Scalper Buys and Sells
Expert: John F. Carter, President of Trade the Markets, Inc.
Start: April 13, 2006 - 14:00GMT 10EST
End: approx. 15GMT 11EST
Topics that will be covered for above session are:
- Identifying and Profiting from Changes in Trend without Catching a Falling Knife or Stepping in Front of a Freight Train.
Who is John F. Carter?
John F. Carter, CTA, is president of Trade the Markets, Inc., and principal of the money management firm Razor Trading. Carter speaks often at Trader's Expo and other trading industry events, and is a regular contributor to SFO magazine, award-winning website tradethemarkets.com, and Chicago Board of Trade publications.
John has written numerous articles and has been a featured speaker at a number of major investment conferences over the last 4 years. In addition to trading, he consults with various brokerages, money managers and exchange.
Speech Material:
Identifying and Profiting from Changes in Trend without Catching a Falling Knife or Stepping in Front of a Freight Train.
In watching the markets over the years I’ve observed that most reversals take place after three consecutive higher closes or three consecutive lower closes, and this tendency is valid for all times frames. The key to this setup is that it is based on consecutive closes and not just intraday or daily high and low price action for an individual price bar on a chart. In other words, the highs and lows are not important. I’m not interested in three higher price highs or three lower price lows. I wanted to see where the action settles, or closes, because that is where the rubber meets the road.
TRADING RULES FOR BUYS (SELLS ARE REVERSED)
1. Set up a 24-hour chart on intraday charts so the overnight activity can be accounted for in this indicator setup. This can be used in all time frames. The larger the time frame, the larger the parameters and potential move. For daily charts I will use the regular session hours.
2. After three consecutive higher closes, I go long at the market, at the close of the third bar in the sequence.
3. The trade is valid until three consecutive lower closes occur, at which point I exit the trade. If the market is still open for an intraday trade, I will simultaneously exit a long and establish a new short position. I don’t use a stop loss on this for intraday charts trades because the reversal signal is my exit strategy, whether it is a loss or a gain. For daily charts I will place a stop at the low of the bar that caused the signal to fire off, which is the first of three in the sequence of closes.
4. If I’m in an intraday trade (15-minute chart or smaller) and the market closes before giving an exit signal, I will exit at the market 4:10 p.m. Eastern.
5. For time frames that are 60 minutes and above, I will stay in them overnight and exit at the next signal. This could be the next day for a 60-minute chart, and it could be a month later for daily charts.
For the indicator, I did add one key filter. I found at times I could get shaken out of a play that was consolidating (i.e., a bull flag) when prices made a series of lower closes within that consolidation. So, if there are three lower closes, but this price action does not go below the signal bar’s low, then the signal is ignored. For this indicator on a long signal, then, the trigger bar would be the first bar that has a higher low than the previous bar. The next bar that closes above the high of this trigger bar paints this previous low bar which now becomes the swing low point. In most cases all of this happens with “three higher closes” but there times when it is not as clean and these instances are taken into account with the one confirmation that really matters—price.
SPECIFIC EXAMPLES OF SCALPER BUY AND SELL SETUPS
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Session Material:
Fxstreet Moderator (Apr 13, 2006 9:49:36 AM)
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Fxstreet Moderator (Apr 13, 2006 9:53:08 AM)
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Fxstreet Moderator (Apr 13, 2006 9:54:06 AM)
Please find the whole speech of our guest in the left box of the chat. Be sure to read the whole speech at once without any interruption, making its reading and comprehension easy. You won’t miss a single thing from our guest host.
Fxstreet Moderator (Apr 13, 2006 9:54:43 AM)
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Fxstreet Moderator (Apr 13, 2006 9:54:59 AM)
Our guest will answer live Questions sent to the FXstreet Moderator during the course of the session.
Fxstreet Moderator (Apr 13, 2006 9:55:35 AM)
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Fxstreet Moderator (Apr 13, 2006 9:55:50 AM)
Some good new I am pleased to announce that the full transcripts are back for all who would like to enjoy their contents I will post link at end of Show
Fxstreet Moderator (Apr 13, 2006 9:56:58 AM)
Today I am delighted to welcome our guest speaker and good friend John F. Carter, President of Trade the Markets, Inc.
John Carter (Apr 13, 2006 9:57:42 AM)
Thanks -- good to be here again with you guys.
John Carter (Apr 13, 2006 9:58:08 AM)
I'm watching the currency markets now and for the most part they've been on the quiet side with some economic news volatility
John Carter (Apr 13, 2006 9:58:31 AM)
I like NZDUSD and AUDUSD as they have at least been moving
John Carter (Apr 13, 2006 9:58:37 AM)
and GBPJPY also on the long side
John Carter (Apr 13, 2006 9:58:55 AM)
Today I want to talk a little bit about a set up I use called "scalper buys and sells"
John Carter (Apr 13, 2006 9:59:20 AM)
It's a strategy for dentifying and Profiting from Changes in Trend without Catching a Falling Knife or Stepping in Front of a Freight Train.
John Carter (Apr 13, 2006 10:00:01 AM)
In watching the markets over the years I’ve observed that most reversals take place after three consecutive higher closes or three consecutive lower closes, and this tendency is valid for all times frames. The key to this setup is that it is based on consecutive closes and not just intraday or daily high and low price action for an individual price bar on a chart. In other words, the highs and lows are not important. I’m not interested in three higher price highs or three lower price lows. I want to see where the action settles or closes -- because that is where "the rubber meets the road."
John Carter (Apr 13, 2006 10:01:29 AM)
That being said, there are of course trading rules for how I use this
John Carter (Apr 13, 2006 10:01:40 AM)
1. Set up a 24-hour chart on intraday charts so the overnight activity can be accounted for in this indicator setup. This can be used in all time frames. The larger the time frame, the larger the parameters and potential move. For daily charts I will use the regular session hours.
John Carter (Apr 13, 2006 10:01:58 AM)
2. After three consecutive higher closes, I go long at the market, at the close of the third bar in the sequence.
John Carter (Apr 13, 2006 10:02:11 AM)
3. The trade is valid until three consecutive lower closes occur, at which point I exit the trade. If the market is still open for an intraday trade, I will simultaneously exit a long and establish a new short position. I don’t use a stop loss on this for intraday charts trades because the reversal signal is my exit strategy, whether it is a loss or a gain. For daily charts I will place a stop at the low of the bar that caused the signal to fire off, which is the first of three in the sequence of closes.
John Carter (Apr 13, 2006 10:03:16 AM)
4. If I’m in an intraday trade (15-minute chart or smaller) and the market closes before giving an exit signal, I will exit at the market 4:10 p.m. Eastern (for stocks/futures) otherwise for currencies that only applies to the Friday close
John Carter (Apr 13, 2006 10:03:27 AM)
5. For time frames that are 60 minutes and above, I will stay in them overnight and exit at the next signal. This could be the next day for a 60-minute chart, and it could be a month later for daily charts.
John Carter (Apr 13, 2006 10:04:51 AM)
For the indicator, I did add one key filter. I found at times I could get shaken out of a play that was consolidating (i.e., a bull flag) when prices made a series of lower closes within that consolidation. So, if there are three lower closes, but this price action does not go below the signal bar’s low, then the signal is ignored. For this indicator on a long signal, then, the trigger bar would be the first bar that has a higher low than the previous bar. The next bar that closes above the high of this trigger bar paints this previous low bar which now becomes the swing low point. In most cases all of this happens with “three higher closes” but there times when it is not as clean and these instances are taken into account with the one confirmation that really matters—price.
John Carter (Apr 13, 2006 10:06:24 AM)
Ok, let's look at some examples
John Carter (Apr 13, 2006 10:07:02 AM)
Figure 8.14, GBPUSD
John Carter (Apr 13, 2006 10:07:13 AM)
1. On this daily chart of GBPUSD (see figure 8.14), a short signal sets up on May 9, 2005 at point #1 and I go short at 1.8837. 2. The market sells off steadily and on June 3, 2005 it fires off a reversal signal at point #2. I cover my position at 1.8148 for a gain of 689 pips or $6,890 per contract. Or, in forex trader speak, almost seven large.
John Carter (Apr 13, 2006 10:08:11 AM)
FIgure 8.16 AUDUSD
John Carter (Apr 13, 2006 10:08:23 AM)
1. On July 31, 2005 (see figure 8.16) AUDUSD sets up a long signal on the 60-minute chart at point #1. The long entry is at .7560. 2. The next day on August 1, 2005, a reversal signal is given at point #2, and we exit the play at .7604, for a gain of 44 pips. Remember, any currency pair that ends in “USD” is worth $10 per pip, so the gain on this trade is $440 per lot being traded. The three main currencies I trade that end in “USD” are the euro (EURUSD), pound (GBPUSD) and aussie (AUDUSD). If a currency ends in “USD” this means that it will generally move in the opposite direction of the U.S. dollar index. If the dollar is moving higher, then euro, pound, and aussie are selling off. Within these three currencies, the euro and pound are most closely correlated to the dollar. The Australian dollar is also tied in closely to commodity prices, as Australia is a huge exporter of various commodities. Let’s take a look at the other main currency pairs.
John Carter (Apr 13, 2006 10:09:56 AM)
Figure 8.17 USDCHF
John Carter (Apr 13, 2006 10:10:06 AM)
1. On July 21, 2005 (see figure 8.17) USDCHF sets up a long signal on the 60-minute chart at point #1. The long entry is at 1.2855. 2. A few days later, on July 24, a reversal signal is given at point #2, and we exit at 1.2971, for a gain of 116 pips. Since this currency pair does not end in “USD” the valuation of the pip will be slightly different than the previous examples. When this play was taken, the value of a pip was around $7.00. So, in this case, 116 pips equates to a gain of $812 per lot being traded. This currency, the Swiss Franc, trades very closely with the U.S. dollar. If the dollar is going higher, so is swissy.
John Carter (Apr 13, 2006 10:11:16 AM)
Figure 8.18 USDJPY
John Carter (Apr 13, 2006 10:11:24 AM)
1. On July 20, 2005 (see figure 8.18) USDJPY fires off a short at point #1 on the 120 minute chart. The short entry is at 112.85. 2. The next day, on July 21, the market gives a reversal signal for an exit at 110.40 at point #2, a gain of 245 pips. Pip value on the USDJPY at the time of this writing is around $8.00, so this translates into a gain of $1960 per lot being traded, or two and a half large. The Japanese Yen also moves very closely with the dollar.
John Carter (Apr 13, 2006 10:12:25 AM)
Figure 8.20 USDCAD
John Carter (Apr 13, 2006 10:12:34 AM)
1. On July 21, 2005 (see figure 8.20) USDCAD fires off a long signal at point #1. The entry is 1.2169. The market consolidates for a few days, and almost stops the play out—but a sell signal is never given. In this situation, there is nothing to do but wait for a signal to exit the trade. We’ve already established why human emotion makes a poor “exit signal.” 2. Nearly a week later, on July 27, a reversal signal is given at point #2 and we are out of the long at 1.2360, a gain of 191 pips—almost two large. The rate for pips on this currency pair during this play were about $6, which translates into a gain of $1146 per lot being traded. After reviewing this play, we’ve now covered the six major currency pairs that most traders focus on. There are other currency pairs that are also good to trade, and I will focus on two of my favorites next.
John Carter (Apr 13, 2006 10:13:55 AM)
Figure 8.22 EURJPY
John Carter (Apr 13, 2006 10:14:20 AM)
1. On July 19, 2005 (see figure 8.22) EURGBP—euro/pound—fires off a long signal at .6912 on the 240-minute chart. The market grinds higher. 2. Two days later, we get three lower closes in a row and the signal fires off at point #2. The exit on the long is .6970, or 58 pips. On this currency cross each pip is worth about $18, which makes the payout on this play $1044 per lot. This is actually a very quiet currency, but when it does move, it is very steady and it tends to act like nothing can stand in its way. Because of this trait, we nicknamed this currency pair “the tank.”
John Carter (Apr 13, 2006 10:15:03 AM)
Clarification -- Figure 8.22 is for EURGBP, not EURJPY
John Carter (Apr 13, 2006 10:15:18 AM)
The next is the EURJPY chart, Fig 8.21
John Carter (Apr 13, 2006 10:15:39 AM)
1. On August 2, 2005 (see figure 8.21) EURJPY—euro/yen—fires off a short signal at point #1 at 136.66 on the 15-minute chart. The market chops around for about an hour before breaking down and selling off. 2. Nearly two hours later, a corresponding reversal signal is given at point #2, and I exit the trade at 136.18, for a gain of 48 pips. The pip value on this currency pair was around $8 at the time of this play, which translates into a gain of $384 per lot being traded.
John Carter (Apr 13, 2006 10:16:40 AM)
Ok, so that is all the chart examples
John Carter (Apr 13, 2006 10:16:44 AM)
Let me sum up this play
John Carter (Apr 13, 2006 10:16:49 AM)
Then open it up for questions
John Carter (Apr 13, 2006 10:16:59 AM)
Scalper buys and sells are especially useful for traders who like to try to buy bottoms or short tops. While it is foolish to short a market just because its “too high” or buy a market because its “too low,” its fine to short that high flyer or buy that all-out loser once you get a reversal confirmation with this signal. It doesn’t mean that the dead highs or the dead lows are in place, but it does mean that there has been a temporary shift in power, and it is a valid signal to step in and establish a position. Whether this is an intraday reversal on a five-minute chart, or a total market reversal off a daily chart, the concept is exactly the same. In addition, this play is based on pure price action, and I appreciate its simple and effective nature.
John Carter (Apr 13, 2006 10:17:55 AM)
So that's the scalper buys and sells -- if you guys have any questions fire away
Fxstreet Moderator (Apr 13, 2006 10:18:05 AM)
Lets go to live Questions start posting
SAP (Apr 13, 2006 10:18:31 AM)
I very much enjoyed your book. One question though, your examples demonstrate how your setups work across multiple markets, but which setups work best specifically in the FX market and which ones aren't as effective?
John Carter (Apr 13, 2006 10:19:04 AM)
That's a good question -- I'll go through them quickly
John Carter (Apr 13, 2006 10:19:50 AM)
The Gap play, Chapter 6, is really more of a stock indexes futures play
John Carter (Apr 13, 2006 10:20:04 AM)
Pivot points -- the weekly and monthly levels work nicely in forex
John Carter (Apr 13, 2006 10:20:19 AM)
chapter 8, scalper buys and sells -- just went over that
John Carter (Apr 13, 2006 10:20:30 AM)
Chapter 9, tick fades -- this doesn't apply to forex
John Carter (Apr 13, 2006 10:20:56 AM)
Chapter 10, squeeze, a very good indicator for forex, especially on 60, 120 and 240 minute charts
John Carter (Apr 13, 2006 10:21:21 AM)
Brick Plays -- this works decently in forex -- but I've found scalper buys and sells give a slightly quicker lead time
John Carter (Apr 13, 2006 10:21:53 AM)
Ping Pong play, chapter 12 -- This works good for DAILY moving averages, 8, 21, 55, 100, and 200 SMA
John Carter (Apr 13, 2006 10:22:11 AM)
currencies tend to bounce around these MAs as if they were pivots
John Carter (Apr 13, 2006 10:22:54 AM)
Chapter 13, 3:52 play -- that is for stock index futures, but a similar setup happens an hour before the London open and when the dollar index closes
John Carter (Apr 13, 2006 10:23:03 AM)
Chapter 14, box plays, very nice for forex
John Carter (Apr 13, 2006 10:23:19 AM)
Chapter 15, HOLP and LOHP, great for reversals on the daily charts in forex
John Carter (Apr 13, 2006 10:23:48 AM)
Chapter 16 -- propulsion plays, this is mostly for stocks, but also works with the daily moving averages in forex.
John Carter (Apr 13, 2006 10:24:02 AM)
So that's them --
CM (Apr 13, 2006 10:24:26 AM)
The setup is base on market action. In this kind of setup, does a trader preset support & resistant level base on a time frame?
John Carter (Apr 13, 2006 10:25:52 AM)
Right, the market action gets you into and out of the trade -- however, it doesn't take into account any preset S&R levels -- the pure play is to just get in on the entry and out on the exit -- however I think it is smart to "scale out" of a position as it approaches key support or resistance levels.
John Carter (Apr 13, 2006 10:26:20 AM)
I usually like to look at S&R based on the same time frame that the signal fired off on
John Carter (Apr 13, 2006 10:26:30 AM)
So, a 15 minute signal, then look at 15 min S&R, etc
bn (Apr 13, 2006 10:27:03 AM)
When you say reversal signals, what exactly are they?
John Carter (Apr 13, 2006 10:27:31 AM)
Like right now if you look at USDCAD, its been moving steadily higher from 1.1450 and it is now at 1.1529
John Carter (Apr 13, 2006 10:27:48 AM)
if I was looking for a reversal signal in USDCAD, I would be looking for a scalper sell to go short
John Carter (Apr 13, 2006 10:27:55 AM)
ie, a reversal from the current up move
carlos (Apr 13, 2006 10:28:15 AM)
you said go long after 3 consecutive higher closes...is that ok? or go short?
John Carter (Apr 13, 2006 10:28:51 AM)
it could be either -- in the case I just mentioned of USDCAD -- if we got a signal it would be a short signal
John Carter (Apr 13, 2006 10:29:19 AM)
However, right now if you look at a 15 min chart of USDJPY -- it has been selling off hard for about 40 pips
John Carter (Apr 13, 2006 10:29:29 AM)
so if we got a scalper reversal here it would be a long
John Carter (Apr 13, 2006 10:29:40 AM)
ie -- the scalper pinpoints a reversal of the current move
su25 (Apr 13, 2006 10:30:22 AM)
what is the average profit/loss per trade (€/$) using this system on hourly,daily, weekly?
John Carter (Apr 13, 2006 10:31:22 AM)
i usually focus on the average loss -- usually the losses are consistent but the gains can be all over the place. (ie, you might catch a 5 pip move or it may be the start of a big 200 pip move)
John Carter (Apr 13, 2006 10:31:48 AM)
so, for average loss, usually on 60 minute is about 20 pips, versus gains of 20-100 pips
John Carter (Apr 13, 2006 10:32:01 AM)
daily 50 pips, vs gains of 50-200 pips
John Carter (Apr 13, 2006 10:32:11 AM)
weekly 100 pips, vs gains of 100-300 pips
7-Up (Apr 13, 2006 10:32:26 AM)
How does your system work when the "news" causes the consecutive candle moves?
John Carter (Apr 13, 2006 10:33:15 AM)
it usually works in conjunction with the news -- a lot of times news can act as the reversal, so the scalper buys and sells still fire off entries and exit signals accordingly
John Carter (Apr 13, 2006 10:33:29 AM)
because of that I don't place too much importance on the news and just focus on the price action
John Carter (Apr 13, 2006 10:34:38 AM)
ok, have to take off -- if you guys have additional questions feel free to visit www.tradethemarkets.com
John Carter (Apr 13, 2006 10:34:45 AM)
or email me at jcarter@tradethemarkets.com
Fxstreet Moderator (Apr 13, 2006 10:34:45 AM)
That’s all the time we have today Thank you John for hosting today we hope to see you back again for another session next month perhaps.
Fxstreet Moderator (Apr 13, 2006 10:35:00 AM)
If your question was not answered during the course of this chat, please contact Email John
Fxstreet Moderator (Apr 13, 2006 10:35:19 AM)
Some good new I am pleased to announce that the full transcripts are back for all who would like to enjoy their contents. Please check out our new web blog and post comments and make it a interesting educational place for traders to meet. Transcripts : http://www.fxstreet.com/chat/transcriptlist.asp available in 1 hour
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