Scalping Trading Strategy

What is Scalping?

  • Scalping is a form of intraday trading.
  • Very short term trading ideally done on 2 min to 5 min chart in context to say 15/30/60 min charts.
  • Trades last for about 1 mint to 10 mints generally.
  • Fast trading with quick results
  • Need a very sharp presence of mind and a well thought out plan for every day.
  • It’s a double-edged sword. Planning and execution are both keys to success.
  • Successful scalpers usually focus on 1 or 2 scrips for their everyday trading.
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Intraday Trading V/S Scalping

  • Intraday traders are usually done with an objective to close positions before the market closes but scalps are done to profit as soon as possible and it can be 1 min to 10 min timeframe.
  • Intraday traders can last for more time compared to scalps.

Key Chart Locations for Scalpers

  • Weekly Range & Weekly Levels.
  • Nifty -225 points are normal weekly range.
  • Bank Nifty – 350 to 425 is a normal weekly range.
  • How to find Weekly Levels?
  • Identify whether next week will be a trending or non-trending type.
  • If it’s a trending one then the range will be 1.5 times of our normal range and if it’s going to be a non-trending one then the range will be 1 time to slightly less than our normal range. Once the range is identified then try to find out as many confluences as you can on either side of the range to get your weekly levels.
  • Tools that you can use to find confluence are a Fibonacci extension, pivot levels, Fibonacci retracement is any, trendiness, moving averages, etc….

Key Chart Locations for Scalpers

  • How to use ATR & ATR extensions?
  • Find Weekly and daily ATR
  • Add 1.5 times to PDC and min 1.5 times to PDC to get the 1.5 times ATR on either side.
  • Mark these levels on a chart or note it down. Such locations often result in a pullback movement for mean reversion.
  • How to use Fibonacci & Fibonacci Magic extensions?
  • Weekly.

Note last week’s range. Find out 1.27% and 1.62% of the range. Add/ subtract to get next week’s Fibonacci magic extensions levels.

  • Daily

Note the previous day range. Find out 1.27% and 1.62 % of the range. Add/ subtract to get next day Fibonacci magic extensions levels.

Sometimes daily/weekly Fibonacci magic extensions coincide. Such levels are powerbomb levels.

Key Chart Locations for Scalpers

How to use Pivots?

  1. Find out weekly & daily pivot levels using excel or indicator.
  2. For mean reversion trades use R4 or S4
  3. For trending moves use the zone between R1- R2 and S1-2
  4. Look for confluence at any of the pivot levels. Such levels will be more important.

Price action for intraday / Scalping Trading:-

The Tools:-

  1. Opening the Candle/Master Candle for the day & week.
  2. Gaps & Gap rules
  3. ORB-continuation & failures
  4. Precise chart locations – PDL, PDH, PDC, PDO, PEH, PWL, PWC
  5. Moving average to be used for scalping
  6. Few chart patterns
  7. VWAPs & missed VWAPs
  8. Multiple timeframe analysis

1. Opening Candle/Master Candle for the day & week.

  • 1st 5 min candle H-L daily chart

If the candle is a full-body then mostly the market will tend to stay in the direction as per the body color of the candle(bullish /bearish). On-trend say the market will respect the H-L of the 1st 5 mint candle whenever it gives a pullback. Support it reaches the low of this candle and makes a pin bar then it will again reverse again strongly as it suggests strong buying/selling coming in markets.

  • Monday H-L for the rest of the week.

1st day of the week H-L acts as an important location. Do note the exact open and close price as well for reference.

2. Gaps & Gap rules

  • Daily gap unfilled by 11 AM is most daily gaps get filled by 11 AM. However, if it is not filled then the rest of the day tends to go either sideways or move in the direction of the gap. If such happens + closing is at lows then the next day will result in a continuation of the gap. Also if such day was an RC day then the next day will result in RE in the direction of the gap.
  • Daily gaps get filled by 11 AM. If this happens then Gap is neutralized and the market is gearing up for a directional move. Support doesn’t trend on the day and remains RC / sideways then the next day will mostly result in a RE day. Now we go to notice the closing. If the closing is at DH then it’s safe to assume the next day will be a gap up or it will at least have a positive bias. Vice versal if closing at DL.
  • Daily Gaps gets filled after 1.40 PM- Now this is a special case. If the gap fills in the last part of the day then it suggests that it suggests that the market is gearing up for a trend day and depending on closing the next day can be guessed.

3. ORB-continuation & failures

  • Note 1st 30 min range. This is an opening range of the market.
  • This range will either breakout and price will expand later in the day or it will tend to hold with minor flushes on either side.
  • Traders can take trades on BO/BD of ORB with an SL above/below the ORB as the case may be.

4. Precise chart locations – PDL, PDH, PDC, PDO, PEH, PWL, PWC

5.Moving average to be used for scalping

  • 21 EMA and 200 EMA

200 EMA will give you a bigger picture of the current trend and 200 EMA will give you a shorter picture. Go with the trend of 200 EMA

6. Few chart patterns

  • Head and Shoulder and Inverted Head and Shoulder pattern
  • Triangles Pattern
  • Cup and Handle pattern

7. VWAPS & missed VWAPS

  • VWAP is used as a target point or as an entry point depending on the type of day and trend.
  • Missed VWAP is a WAP that is found at closing.
  • Note such missed VWAPs on a daily basis. Now, these missed VWAPs will be touched again once the market changes its trend.

Price Confirmation – Most important Candlestick patterns:

  • Pin Bars
  • Engulfing / Outside Bars
  • Inside Bars – breakouts

8.Multiple Timeframe Analysis:

  • Use 60 min/ 30 min chart as the main chart. Use 15/5 min as next
  • Use 2 min chart to get a quick picture.

RE & RC how to use them to your advantage.

For RE:

  • RE happens mostly after a consolidation gets over on a daily chart OR if the market is in a trending move then consolidation breakout on 30 min chart.
  • Buy on dips or sell on rise trades only
  • Avoid counter-trend trades only
  • If taking CTT then it must be at a point which is highly extended. Such points are your ATR extension for the day & wee, Fib extensions for the day & week pivot R4, etc…
  • Use VWAP as a location for entering trades. Try to use Vwap with price patterns only as it will give you high accuracy trades.
  • One can also use MA 21 EMA or a trendline to enter trades.

For RC:-

  • RC happens after a market has trended enough.
  • Try to find the established range as per 1st 30 min.
  • Use these a reference point or location for entering trades. Mostly price flushes through the level 1st and reverses hence look for flush before entering trades.
  • Take long/short both trades on such day. However, if the market is in any kind of strong trend then take trades only in the direction of the main trend and avoid CTT.
  • On such days often price will oscillate around the VWAP hence don’t use it for taking trade rather than use it for exiting a trade.
  • If there was a Gap up or Gap down then the high-low of gaps important and it will act as a support and resistance. Combine this with the 1st 15 min candle and you will get pretty solid range. So gap+5min HL will be a useful reference.
  • Using MA or trending or any chart pattern will be very result in failure.
  • Understanding that on RC day what market is trying to do is to frustrate. Most traders by hitting their SL on both sides hence if you are not comfortable then avoid trading on such days rather think and plan what can happen on the next day.

Putting together everything- Flow chart for decision making:

  • Focus is on Location + Confirmations
  • Locations — Weekly OHL, Weekly Fib Extensions, Weekly ATR extensions, weekly R4 PWOHLC
  • Locations — Daily OHL, Daily Fib extensions. Daily extensions, Daily R4, PDOHLC
  • Locations — Daily Gaps H-L
  • Locations — 1st 5 min H-L
  • Locations — Missed VWAP+ Running VWAP
  • Confirmation
  • Pin Bars
  • Engulfing
  • Inside Bars Breakout / Break down / Failures.

Risk Management:

  • Scalping is a double edges sword hence never ever over trade.
  • Never risk more than 1.5-2% of your trading capital on each trade
  • Always trail your profits.
  • Decide the maximum number of trades for each day.

Trading Psychology

  • Scalping is not mean for everybody hence if you feel uncomfortable after testing the waters then just avoid it. And if you can do it then work to improve your skills and reading ability in the market.
  • Be flexible in your mindset and ready to change the stance.
  • Rigid mindset people or biased people find it very difficult.
  • Thinking on your feet.
  • Be a sniper
  • Be patient and don’t let market influence or drive you.

Do’S:

  • Test the water first
  • Do paper trading for enough time before actual trading
  • Choose your scrip wisely. I should go hand with your psychology.
  • Take only high probability trades.
  • It’s a game of planning and patience
  • Continues self-evaluation and journaling is the real key to success.

Don’t’s:-

  • Don’t jump into any random trades.
  • Don’t start actual trading without doing paper trades.
  • If you are not planned for the day then simply avoid it.
  • If you are not in the right mindset then clear avoid it.
  • If the market is too much volatile for you to handle then skip the day
  • If you are comfortable with trending days and fail to perform on RC days then promise yourself to avoid RC and trade on RE only.
  • Never enter the game without planning & patience. Remember you are a sniper not a shooter.

Weekly Range & Weekly Levels:

  • Nifty-225 points are normal weekly range.
  • Bank Nifty 350 to 425 is a normal weekly range.

How to find weekly levels?

  • Identify whether next week will be trending or non-trending type.
  • If it’s a trending one then the range will be 1.5 times of our normal range and if it’s going to be a non-trending one then the range will be 1 time to slightly less than our normal range. Once the range is identified then try to find as many confluence as you can on either side of the range to get your weekly levels.
  • Tools that you can use to find confluence are a Fibonacci extension, pivot levels, Fibonacci retracement if any, trendlines, moving average, etc….

How to use Pivots?

  • Find out weekly & daily pivot levels using excel or indicator
  • For mean reversion trades use R4 or S4.
  • For Trending moves use the zone between R1-R2 and S1-2
  • Look for confluence at any of the pivot levels. Such levels will be more important.

Daily Range & Daily Levels.

  • Nifty 80 to 110 points is a normal daily range
  • Bank Nifty -275 to 325 is a normal daily range

How to find Daily Levels?

  • Identify whether next week will be a trending or not non-trending type.
  • If it’s trending one then the range will be 1.5 times of our normal range and if it’s going to be a non-trending one then the range will be 1 time to slightly less than our normal range. Once the range is identified than try to find out as many confluences as you can on either side of the range to get your weekly levels.
  • Tools that you can use to find confluence are a Fibonacci extension, pivot levels, Fibonacci retracement is any, trendlines, moving averages, etc…