Updated: Jan 31
I was talking to some fellow chart slaves the other day and we got to messing about making up names of famous trading character types.
We came up with Harry Hindsight, Danny Doubter, Sam the Scam, Dick Forratick and Malcolm Scalpem as a Famous Five of trading. Add in Uncle Max Drawdown and Aunty Brenda Mentor and you´ve got the cast of an Enid Blyton children's book.
I realise many of you won´t be as old as me and might not get the cultural reference but these used to be ´go to´ kids books from a few decades ago - although in my defense - even I´m not that old lol. We went on to figure out the ending which, on the QT, saw Mr. Jay the Pay Powell murder the market with an ´inflatable´ candlestick in the ´transient´ Study - thanks to @trendthemarket for that one :).
Anyway it got my creative juices flowing and, on the same basis as flogging a dead horse, to thinking of another Famous Five that relates to trading and that's the five set ups I look for in my role as Malcolm Scalpem (and my alter ego Ray Daytrader)!
So, are you sat comfortably? Ok - let me tell you a story.
No 1 - Fades of Key S & R
If you´ve read any of my stuff before you´ll know I´m a simple type and I always start every day by marking up my charts with key S & R, adding minor levels and zones in between and basically looking to fade the key (major levels) if I get the chance. This one from #Dax40 on Jan 5th 2022, was as straightforward as they come. A fade of major R which was clearly evident from the higher time frame charts (HTF) and all you had to do was to place a resting order to short and Bob´s your uncle Max Drawdown. Nothing to think about - just hit the zone with either a limit or at market if you prefer, stop above the zone and then it just becomes a question of trade management as to how much you take or get stopped out.
Nothing else to add really - these types of trades are automatic - no Danny Doubting at these levels.
No 2 - False Break of Key S & R
Similar to the above but often you get a false break above or below a major S or R zone to test whether its going to stick or not. In these cases its a question of watching how far above (or below) it goes and the unfolding price action as to whether there is an opportunity to fade the false break.
In the example below price broke up above a key R zone - moved up a further 30 ish points and started to break down. However, before it did break above note how there was a chance to short at the lower end of the zone first and again at the top of the zone. So, if you had a short at either of these levels before it went above, there was plenty of opportunity to either make a few points, manage your trade to break even or at worst to lose a max of 1R. This is nearly always the case at major R or S. The zone gets tested first before breaking out - which of course we can never know in advance. Once it does break out I usually find it best to wait for a clear rejection back below the zone for a more conservative higher odds entry. I also work on the basis that if #Dax40 moves more than 30 ish points above or below a key zone there is a stronger chance it is going on to continue in that direction. In these cases the trade would be to wait for a retest of the zone / level, treat it as a pullback and go with the initial flow.
No 3 - Pullback Continuation
Which neatly brings me on to Pullback trades. Pullback trades for me can take a few different forms and its down to your read of the tape in combination with the levels you have already marked up. Below are two types of scalp pullbacks entries I look for.
The first opportunity is based on watching the RTH (regular trading hours) opening level as it can often act as S or R dependent on the initial direction. In this case we had a move up straight from the open into key R (and there was a scalp short there in the first instance) and started to pullback but could not break back below the opening level. If you are a price action trader the candles themselves tell a story and in this case, the 2 m5 dojis just above the open would indicate to me its worth a scalp long with a stop below the Open level.
The second came later after price had moved up through a minor zone and pulled back to the 38.2% Fib level (just below the bottom of the zone and also to a minor m5 level that had already acted as S). These scalp entries require disciplined risk management (as do all trades for that matter) but if you are a scalper you should already have your scalp risk management plan sown up and it your bag. I am personally ok with risking 10 to 15 points (depends on the type of day - fast tempo or slow) when taking such pullback scalps as the odds of at least a 1:1 winner are sufficient for me to take them based on my experience of trading the #Dax40.
If scalping is your thing watch out for such price action opportunities. If you are more comfortable with trading "day trade" type entries then you might not want to get involved with scalps like this as the two trade types mentioned above (fades and false breaks of Major S & R) have better odds to make more points. Horses for courses but I can only tell you how I read the tape and the trades I take.
No 4 - Roof and Floor scalps
Number 4 in the "Famous Five" quintet are what I call intraday Roof and Floor scalps. These are simply pullback scalp entries to a level / area that has already acted as intraday Support or Resistance and quickly changes with S becoming R or vice versa. To that extent they are just a slightly different approach to pullbacks where I watch the unfolding price action and wait for "balance areas" to form either acting as minor intraday S or R where a scalp entry looks worthwhile to enter with the flow of the day. They are largely dependent on your tape read / price action experience so again are for more hardened scalpers than day traders. But, if you like this sort of thing (as I do) have a look and take a few if you´re in a Malcolm Scalpem mood :).
The first example shows a Roof set up whereby you can see pre market price action forming a S area which gets tested and flushed after the open and then becomes R afterwards. Also note the 61.8% Fib level providing extra confluence on the first Roof scalp entry (Roof 1). Roof entry 2 again shows a minor balance area ( a few candles) on the m5 chart which is broken and then again retested from the underside and becomes R (entry point) for Roof 2. Roof 3 follows the same pattern and with the addition of a nice looking doji.
The Floor examples are noted below but in the opposite manner where initial intraday R (this time on the m1 chart) becomes S for scalp longs.
In both of the above Roof and Floor scalp examples while they look pretty straightforward, Harry Hindsight plays a more active role with these as it requires you to be fully focused and engaged and prepared to act quickly. Otherwise Danny Doubter takes over and your Malcolm Scalpem persona is left in the dust :).
No 5 - Inverse M1 and M5 Head & Shoulders scalps
I´ve written about these types of trades many times before (as I have the others above) but they remain one of my favourite intraday scalp set ups and I "see" them easily. I don´t know about any of you but some trade opportunities stand out more clearly to me than others. It´s not that the ones I see are any better or worse than others but somehow my brain reacts to them quicker. Whatever the reason, I go with it - act now and ask questions later I suppose lol.
That reminds me - I read in one of the Market Wizards books of one highly successful trader who felt embarrassed that he couldn´t explain to Jack Schwager in scientific detail his usual everyday modus operandi. Once I read that I felt a kinship of sorts as often I go with my gut in the flow of the day and everything else that's in my mind re context etc. I know its probably not flavour of the day to admit that I use as much art/gut feel (for want of a better word) as "science" in some of my intraday scalping but it is what it is to coin an often used phrase in this game of ours.
Btw, That's not to put myself by any stretch of the imagination in a similar category to anyone in Jack Schwagers brilliant books - I wish lol - more to admit that I´m a bit unable to explain everything I look at in trading into words. Anyway I´m getting a bit off track here - maybe material for a future blog piece or maybe its something I need to address!
Anyway where were we - small time frame inverse head and shoulder scalp set ups - number 5 in our happy gang of my Famous Five.
If you´ve been trading any length of time you will have come across the ubiquitous Head and Shoulders pattern - its perhaps the best known of them all. Funnily enough I have never used them in the more traditionally sense i.e. as HTF set ups for short side swing trades. However, I do find the inverse pattern on smaller time frames (M1 and M5) to be a go to pattern set up for intraday scalping. There´s not much to explain - once you see the right hand shoulder forming you hit it - stop below the head! The one above is a recent example from last Friday - the 28th Jan 2022 - so you can be sure they are still around to trade.
And with that - this Famous Five analogy horse is truly flogged. Try a few if any take your fancy. Alternatively don´t if none float your boat. Trading is a broad church and welcomes of all sorts of trading characters.
But, whatever you do - try not to be Danny Doubter as he´ll just make you a sad and regretful miserable bastard and if you're a Brenda Mentor type, don't come all Harry Hindsight with your mates on fintwit cos they´ll just think you´re a twat.
Above all don´t be a Dick Forratick - he´s definitely the dog of the gang.
With many thanks to @trendthemarket. @triundra and others in @markheathmellor´s often discordant discord room (some great trader chat and some equally forthright vax and anti-vax discussions! :).