DailyFX Forum - Active Trader Strategy Lab http://forexforums.dailyfx.com Discuss market depth and scalping strategies en Sun, 22 Nov 2009 02:35:37 GMT vBulletin 60 http://forexforums.dailyfx.com/images/dfx2009/misc/rss.jpg DailyFX Forum - Active Trader Strategy Lab http://forexforums.dailyfx.com PDF - Scalping Trade Strategies http://forexforums.dailyfx.com/active-trader-strategy-lab/77013-pdf-scalping-trade-strategies.html Tue, 19 May 2009 18:23:57 GMT Just a decade ago, scalping was a lucrative form... Just a decade ago, scalping was a lucrative form of trading that only pit traders could partake in. With tight spreads and a clear view of the market, the hustle and bustle of the open outcry market was perfectly suited for many quick entries and exits for five or ten basis points at a time. Now, however, with access to the deep liquidity of the currency market along with improvements to technology and data flow, retail traders have now found their way into the trading space formerly dominated by professionals. However, entry alone does not guarantee success. In fact, for the unprepared it merely presents a means to lose their money more quickly. Without the entire market trading in front of you, successful scalping requires a definitive strategy that takes advantage of inefficiency or even a natural characteristic of the market that is only seen through very short time frames. In this article, we will highlight three scalping strategies for the currency markets: scalping around event risk; near key technical levels; and through ranges and mean reversion.

Event Risk Trading

For many of the uninitiated, first time currency traders, the lure of high volatility that develops after a major economic indicator or any otherwise scheduled piece of event risk is announced offers the opportunity for quick profit. However, inexperience and the wrong strategy often lead to a quick loss. On the other hand, the presence of these indicators nevertheless has an objective impact on price action. Volatility leading up to a major event settles as traders try to avoid taking a significant position on the fear of an unfavorable surprise. During the actual release and up to a few minutes afterwards, activity often surges as the market absorbs the data.

Continue Reading the Full Article ]]> Active Trader Strategy Lab DailyFX Forum Administrator http://forexforums.dailyfx.com/active-trader-strategy-lab/77013-pdf-scalping-trade-strategies.html PDF - Scalping with FXCM Active Trader http://forexforums.dailyfx.com/active-trader-strategy-lab/77012-pdf-scalping-fxcm-active-trader.html Tue, 19 May 2009 18:20:27 GMT *Reading Market Depth: * Market rallies occur... 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.


Continue Reading the Full Article ]]> Active Trader Strategy Lab DailyFX Forum Administrator http://forexforums.dailyfx.com/active-trader-strategy-lab/77012-pdf-scalping-fxcm-active-trader.html Short Term Trading Strategies Using Market Depth http://forexforums.dailyfx.com/active-trader-strategy-lab/65728-short-term-trading-strategies-using-market-depth.html Thu, 05 Mar 2009 17:38:25 GMT Welcome to Short Term Trading Strategies Using... Welcome to Short Term Trading Strategies Using Market Depth. The goal of this thread is to highlight the advantages that traders have by using the Active Trader platform and the powerful Market Depth feature. I am looking forward toward sharing my years of trading experience with you and showing you examples of this exciting feature in real-time action. No indicator is fool proof and past performance is not an indication of future results. However, if you have any comments or questions, please feel free to post them in the Strategy Lab thread.
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]]> Active Trader Strategy Lab Gregory McLeod http://forexforums.dailyfx.com/active-trader-strategy-lab/65728-short-term-trading-strategies-using-market-depth.html Forex Scalping Strategies for Active Traders http://forexforums.dailyfx.com/active-trader-strategy-lab/65232-forex-scalping-strategies-active-traders.html Mon, 02 Mar 2009 23:05:11 GMT Tuesday, 17 February 2009 19:01:01 GMT Written... Tuesday, 17 February 2009 19:01:01 GMT
Written by David Rodriguez, Quantitative Analyst
Full Article

Scalping: Currencies tend to fluctuate rapidly through the very short term, and it is sometimes profitable to bet that a currency may retrace sudden moves. Yet there are clearly times in which a scalping strategy will not work, and it is critical to highlight the key weaknesses of this popular trading strategy.

Range Trading / Mean Reversion

Scalping: the art of extracting small but frequent profits on an intraday trading basis. Scalping strategies revolve around finding predictable movements in price, and they very often involve trading narrow intraday ranges. Given that currencies tend to fluctuate rapidly through the very short term, it is sometimes profitable to bet that a currency may retrace sudden moves. That being said, there are clearly times in which a range trading/mean reversion scalping strategy will not work, and it is critical to highlight the key weaknesses of this popular trading strategy.

First and foremost, the primary handicap for virtually any intraday scalping strategy comes down to one thing: transaction costs. It is always difficult to predict short-term currency moves with reasonable accuracy, but those difficulties are magnified if one is forced to pay significant sums to even trade. A prime example comes from a popular trading system: the intraday RSI strategy.

The chart below shows the theoretical results of a simple RSI trading strategy assuming zero transaction costs on a 1-minute trading chart.


The chart shows that this strategy has theoretically been profitable on the Euro/US Dollar even on a 1-minute time frame. Of course, if something seems too good to be true, it usually is. For the above results we assume that the trader pays zero spread and zero comissions on every single trade. This may not seem like a terribly unrealistic assumption on many lower-frequency systems, but the 1-minute chart generated a whopping 7800 trades in a mere 3-year stretch. What do our results look like if we assume a much more realistic 2 pip roundtrip cost per trade?


Such high-frequency range trade strategies are extremely sensitive to transaction costs, but we likewise note that there are other very important factors to keep in mind. Our equity curves shown above show that the strategy lost substantially from March 2008 and onwards. Why exactly? Extreme volatility.


Given such evidence, we want to avoid situations in which price is at clear risk of prolonged intraday moves. Such effects would singlehandedly destroy virtually any range trading strategy, while the increased transaction costs linked to choppy market conditions would likewise decimate a high-frequency strategy.

So when and how do we trade range trading scalping strategies?

Given that high transaction costs and strong market volatility will both quickly eat into any intraday scalping range trading strategy, it is important to trade when transaction costs are lowest and markets are the quietest.

The charts below show important facts about the Euro/US Dollar. First, spreads are tightest through European and US trading sessions. Second, volatility tends to hit its peak at the time that New York and London trading sessions overlap—between 8-10 AM New York time. What does this mean for us as far as range trading scalping strategies go? We want to trade during times when transaction costs (i.e. spreads and potential slippage) are the lowest, but we likewise want to avoid overly volatile trading times. When does this occur?


According to our charts, we see a confluence of low spreads and low volatility at several key times in the forex trading day. After the London trading session opens, volatility slowly begins to drop while spreads hit their lowest levels of the day. This would arguably be the best time of day to employ highly transaction cost-sensitive strategies. Spreads remain relatively low through the beginning of the US trading session, but we likewise note that volatility rises significantly between the hours of 8:00-10:00 New York time—often linked to key North American economic reports. The next attractive window occurs between the hours of 10:05 to approximately 16:00. Volatility hits near its lowest levels of the trading day, but transaction costs do tend to creep higher. Finally, we see that the late Asia trading session provides solid conditions for scalping range trading strategies—a mix of good spreads and low volatility.

What’s the next step? Find the appropriate strategy

Our article has thus far highlighted key strengths and weaknesses of range trading scalping strategies, but we would obviously need to find appropriate strategies to use with our information. Subsequent articles will try to find strategies that may work given different market conditions.

Try FXCM’s scalping-oriented Active Trader Platform.

Written by David Rodriguez, Quantitative Analyst for DailyFX.com
To contact the author of this report, e-mail drodriguez@dailyfx.com ]]> Active Trader Strategy Lab DailyFX News http://forexforums.dailyfx.com/active-trader-strategy-lab/65232-forex-scalping-strategies-active-traders.html