I wish there was an order flow scalping crash course back in the day when I started out. The reason is very few day traders had access to level II and basic order flow software. Anyway, when you take a trade for a few 1,2,4,7 ticks you are scalping. How quickly you do this will determine what kind of a scalper you are.
High-Frequency Trading systems profit in seconds. Arbitrage is also another form of scalping where you look to profit inside the spread. Having worked with a team of professional coders for a few years, I resolved to simply focus on manual trade executions.
I learnt a lot over the 3 years and one thing I can share for free is: Scalping is more of improvisation than mechanics. A rule-based scalping technique can be coded into an expert advisor for plug and play day trading. This can generate decent profits but not for long. In short, mechanical scalping is not consistent because we all know that the forex market keeps changing. One day we are ranging the next a trend starts.
It’s for this reason that I ditched systems and developed my own dynamic and robust trading methodology. This way I can always make rational decisions like when to cut a loser instead of having a fixed stop loss distance. I know some of you reading this are scalpers and you will all agree that risk-reward trading is hard to achieve when scalping. It calls for dynamism, trade what you see, if the order flow shifts, cut the loser.
Order flow scalping has a lot to do with using footprint charts, heat maps or depth of market for trade execution and management. I use footprint charts as the show aggressive market participants only and not limit orders. This is not to say that tape reading is not profitable, but as I stated earlier, it is more of an art. It needs a lot of screen time.
When scalping using footprint charts I watch delta very closely. I mean both maximum and minimum delta values. I also throw in volume spread analysis into the whole mix. The indicator that I use is known as Better Volume by e-mini watch. What many traders don’t know is that VSA and Order Flow complement each other very well. In fact, Wyckoff has also written books on Tape Reading! The last tool that I use is VWAP which I discussed in the previous post. So here is my very simple chart set up.
My daily target (pips) is 30. I mean plus or minus. If I loose 30 pips in a day, I have to stop trading and find something else to do. Anyway, today was a good day! 😉
So, I use a trailing stop EA to help me lock in profit and avoid winners from turning to losers. I will share and talk about risk management in my next posts. Thing is, having a poor risk management approach is like building your house on sand. You can make decent pips, only throw them away in minutes.
I have listed a few books in my course structure that I believe will give you a solid foundation as far as order flow trading is concerned. I will add 5 more that will help you re-discover your edge and most importantly be in a better position to scalp the markets like a pro.
- Markets and Market Logic by Steidlmayer-Koy
- Order Flow Trading for Fun and Profit by Goldsmith
- Studies in Tape Reading by Richard D. Wyckoff
- Trading in the Zone by Mark Douglas
- The Art of War by Tzu
That is it for today, speak soon, stay safe and be very happy always! 😉