This is following a “live trade”. All price movements are on the right side of the chart.
Scalping is a high-frequency trading strategy that involves opening and closing positions within a short period of time, usually a few minutes to an hour. The goal of scalping is to make a profit by exploiting small price movements in the market. Scalpers aim to profit from small market movements by taking advantage of the bid-ask spread and the difference between the bid price and the ask price.
Here is a quick scalping strategy using patterns and price action on a 5-minute chart:
Identify market trends: Before you start scalping, you should have a good understanding of the overall market trend. You can use technical analysis tools such as moving averages, trend lines, and support and resistance levels to determine the market trend.
I usually look for a trend, either up or down. The trend has been broken to the downside and came back to a “level of potential resistance”
Identify key levels of support and resistance: Look for levels where price has bounced or stalled in the past, as these areas can often act as key levels of support and resistance in the future.
In the image above you cannot see that price is at a resistance level. Can price continue? Of course. Can this trade be early? Of course.
What made me take it? A combination of candle stick patterns and levels.
Look for price action patterns: Price action patterns, such as pin bars, hammers, and dojis, can provide signals for potential trades. For example, a pin bar at a key level of support or resistance can signal a potential reversal.
The price action pattern on this 5-minute scalp is the following:
It’s a potential reversal pattern where a large candle, followed by a “upside down hammer and a red candle”. When price goes under the close of the red candle following the top candle, an entry is formed. Do I wait for confirmation? No, this pattern is a quick scalp, and price can continue higher, but probabilities and experience tells me this “will fall” at least for a few candles. If it does not I am stopped out.
Place stop loss and take profit orders: It is important to manage your risk when scalping. Place a stop loss order a few pips below a key level of support or above a key level of resistance, and take profit at a predetermined level or at a key level of support or resistance.
The first profit target is 1:1 in terms of distance from stop-loss. You can take half or you can move stop to Break-Even. Either way doesn’t matter.
My prefered method is to pay myself half and move stop to break even. The red part of the order is “the stop”.
As you can see here we did “1:1” and didn’t hit profit target 2, which is the bottom of the green area. The reasoning behind the target is the green drawn zone is a potential bottom/support.
As you can see the trend of the rebound was very strong and this trade ended up at break even.
Why show a “break even trade” because that’s how the market works. The idea was good. We found a pattern in the resistance area on the 5-minute and we found a good risk to reward of 2:1. The trade was placed and we manged risk well.
I would not recommend going against the trend “this much” as a beginner, but it just shows how accurate price action can be. The price drop wasn’t as big as I had hoped, but we cannot know that before hand.
Instead of getting angry we make another attempt:
This again has the same “pattern”, and just minutes later the trade is already in break even.
3 minutes later trade is breakeven, and building another “sell pattern” on the candles.
Aren’t you early here?
No. why? Because the first sell signal was the first pattern. Then market stopped out most traders who took the first pattern.
So we can comfortable be a little bit early on the second pattern. If that one doesn’t work, we take the third one. Do not be afraid of going in and out of the market with good risk-reward.
Monitor the market and adjust your orders as needed: Scalping requires quick thinking and the ability to react to market movements. Monitor the market closely and adjust your stop loss and take profit orders as needed to maximize your profit.
Here I am just following the candles on the 1 minute and the 5 minute. Watching it go wherever it wants to go. I can comfortable move my stops into profit now.
So here my target is the Orange Fair Value Gap (FVG imbalance) and purple area. It may take a while to get there, but we also had this as a 2:1 trade, so we can take it all at 2:1 or put trade at B/E, put stop at 1:1 etc. It’s all up to you.
Now price seems to reject my initial idea, and a potential long is in the cards, following the inital impulse move and trend. There is no shame in switching sides if price tell you it wants to go higher. I am however relaxing here and out of my shorts. No need get scared. We are 1:1 on these two trades. So it’s 1 break even 1R win and looking for another entry.
If you want you can take the long trade. But I would rather look for another short. Traditionally this is a potential “breakout”, but since it has given me 2 sell signals I am not confident this breakout below will work.
I go into the 1-min chart and look for short setups
Here you can see another bearish engulfing candle and another “hanging man” and another Reverse Hammer. All these sell signals one after another, with a “bulltrap breakout”. Wow, they are really painting it both ways here. Still a short bias.
Here I move my stop to break even as it hit 1:1 Risk/Reward
Unfortunately stopped out again for another B/E. So still only up 1R.
I found another entry during a triple top on the 1 min chart. I took this one on the “big upcandle” at the start of the green area, so waited 11 minutes already. I took the bulltrap uptick this time, and had max risk-reward. This is a 12:1 R/R trade potentially.
I am placing stops right above the BIG red candle that dropped the price. 2 minutes earlier. So another risk-free trade. Let’s ride this one.
Here I am done for the day and out if no other opportunities arise. I have things to do with family, so I just TP in this case as price is not moving as fast as I like it to. And I am out with over 40 points profits.
Was this perect? NOT really. We were a little early, but managed to short the counter trend move and profit 1+5R for a total of 6R in this move.
The point of this was to show that PA works. Even in counter trend. The “easy” trade is taking the long from earlier, but that’s not what this was for. I wanted to show it’s possible to trade counter trend while scalping, but you SHOULD NOT do it this way. You should go with trend and take the dip buys instead. This was risky, and I kept tight risk tight for a reason here.
Ideally you wait for the triple top and only take the last trade, but I wanted to show how a trade idea “develops”, while taking the positions.
Now we can start to look for signs that PA wants to stop or move higher, or reject this break of structure. In all likelyhood this goes up and returns down, but that doesn’t matter anymore. We got our $$$ out of the market and we move on to the next one, another day!
After the move this happened, a huge reversal, and the bias is now long for most traders. We basically got out at the V-bottom and a hunt for liquidity was initiated (stops in triple top are). This shows how fast the markets move and how accurate you MUST be in order to counter trend trade.
I have traded for 11 years so I am allowed, you are not, yet. This should be the last liquidity hunt short. Am I sad I did not take the long at the V-shape? NO, because I was not there to look at the charts, so how could I have? When I was looking at the charts it was a short to me. So I followed that initial thought.
If you do take this one, you are not crazy!
And the results, this was a sweep of liquidity on the tops(all my stops from the earlier positions, if I’d held basically, wasting a whole trading session and getting stopped out…) 1.5 hours left of session and this postition is winning, BIG. So patience is key. And entering, exiting and re-entering is very solid methodology. here I take half off, obviously.. and move stops to a little over the last “bump”.
Price coming closer…
Really, it may look like magic, but it’s not. Price close enough to level and we get a signal to exit on the hammer reversal candle + wick when it hits purple box and starts turning. Good profits! Basically we exit on a “buy setup” in the support area. Nothing fancy.
Here price also moved back up again, as we expect from a bounce in “imbalance area”/”order block”. These are all concepts I will discuss more.
Note: Scalping is a high-risk trading strategy and requires discipline, patience, and a good understanding of market dynamics. It is important to have a solid risk management plan in place before attempting scalping.