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May 28th – Dissecting a short DAX trade and explaining a scalp trade

Day Trading Scalping

28/5/2019

This morning I called out a trade on Telegram in the DAX index. It was a short sell. Since the trade and the ensuing dialogue from the Telegram viewers had some important lessons, I have replicated the dialogue here.

This article contains information on trading a channel.

This article also contains information on scalping.

 

This morning I saw the following chart in the DAX, and I decided to sell short. I will explain why.

A trading channel in the DAX index

 

I wrote on Telegram:

Dax is in a well-defined channel. You have 2 choices here. You are either selling short now here, or you wait for weakness, if 12110/12120 holds. What I mean by “12,110/12,120 holds”? It “holds” as resistance, meaning DAX is unable to trade above. If it does, you will be stopped out.

 

Later the DAX is falling well. I write on Telegram:

If I was you, and you are short, I would not hesitate to put stop loss at break-even, and then add to position now. I use the 10 min chart for placing my stop-loss. I place my stop above the high of the last 10 min bar.

DAX index 10 min chart. I use the 10 min chart for placing stops on my trade, as it is less likely that the 10 min time frame will show “overlap” bars, as opposed to the 5-min chart. This will be explained in more detail below.

 

On Telegram I was asked a question about the entry. Here is the question and the answer:

 

QUESTION TIME

“I did not enter trade as channel has not broken, is that a valid reason or not?”

Let me first make a comment. I saw this as a clear sell. Hence, there was no “IF this, then short, but IF THAT, then long”. I am not hedging my bets. It was a short position to me either way, but the reason I wanted to pose it as a question was to expose you to your decision-making process.

Are you conscious of your decision making and the risk implied with your job?

I see it as follows:

1/ You sell short at the top of the channel, because you assert that is where you have the least “point risk”. The flip side to this argument is that you are trying to pick a top. So, the odds are probably only 40% of success. BUT you don’t risk as much.

or

2/ you acknowledge the channel, but you decide to wait for confirmation. The confirmation came as the market started to decline.

The further down you sell short, the more you add to your risk. YES, you are now trading a much better short position, because you are following momentum, and you are selling weakness, but you have now had to give some of your edge away by having to risk more.

I wasn’t trying to make you look weak or strong. I was attempting to make you understand that everything we do is a function of risk and and an unknown reward. There is no right or wrong answer.

 

This then led to a comment on scalping.

 

SCALP TRADE TELEGRAM

 

NOW OBSERVE THIS

DAX JUST POKED ITS HEAD ABOVE the high of the last 10 min bar… There are stops above there, but also sellers…

The FIRST POKE (I know, it sounds rude..) is my idea of a good scalp set up. Scalpers and traders in general like to initiate trades where they think there is an order flow, such as above an old high, or the previous 5 min bar.

Observe….. in my book, DAX has to close above 12080 on the 10min bar, to be able to attract more buyers…

 

DAX in my mind here has to close above the last green candle to attract more buyers. This is why I am selling short here again.

 

SCALPING TECHNIQUES

FIRST POKE is an expression I invented, but I am sure someone else somewhere have used something like that or similar, maybe FIRST STAB, FIRST TRY, FIRST PULL-BACK……

The idea of scalping is not necessarily to be a MAD PUNTER, but to be a calculated risk taker at the right time. This 10 min idea is not without risk, but the odds of success is high…….. Here you sold at or around 12080. Your stop loss needs some serious consideration. Your reward here was max 17. You didn’t know this at the time. Your stop loss needs to be based on experience, or maybe an ATR of some function. We are talking small stop loss.

NOSTALGIA

I remember there was a time I just wanted 11 points a day… 10 for the account and 1 for groceries. I will be silent for a bit…. until I see something else. I am still short by the way… in case you were wondering….. I don’t play for 11 points anymore, unless I am scalping.

PS

The “overshot” of a channel is a reliable trade.

 

I do like this trade setup. It is reliable to be a good earner.

 

The “stab” bar, and the subsequent failure to draw in more buyers by trading AND closing below the high bar is a SELL in my eyes.

 

My entry was great. My exit was bloody awful. I did add to the trade, but perfection rarely is bestowed upon me in trading.

Happy trading

Tom Hougaard