Trading Psychological Levels - 1 pip scalping

[korrupt_1]

Finally getting starting into Forex and it has opened up a whole new world to me... I can see potentials and with the ability to trade multiple pairs in real time with huge leverage, it's a receipe to fast track wealth or put me on the streets

Anyway,.. been trading S/R with some success. Winning 7 in 10 trades with 2:1 RR, so it's smooth sailing so far...

However, I keep on going back to trying to scalp it for a few pips here and there. I have noticed that on many pairs - mainly concentrating on the A/U for now - that when it crosses a psyschological level like 0.8700, 0.8650, 0.8600, etc... it tends to over shoot it by atleast 1 or 2 pips...

I've backchecked this roughly (manually) for a few months and it looks like it's good. With SL at 20pips seems to be safe... (I know what you are thinking 1:20 RR is CRAZY!!!! )

So, my question... what's stoping me from doing a, say $1000 contract for 1 pip at these levels? Is there enough liquidity to carry this order through?

Does anyone else do this? I'm sure I'm not the first to notice this behaviour.

So far this morning, I've managed to steal 3 trades of 2 pips each as it crossed 0.8600 on the A/U pair... through IG Markets on $20 contracts...

If I want to do this with larger contracts, should I be using an ECN or MM broker?

 

[caribean]

Re: Trading Pscyhological Levels

Hi korrupt, i'm not a trading guru, and i'm usually very open minded about trading systems, or methods, but i think that's a recipie for disaster, most people starting in Forex think the same way....$1000.00 per pip x 2 or 3 pips a day,it can't be that difficult.......
but if it works for you then let me know and i'll use the same method...lol

 

[korrupt_1]

Re: Trading Pscyhological Levels

$1000.00 per pip x 2 or 3 pips a day,it can't be that difficult.......

haha.. not that crazy - just 1 pip for me

But serriously, I totally agree with you on that one - doing $1000 contracts sounds like asking for big trouble...

I've been doing this for real some 50 odd trades in the last 2 weeks. Each time going for 2 pips risking anything from $5 to $20 contracts. Beginners luck? but 100% hit rate so far... there was one scare a few days ago when it bounced off the 50 level and went back the other way some 40 pips before crossing over it cleanly.

Whether it works or not reliably... i'm not sure... but backchecking it manually seems to say 1 pip is possible... (even taking the 2 pip spread into account)

I wonder if someone like Tayser or Prawn would be able to comment?

 

[skyQuake]

Re: Trading Pscyhological Levels

Hey Korrupt, I have noticed the same thing myself thought I have never thought of trading it. Good thinking.
From what i've seen is that once the pair approaches round figure levels, it will spike to hit the level and sometimes past it by a few pts. Less so for new highs for new lows though.
I say go for it. Big contract size shouldnt matter too much as fx is fairly liquid around those crucial levels.
What would increase your success rate imo is to have a look at the open interest on Barriers Oppies on those levels.

 

[korrupt_1]

Re: Trading Pscyhological Levels

What would increase your success rate imo is to have a look at the open interest on Barriers Oppies on those levels.

What's a barriers Oppies?

I say go for it.

A pip is a pip... so if a trade was successful, then all is good... (execpt for the stress when the position was in -ve) LOL

 

[caribean]

Re: Trading Psychological Levels

All i can sincerely say is, good luck

 

[MRC & Co]

Re: Trading Psychological Levels

I would learn to read the tape Korrupt.

Look what is happening when these round figures are being approached and the reaction to these levels. They are basically just another point of support and resistance and I use them myself on the CL (full sized crude contract), sometimes you will see resistance/support in the DOM come in at these levels and actually hit the market, protecting them. Other times, you will see none and it will shoot straight through them.

With a 1:20 R:R, you are suicidal IMO. You are not going to get above a 95% hit rate with these type of plays.

Just my opinion. Good luck with it, but really try and learn to read the tape. Takes a long time, but is your best chance IMO.

 

[prawn_86]

Re: Trading Psychological Levels

korrupt, i am far from an expert at any form of short term scalping, but if you have recognised an anomoly then well done.

My advice (for what is worth (0)) is make sure you spend time demoing or trading with small amounts, so if you are wrong it doesnt send you to the wall. Im talking over 100 trades here to get some sort of statistical significance happening.

I know when scalping the Cyrox method that the barriers you mentioned do act as a sort of 'magnet' and i know there is usually a 'zone' around the big levels like .00 and .50 so i guess it could work.

When it comes to RR and postion sizing and the like im out of my league. Listen to what others say re RR etc and stick to the 2% rule, especially at first.

Hope that helps. My opinions only etc etc

 

[prawn_86]

Re: Trading Pscyhological Levels

there was one scare a few days ago when it bounced off the 50 level and went back the other way some 40 pips before crossing over it cleanly.

And yeh, i would tighten up that stop by a lot! if you lost 40 pips on one trade, thats going to take 40 positive trades to get it back.

Perhaps look at a 5 pip stop, but again im not an expert on position sizing or anything like that. In fact im not an expert at anything... yet

 

[MRC & Co]

Re: Trading Psychological Levels

sometimes you will see resistance/support in the DOM come in at these levels and actually hit the market, protecting them. Other times, you will see none and it will shoot straight through them.

Of course, others you will see that large volume absorbed and price will keep pushing through. Thought I would get that in before someone tried to correct me.

 

[Trembling Hand]

Re: Trading Psychological Levels

korrupt hate to throw you but what you are seeing may just be random.

Let me explain. You are trading IG markets which is not a real market but a synthetic one. ie they don't send your trade to the market but take the other side of your trade. You probably know this already.

What you probably don't know is how they price your FX trade. What they do is link the price to the corresponding Globex Futures contract.

But, Here is your problem, they don't match the actual market price. They set the price some arbitrary amount away from the "real" market. Like 17 pips or what ever they feel like. The round number you see your pattern at has nothing to do with the real world.

Just another trick the bucket shops play. At the moment IG AUD/USD is going tic for tic to the front month globex Fut but 21 ticks higher!!

 

[caribean]

Re: Trading Psychological Levels

korrupt hate to throw you but what you are seeing may just be random.

Let me explain. You are trading IG markets which is not a real market but a synthetic one. ie they don't send your trade to the market but take the other side of your trade. You probably know this already.

What you probably don't know is how they price your FX trade. What they do is link the price to the corresponding Globex Futures contract.

But, Here is your problem, they don't match the actual market price. They set the price some arbitrary amount away from the "real" market. Like 17 pips or what ever they feel like. The round number you see your pattern at has nothing to do with the real world.

Just another trick the bucket shops play. At the moment IG AUD/USD is going tic for tic to the front month globex Fut but 21 ticks higher!!

It's normal for the futures to be diferent to spot, also, most forex MM's will be basing their price on the interbank spot prices, not currency futures.
Correct me if i'm wrong, TH.

 

[caribean]

Re: Trading Psychological Levels

..i should point out,without complicating things, that futures or "forward" contracts include the cost of finance over the time period of the contract.

 

[Trembling Hand]

Re: Trading Psychological Levels

Nope. Futures Tick for Tick.

If you ever have the pleasure of seeing a fat finger order go through the Futs you will see the Bucket shops match it.

 

[caribean]

Re: Trading Psychological Levels

I'm not disputing what you're saying, you may well be right...nor am i agreeing with you, i watch futures and spot minimum 4 days a week, 5-6 hours a night, and i never see that much difference in the way they move, slight overshoot some times, not much more.....

 

[Trembling Hand]

Re: Trading Psychological Levels

I'm not disputing what you're saying, you may well be right...nor am i agreeing with you, i watch futures and spot minimum 4 days a week, 5-6 hours a night, and i never see that much difference in the way they move, slight overshoot some times, not much more.....

Yep I agree. Just warning about the actual price levels a bucket shop quote.

 

[tayser]

Re: Trading Psychological Levels

ODL (MT4), Oanda, MBT and ADM Derivatives (Currenex Lite) are all within one or two pips of each other - bucket shops or ECNs, they're all following the interbank rates.

 

[korrupt_1]

Re: Trading Psychological Levels

korrupt hate to throw you but what you are seeing may just be random.

Let me explain. You are trading IG markets which is not a real market but a synthetic one. ie they don't send your trade to the market but take the other side of your trade. You probably know this already.

What you probably don't know is how they price your FX trade. What they do is link the price to the corresponding Globex Futures contract.

But, Here is your problem, they don't match the actual market price. They set the price some arbitrary amount away from the "real" market. Like 17 pips or what ever they feel like. The round number you see your pattern at has nothing to do with the real world.

Just another trick the bucket shops play. At the moment IG AUD/USD is going tic for tic to the front month globex Fut but 21 ticks higher!!

Firstly... I hear you TH, about how CFD providers requote and do not match the ture underlying price levels - but if it moves tick for tick, and as long as they don't play silly games, does it really matter?

Secondly,.. the effects I am noticing around rounding levels maybe random as you suggest... but if it's repeatable with high level of success... then is it really random? Perhaps a coincident?

I've quickly checked the E/U pair for the past few days of data on the hourly chart and it also exhibits something similar to what I've been seeing on the A/U pair... (attached chart)... at every stage where it crossed a rounding level the quote has traced back over that level...

If someone has access to historical data and can write a quick backtest to see if it's possible to scalp just 1 pip at rounding levels... it would prove something useful to look out for...

As a starting point.. i'm looking at:

Go short if coming from above a rounding level.
Go long if coming from below a rounding level.
Only re-enter if quote has moved >20 pips away after crossing the rounding level (ie don't want to re-enter if it's only just crossed the level and has doubled back)
Only enter if its NOT a new low or a new high.
Target 1 pip (but need to factor in the spread - 2-4pips depending on the pair traded)
SL... let's say 50 pips for now...


Bugger me, for now I'm only messing around with money I can afford to loose, but golly it looks extremely tempting to up my ante on these trades as it's been 100% successful so far... maybe a $200 contract for 1 pip... just don't tell me what my potential loss is if I get stopped out... I will be in denial... hahaha... :bonk:

 

[Trembling Hand]

Re: Trading Psychological Levels

Well if you can see the pattern trade it. Simple. No argument from me.

Only thing is you simply cannot trade for a 1 pip target. PERIOD.

Thats bigger than the spread! When scalping, like all trading, you have to have your avg winner larger than your avg loser. Have to!

How is that going to work. Banging out 8 winners at 1 or 2 pips then you enter the trade that goes negative on you straight away. You down 12 pips before you can even think about it.

 

[prawn_86]

Re: Trading Psychological Levels

What TH said.

Why does your SL need to be so big? Plus you will need to try and let a few positive trades run here and there.