looking signal bars,
10:16 - 10:19
EN: but many of them only became perfect in the final second,
10:19 - 10:22
EN: and it then becomes too late to take the trade,
10:22 - 10:24
EN: so you’ll end up missing a lot of the very best trades.
10:28 - 10:31
EN: Also, you sometimes have signal bars
10:31 - 10:36
EN: that are perfect until the final second, and then they become bad.
10:36 - 10:39
EN: So the opposite happens, and you don’t have enough time to think
10:39 - 10:42
EN: that the market is no longer doing what you thought it will do.
10:43 - 10:47
EN: For example, you might be looking to sell below the low of a bar.
10:47 - 10:50
EN: The bar is closing on its low, and then in the final second,
10:50 - 10:53
EN: it closes several ticks above the low of the bar,
10:53 - 10:57
EN: and then you take the short and you end up taking a bad trade.
10:57 - 11:00
EN: You did not have enough time to change your mind
11:00 - 11:02
EN: about what you were planning to do.
Slide 007
Time: 11:05
Bilingual Transcript
11:05 - 11:06
EN: Here’s an analogy.
11:07 - 11:11
EN: Here’s a little statue of a jackrabbit sitting on your desk,
11:11 - 11:14
EN: and here is a jackrabbit in real life.
11:15 - 11:19
EN: This is what it’s like when you’re looking at a chart at the end of the day.
11:19 - 11:23
EN: It’s easy to grab a trade because the bars are not moving.
11:23 - 11:27
EN: But in real time, it’s like trying to catch that jackrabbit.
11:29 - 11:33
EN: It’s easy to grab a jackrabbit when it’s a statue on your desk,
11:33 - 11:37
EN: but it’s not so easy to grab a jackrabbit when it’s running across a field,
11:37 - 11:40
EN: and it’s not so easy to trade when the bars
11:40 - 11:43
EN: are actually changing constantly as you’re trying to place a trade.
Slide 008
Time: 11:45
Bilingual Transcript
11:47 - 11:51
EN: A professional scalper, he’s going to enter with a stop order
11:51 - 11:55
EN: when he’s betting on a successful breakout, when he’s looking for a trend.
11:58 - 12:01
EN: For example, we’re below the Moving Average.
12:01 - 12:02
EN: We have an ii.
12:02 - 12:04
EN: We have a bear bar closing on its low.
12:04 - 12:07
EN: The trader will sell with a stop below the low of that bar,
12:07 - 12:09
EN: betting that we’re going to go down quite a bit.
12:09 - 12:13
EN: So he’s betting that the breakout below this bar will be successful,
12:14 - 12:16
EN: that the market will fall enough for him to make a profit.
12:16 - 12:18
EN: But that doesn’t always happen.
12:21 - 12:24
EN: When he’s buying with a stop, he’s expecting
12:24 - 12:27
EN: that the market will go far enough above the high of the bar – in other words,
12:27 - 12:29
EN: that the new trend will continue far enough
12:29 - 12:31
EN: – for him to be able to scalp out with a profit.
12:32 - 12:35
EN: So he’s betting on a successful breakout.
12:35 - 12:37
EN: But not all breakouts are successful.
Slide 009
Time: 12:40
Bilingual Transcript
12:44 - 12:50
EN: Sometimes a trader will expect a breakout not to go very far, and instead reverse.
Slide 010
Time: 12:45
Bilingual Transcript
12:50 - 12:53
EN: In that case, he’s going to be entering with a limit order,
12:53 - 12:55
EN: which is the opposite of a stop order.
12:55 - 12:58
EN: A stop order, you’re betting the trend will continue.
12:58 - 13:01
EN: You buy above this bar, betting we’re going to go up.
13:01 - 13:04
EN: A limit order is betting that the breakout will fail,
13:04 - 13:06
EN: so you might sell at the high of this bar,
13:06 - 13:10
EN: betting that it’s not going to continue up and instead it’s going to reverse.
13:12 - 13:15
EN: Limit order traders often have to use wide stops,
13:15 - 13:19
EN: and they also often scale in after their position.
13:25 - 13:28
EN: So, for example, we have a good reversal up,
13:29 - 13:32
EN: a big enough bull surprise so that traders
13:32 - 13:35
EN: will expect at least a small second leg up.
13:35 - 13:39
EN: And therefore, even though this is a credible sell signal, some traders,
13:39 - 13:44
EN: instead of selling with a stop below that low, looking for a trend down,
13:44 - 13:47
EN: will buy with a limit order at that low,
13:47 - 13:50
EN: betting that it will go only a little bit below the bar
13:50 - 13:51
EN: and then have a second leg up.
13:51 - 13:56
EN: Or it’ll go lower, they can buy more, and then we’ll get the second leg up.
13:56 - 14:00
EN: So the limit order, bulls betting on a second leg up after this,
14:00 - 14:04
EN: are betting that if we do go down, we’ll have a second leg up
14:04 - 14:07
EN: before the selloff makes a new low.
14:07 - 14:11
EN: So, he’ll put a stop below the low of that bar, this line here.
14:11 - 14:15
EN: He’ll buy with a limit order at the low of that bar and he’ll buy more lower,
14:15 - 14:19
EN: maybe 1 point lower, 2 points lower, 3 points, 4 points lower,
14:19 - 14:21
EN: betting that we’ll get a second leg up.
14:23 - 14:27
EN: As I said, he’ll often buy more as the market goes against him.
14:28 - 14:32
EN: He might buy 2 points below his first entry and then 2 points below that.
14:32 - 14:38
EN: So, he buys here, he buys more 2 points lower, and then 2 points lower again.
14:42 - 14:45
EN: And then when it gets back to his first price,
14:45 - 14:49
EN: he can get out breakeven on his first entry and with a profit here,
14:49 - 14:51
EN: 2 points, and with a profit here, 4 points.
14:51 - 14:56
EN: Or he may hold part or all of his position, hoping that we begin a trend up.
Slide 011
Time: 15:00
Bilingual Transcript
15:03 - 15:07
EN: Beginners should only be trading with stop orders and not scale in.
15:07 - 15:10
EN: Most traders, in fact, should always be trading with stop orders
15:10 - 15:12
EN: and they should not be scaling in.
15:12 - 15:14
EN: You want the market to be going in your direction.
15:14 - 15:16
EN: You’ll have a better chance of making money.
15:19 - 15:22
EN: Example: you sell below that bear bar
15:22 - 15:25
EN: or you buy above this bull bar, looking for a reversal up.
15:28 - 15:34
EN: You will lose too much money with limit orders scaling in and using wide stops,
15:34 - 15:36
EN: even though professional scalpers often do that.
Slide 012
Time: 15:40
Bilingual Transcript
15:41 - 15:46
EN: As a scalper, your reward is small relative to your risk.
15:46 - 15:49
EN: That means you have terrible risk/reward.
15:49 - 15:55
EN: Every trade has three variables: risk, reward, and probability.
15:56 - 16:00
EN: Those three variables are what you need to consider when you’re placing a trade.
16:01 - 16:04
EN: You can look at risk/reward as a single variable
16:04 - 16:07
EN: and probability as the second variable.
16:07 - 16:11
EN: As a trader, in general you’re either going to have a trade
16:11 - 16:15
EN: with really good risk/reward which always has bad probability,
16:15 - 16:20
EN: or a trade with really good probability which always has bad risk/reward.
16:20 - 16:26
EN: A scalper, he has bad risk/reward, so he needs very high probability.
16:31 - 16:33
EN: Look at the lottery, for example.
16:33 - 16:36
EN: Your state makes money by selling you a lottery ticket.
16:37 - 16:41
EN: They have a very high probability of being able to keep your one dollar,
16:41 - 16:44
EN: but they have terrible risk/reward.
16:44 - 16:47
EN: Sometimes they have to pay a million dollars
16:47 - 16:49
EN: to a person who bought a ticket for one dollar.
16:54 - 16:58
EN: A scalper has more risk than reward.
Slide 013
Time: 16:55
Bilingual Transcript
16:58 - 17:00
EN: He has terrible risk/reward.
17:01 - 17:04
EN: He can only make money if he has a very high probability.
17:04 - 17:08
EN: There are things he can do to increase his probability.
17:15 - 17:20
EN: The two that scalpers most often use are they scale into trades
17:20 - 17:25
EN: – they add to their trade as it goes against them – and they use a very wide stop.
17:25 - 17:27
EN: Some scalpers don’t even use stops at all
17:27 - 17:29
EN: if they’re very confident about their position.
17:30 - 17:34
EN: Scaling in and wide stops increases your risk;
17:34 - 17:38
EN: however, it greatly increases your probability.
17:38 - 17:41
EN: Professional scalpers, they trade small.
17:41 - 17:45
EN: Very small, so that if the market goes quickly far against them,
17:45 - 17:49
EN: they’re not going to lose more on that trade, than they would on any other trade,
17:49 - 17:53
EN: and they also will not panic if the market goes far against them.
Slide 014
Time: 17:55
Bilingual Transcript
17:59 - 18:03
EN: For example, let’s say the scalper thought this was a Sell Climax,
18:03 - 18:05
EN: and that this was the start of a reversal up.
18:05 - 18:08
EN: He might buy the close of that bull bar,
18:08 - 18:13
EN: but he might want to use a wide stop or no stop at all and scale in.
18:16 - 18:19
EN: He might buy more a point below that bear bar,
18:19 - 18:24
EN: betting that this will be the final bear flag and that we will not fall very far.
18:27 - 18:31
EN: But what will happen with the beginner? He’ll see 3 bear bars.
18:31 - 18:34
EN: This body is bigger than that body.
18:34 - 18:38
EN: This body is bigger than that body, and he’s afraid the market’s going to crash.
18:38 - 18:42
EN: He’s seeing the market accelerate down and he can’t take the pain.
18:42 - 18:45
EN: After a few bear bars, he will exit right here
18:45 - 18:48
EN: and take a very big loss on this position.
18:51 - 18:55
EN: Beginners, they have an incredible talent at exiting
18:55 - 18:58
EN: right before a trade goes their way.
18:58 - 18:59
EN: That’s just the reality.
18:59 - 19:02
EN: They’re weak traders.
19:02 - 19:06
EN: Weak traders usually exit right when the market is about to reverse.
19:06 - 19:09
EN: Once all the weak traders have exited,
19:09 - 19:12
EN: there’s no one left to make the market go down.
19:12 - 19:16
EN: As the market’s going down, the weak bulls are selling, selling, selling,
19:16 - 19:18
EN: and then once you have a very big bar,
19:18 - 19:21
EN: the final bulls give up and there’s no one left to sell.
19:21 - 19:24
EN: No more weak traders left, and the market goes the other way.
Slide 015
Time: 19:30
Bilingual Transcript
19:33 - 19:36
EN: Now, what would a professional trader do if he bought that close?
19:36 - 19:40
EN: Well, he’d see the ii, bear bar closing on its low.
19:40 - 19:43
EN: He knows it’s probably going to go at least a little bit down.
19:43 - 19:45
EN: He might exit below the low of that bar
19:45 - 19:49
EN: or he might even reverse – reverse to short.
19:52 - 19:55
EN: Alternatively, he might be confident
19:55 - 20:00
EN: that an ii is a Triangle on a smaller timeframe chart.
20:00 - 20:04
EN: If you have a Triangle late in a bear trend, and you get a bear breakout,
20:04 - 20:07
EN: the market’s probably going to come back to that Triangle later on,
20:07 - 20:10
EN: so he might hold onto his position and then wait
20:10 - 20:13
EN: for a bull bar closing near its high, a reversal,
20:13 - 20:16
EN: and then buy more above the high of that bull bar.
20:19 - 20:22
EN: And then when the rally gets back to around his original entry price
20:22 - 20:28
EN: or below that bear bar, or if the bars start to stall, he might get out.
20:28 - 20:32
EN: If he did that, he’d have a loss on that entry,
20:32 - 20:34
EN: he’d be out around breakeven on this entry,
20:35 - 20:37
EN: and he’d make a profit on this lower entry.
20:38 - 20:41
EN: Basically, the whole trade would be a scratch trade.
20:41 - 20:42
EN: He’d have a small profit.
20:42 - 20:46
EN: However, by not panicking during a big selloff
20:46 - 20:49
EN: and being able to do the right thing – buy more,
20:49 - 20:54
EN: betting on the reversal – a scalper is able to avoid a loss on a bad trade
20:54 - 20:56
EN: and sometimes he’ll make money.
21:00 - 21:05
EN: Professional traders, just like beginners have an uncanny ability
21:05 - 21:09
EN: to get out exactly at the wrong time, professional traders
21:09 - 21:14
EN: are very good at entering just before the trade goes their way.
Slide 016
Time: 21:20
Bilingual Transcript
21:21 - 21:25
EN: I mentioned that some scalpers are confident about their position
21:25 - 21:28
EN: and they’ll trade even without a stop.
21:28 - 21:31
EN: This is because they’re trading small enough; therefore,
21:31 - 21:34
EN: the risk will never be too great.
21:37 - 21:41
EN: Most traders cannot trade small enough position sizes,
21:41 - 21:44
EN: and they cannot use wide enough stops to do that profitably.
21:44 - 21:48
EN: Therefore, that’s really not an option for most traders.
21:51 - 21:53
EN: Remember that beginner.
21:53 - 21:55
EN: He bought here, he bought here.
21:55 - 22:00
EN: At some point he has to get out, and 3 big bear bars – a lot of beginners
22:00 - 22:02
EN: would get out below that third bear bar.
22:03 - 22:07
EN: Remember, this beginner has been scalping for 2 points, and here,
22:07 - 22:11
EN: he’s going to lose – what is that? 8 or 9 points on that,
22:11 - 22:14
EN: and then he’ll lose 6 or 7 points on that,
22:14 - 22:19
EN: so he’ll lose 13, 14 points on one trade, and he’s been scalping for 2 points.
22:19 - 22:23
EN: So that one trade wipes out six or seven good trades.
22:29 - 22:33
EN: A lot of scalpers, when they’re starting out, think that all they need to do
22:33 - 22:37
EN: is get a little bit better, but they really don’t understand the math.
22:37 - 22:42
EN: Unless they can use wide stops and scale in and greatly increase their probability,
22:42 - 22:45
EN: it’s impossible to make a living as a scalper.
Slide 017
Time: 22:50
Bilingual Transcript
22:53 - 22:55
EN: As you know, I trade mostly the 5-minute chart.
22:56 - 22:59
EN: Now, what about scalping on a 1-minute chart?
22:59 - 23:02
EN: The problem is you don’t have enough time to make decisions.
23:02 - 23:06
EN: Just like on this 2-minute chart, everything looks easy.
23:06 - 23:09
EN: You see the close here, you see the close here.
23:09 - 23:14
EN: Real time, the bars often look very different before they close.
23:14 - 23:18
EN: But if you print out a chart at the end of the day, everything looks perfect.
23:18 - 23:20
EN: But if you’re trading a 1-minute chart,
23:20 - 23:23
EN: even a 2-minute chart, most traders cannot do it.
23:23 - 23:25
EN: They don’t have enough time to make decisions
23:25 - 23:27
EN: and they’ll end up making too many mistakes.
23:31 - 23:34
EN: And yes, your stops are not too far away.
23:34 - 23:36
EN: You might lose 2, 3, or 4 points.
23:36 - 23:41
EN: However, your account will bleed to death from a thousand papercuts.
Slide 018
Time: 23:45
Bilingual Transcript
23:47 - 23:50
EN: Now, why am I making this video if most traders
23:50 - 23:52
EN: are going to lose money if they scalp?
23:52 - 23:57
EN: Well, first of all, I get a lot of requests to make videos on scalping.
23:58 - 24:01
EN: Also, the patterns that you’re looking for when you’re scalping,
24:01 - 24:03
EN: are the same as the patterns that you’re looking
24:03 - 24:07
EN: for when you’re swing trading, so it’s an opportunity to practice.
24:08 - 24:11
EN: The faster you get at recognizing a pattern,
24:11 - 24:13
EN: the better chance you have to make money.
24:13 - 24:15
EN: So, it’s good to practice.
24:19 - 24:23
EN: It’s important to realize that most swing trades do not go very far.
24:23 - 24:26
EN: Most of them end up as scalps, and therefore,
24:26 - 24:30
EN: if you know some basic scalping techniques, you can improve the profit
24:30 - 24:33
EN: that you make from the swing trades that do not go very far.
24:38 - 24:40
EN: Finally, some scalpers are truly great traders
24:40 - 24:43
EN: and they make an incredible amount of money.
24:43 - 24:45
EN: It’s interesting to think about what they’re doing.
24:45 - 24:50
EN: In fact, one of the traders in my chatroom – he’s been in the chatroom for years
24:50 - 24:54
EN: – he runs a hedge fund and he’s an extremely good scalper.
24:54 - 24:59
EN: I’ve seen some of his results, and I’m confident
24:59 - 25:03
EN: that he makes 20 or more points trading the Emini everyday scalping.
25:03 - 25:08
EN: So, it’s interesting and fun to think about what successful scalpers are doing.
Slide 019
Time: 25:10
Bilingual Transcript
25:15 - 25:18
EN: I want to go back to the point that I keep making.
25:18 - 25:20
EN: It’s easier to make money as a swing trader.
25:20 - 25:24
EN: Swing traders, they can enter a little late, they can enter a little early,
25:24 - 25:27
EN: they can exit a little late, they can exit a little early.
25:27 - 25:31
EN: They don’t have to trade perfectly, and they can still make a lot of money.
25:31 - 25:33
EN: A scalper, every tick matters.
25:34 - 25:37
EN: They must enter and exit precisely at the right time.
25:37 - 25:40
EN: They cannot make mistakes, and it’s really too difficult
25:40 - 25:42
EN: to do that long term for most people.
25:46 - 25:50
EN: If you play golf, anybody can hit a great shot occasionally,
25:50 - 25:54
EN: but it’s really hard to hit 72 of them in a row like a pro.
Slide 020
Time: 26:00
Bilingual Transcript
26:01 - 26:04
EN: Scalping and thinking about scalping, it can be fun.
26:04 - 26:07
EN: Everybody knows that scalpers make a lot of money,
26:07 - 26:10
EN: and it’s reasonable to think, “Hey, why not me?”
26:14 - 26:17
EN: Well, first of all, you need the ability to do it, and it’s difficult.
26:17 - 26:19
EN: Most traders do not have that ability.
26:19 - 26:23
EN: And then equally important is you have to be having fun.
26:23 - 26:28
EN: Your career has to match your personality if you’re going to do it forever.
26:28 - 26:33
EN: As I said, most traders will make more money and have more fun swing trading.
26:37 - 26:39
EN: Everybody tries scalping at some point.
26:40 - 26:44
EN: However, you should look at it as a hobby, which means something fun to try.
26:48 - 26:52
EN: Hobbies cost money, and most scalpers will lose money,
26:52 - 26:55
EN: or they’ll find it too stressful, not fun.
26:55 - 26:58
EN: If you do it, only trade a small position size,
26:58 - 27:02
EN: and do not spend too much time or too much money doing it.
27:02 - 27:05
EN: Remember, your career is as a swing trader,
27:05 - 27:08
EN: and that’s where you should be focusing your energy.
Slide 021
Time: 27:10
Bilingual Transcript
27:11 - 27:12
EN: Look at this chart.
27:12 - 27:16
EN: It’s an example of scalps over the course of a couple of hours,
27:16 - 27:19
EN: and on this scalp you can make 2 points, on that one you can make 2 points.
27:19 - 27:22
EN: If you sold below here, you’d lose 3 points.
27:23 - 27:27
EN: But when you add all of that up, you’d make about 18 points,
27:27 - 27:31
EN: $900 per contract in a couple of hours.
27:37 - 27:41
EN: In Part 2 of this series, I’m going to go through every one of these trades
27:41 - 27:43
EN: and explain what is going on.
27:48 - 27:50
EN: Again, I’m Al Brooks.
27:50 - 27:52
EN: I want to thank you so much for your attention.
27:52 - 27:55
EN: I hope that you found this information about scalping useful.
27:55 - 27:58
EN: I also wish you the best of luck in your trading.