In the first article of this series we outlined the general principles that allow for effective scalping in the emini (and other) futures markets. All of the below strategies use a variation of support and resistance trading, yet put a different spin on how these levels are identified.
Please note that the entry is just one part of the strategy. The trade management rules are also very important to generating consistent profitability.
The Strategies:
1. Testing yesterday’s close: If this morning Gaps up significantly above yesterday’s close (regular session) This morning set buy limit orders just above and just below yesterday’s close. Look for 3 – 5 points profit within 20 minutes depending upon the markets volatility. If the market crashes through yesterday’s close and there is no resistance, look to sell on the first bounce. Otherwise use a time stop and money management stop.
2. After trend day setup: Yesterday is an up trend day and closes in the top 15% of the day’s range. For morning session only: Look to buy today with limit orders just at and just below the swing low from yesterday’s afternoon session AND at and just below the overnight session low. Scalp out of both trades with 2-4 points profit or exit on first bounce within 20 minutes.
3. Buy below the swing low: This strategy works well with 30 minute charts in the emini contract. identify a significant swing low (such as a prior day low or overnight session low) that was made within the past several days in a market that is in a multi-day uptrend. Look to buy 1 – 1.5 points below the significant swing low point. A scalp trade should look for 3 – 6 points, however a much larger average profit can be had by using the prior high of the day as a profit target, or even holding to the close or next open if price fails to break more than a few points below the prior swing low level.
4. The Spike and climb: After a large gap up open, the market “spikes” down for the first 1-1.5 hours of the day, which makes it appear a solid downtrend is in place. Volatility then drops, and a 30 minute bar closes up. The market is now all set up to squeeze the shorts who are convinced a downtrend will occur. Typically, price grinds up for the remainder of the mid-day session. Your job is to buy small dips and “punish” all the wrong way traders who are “convinced” that the downtrend is about to start again. If you are correct, price will continually ”pop” above intra-day highs as the stops on the wrong way shorts continually get blown out. The ultimate target is a new high on the day, or 1pm CST.
5. Morning momentum: See here.
General rules:
Swing high levels and swing low levels are critical for the retail scalp trader or day trader. This is because there is persistence in how price behaves at these levels. New highs and new lows draw attention from longer term traders, so price action around these levels tell us much about the “mood” (is accumulation or distribution dominant?) of the market.
When a market is being accumulated by institutions, price bounces back very quickly when a minor swing low is tested or violated. Swing highs on the other hand will create additional upward momentum and price will “stick” above these levels. During a period of distribution, the opposite occurs. Swing highs are quickly rejected, while swing lows create downside momentum and price “sticks” below these levels. Simply by monitoring swing high and swing low points, the trader can get a feel for which side of the market the trader should be focusing on.
How far below your entry point has the trade moved against you at the worst point? Good scalp trades will often move only a few ticks to a few points or so beyond your entry price if you pick your entry levels well. Any additional amount the trade moves against you should cause you to rethink the initial price target, as it is a sign your buy level was not solid. Reassess your support levels and profit target.
Profit targets can and should be adjusted for recent market activity. If the market is in a super volatile period, it makes sense to increase the size of profit targets (and likely to reduce position size, all else equal).
Keep it simple: What has been working most recently? This can actually be a very good guide as to what will come next, as there is persistence to institutional buying and selling phases. As a scalp trader or day trader, you do not need to make a major prediction: Your only goal is to be right enough to bag a quick 3-6 point profit! What happens after that is not important.
Time of day and market character: I break the trading day into three units of time: First 1 – 1.5 hours of the day, Mid- day, and the afternoon session. Each session can bring with it a change of character. New traders are frequently caught off guard when the character of the market changes from session to session. A typical error is expecting a robust momentum-trend move in the morning to continue on in the mid-day session, or Being caught off guard by a large move at the start of the afternoon session. If the market breaks a 1.5 hour high (or low) that reverses the direction of the prior trading session (morning or mid-day) be extremely cautious about being on the other side of the trade.
In the members area we will be creating videos of these trades being executed in real time with real money. If you liked the ideas in this article, make sure to sign up and get our free report, “the top 12 mistakes traders make” on our home page.
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