A market has three conditions:
1 – Up trend
2 – Down trend
3 – Congestion
1 – Uptrend Scalping Rules:
- Never short a market in an uptrend.
- Enter buy order at a daily low on the first or second day in a run. Never buy the low of a third day up in a run.
- Under condition 1 and 2 it is also permissible to buy one daily spread below the intraday high of a move. Such action carries greater risk.
- Under condition 3, where there are three or more days in an upmove, enter long position at the low of the first down day or on the close of the first down day. Do this only on first wave action. Wait in third wave action.
- Enter buy order one daily spread below the close of a second upday.
- May also enter buy orders on the basis of action-reaction concept. i.e. Buy at a point equal to the previous reaction.
- Take profits at previous high or at swing objective (1-2 equals 3-4)
- Take profits at high of previous day.
- Take profits at 0.5-1, daily spread distance above the close on the day of entry.
- Take profits on close of a three day up move.
- Take profit one spread distance above close on day of entry. There is no set condition as to which one of these conditions will yield the most profit. Generally, the safest approach is to take profits by rule 2.
Stop Loss – Stop one tick below (above) the last pivot point.
Contingency Plans – The worst possible condition is to let a stop get caught. Sometimes this is unavoidable and the stop is there for protection. At other times, a long position may be liquidated at a daily high or at the 50% point of a daily range in which case the loss in minimized.
2 – Downtrend Scalping Rules: Same as the uptrend rules, only opposite.