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PDF - Scalping with FXCM Active Trader
Reading Market Depth:
Market rallies occur when demand exceeds supply. Market declines occur when supply exceeds demand. Supply and demand is quantified (at a very small degree) on the FXCM Active Trader platform by the total amount of bids (demand) and offers (supply) that are within a certain range of the market. When the bid amount is larger than the ask amount, market price increases. When the ask amount is larger than the bid amount, market price decreases. The range of bids and offers that is viewable on the FXCM trading platform is limited, but the information is still useful for those willing to gain an edge. Through close examination of the bid / ask behavior at certain times, a trader can improve entry price and the probability of a successful trade.
As a scalper, your opportunities are a result of market noise. We believe the best time to enter into the market when scalping is when the market is stretched. In other words, you are trying to buy very short term lows and sell very short term highs. Highs and lows, especially on very short time frames, often look like spikes on a chart. It is easy to see these spikes in real time if you plot a one period ATR at the bottom of your chart. In this example, the period is a minute. The red bars indicate the highest ATR over the last 300 minutes (5 hours). Once you see the extreme ATR (indicated in this case by the red painted bar) begin looking at the active trader platform. If the price is falling, then offers likely outnumber bids. If the price is advancing, then bids likely outnumber offers. Once the bid / offer dynamic reverses, fade the trend.
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