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Day Trading Was Hard, Until I Discovered This GAME CHANGING Scalping Strategy - YouTube
Channel: The Secret Mindset
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If your day trading session is looking like
this, by the end of this video, this strategy
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will take your trading to the next level,
just by using MACD indicator and one simple
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price action pattern.
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Once you train your eyes, you will see the
signals all over the place.
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At the beginning of a new trend.
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At the end of a retracement.
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Within a trading range.
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Within rising or falling trend.
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Before we begin, if you want more videos,
more often, please drop a like to help us
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so you donāt miss when new content is released.
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Now, letās get started!
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This scalping trading strategy is based on
price action and simple market structure that
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any trader should know.
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The strategy is mostly used as a continuation
trading setup that is designed to take advantage
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of the trend of the market, using a simple
ABC pattern and MACD histogram.
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And even though it is a continuation pattern
upon confirmation, it can also be used as
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a reversal pattern from the short term trend
direction.
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In any trending market, there is a pattern
of higher highs and higher lows.
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In order for the trend to the upside to remain
active, each successive impulse swing must
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take out the previous swing, which is the
point B in the formation.
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When price surpasses the price at point B,
you can use this as confirmation that the
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ABC pattern is present.
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In an uptrend market situation, price will
make 3 points
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Point A is the lowest low point, forming a
support level.
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Point B will be the highest point, forming
a level that we consider as potential resistance
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Point C will be the 2nd low point, a support
level (which must be higher than point A).
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The breakout of price above point B signals
the continuation of the uptrend.
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In a downtrend market, the ABC pattern forms
when:
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Point A becomes the highest point when price
finds resistance and moves down.
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Point B becomes a lower low point (forming
a support level)
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And we finds another resistance at point C,
which is lower than point A
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When price breaks the point B support level,
it indicates that the market is most likely
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to continue downward
The ABC pattern is very powerful.
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When an uptrend pulls back, it will put in
a low and from that low, price continues to
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rally.
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This acts as short term potential resistance.
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Price rallies to this point and then begins
to retrace back in the direction of the point
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A.
We DO NOT want to see price retrace all the
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way to point A. If it does, we will consider
that a double bottom formation.
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Please note that the ABC pattern is only confirmed
once the high at point #B is taken out by
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price.
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Honestly, itās a VERY SIMPLE pattern offering
many opportunities and a great risk/reward
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ratio.
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Once you understand the fundamental basics
and practice, you will see them all over the
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place.
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And you will see that sometimes the ABC pattern
happens very quickly or it can take some time
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to develop.
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Here is an important point for you to remember:
Generally, the more bars that are involved
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in the ABC buy or sell pattern, THE BIGGER
the move.
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The entry is simple, You either buy or sell
the breakout of the point B.
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But hereās the problem.
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There are many traders, systems, which blindly
sell and buy at the breakout of every pivot
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point on a chart.
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And this is where MACD histogram comes into
equation.
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MACD histogram will help us to filter ABC
signals.
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MACD Histogram bridges the time gap between
the price movement and MACD and offers a deeper
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insight into the balance of power between
so-called bulls and bears than the original
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MACD.
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The histogram is one of the best tools because
it shows not only who has control over the
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market but also their magnitude of strength.
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The histogram measures the distance between
MACD and its Signal Line, which is the 9 period
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EMA of MACD.
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The difference is represented by vertical
lines.
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The interesting fact is that MACD-Histogram
also fluctuates above and below the zero line.
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Hence, it is also known as a āmomentum oscillatorā.
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If the fast line is above the slow line, MACD-Histogram
is positive and plotted above the zero line.
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On the other hand, if the fast line is below
the slow line, MACD-Histogram is negative
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and plotted below the zero line.
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Interestingly, when the two lines touch, MACD
Histogram equals zero.
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The magnitude of the histogram height is directly
proportional to the spread between the MACD
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and Signal Line.
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When the uptrend or downtrend gains momentum,
MACD-Histogram becomes taller or deeper, depending
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on its direction.
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When the momentum weakens, MACD-Histogram
becomes shorter.
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Pay attention to this part because we will
use the increase and decrease in MACD histogram
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to filter our signals.
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You will get the maximum benefit when you
will be able to identify the real value of
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the histogram.
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When the histogram is above the zero line,
positive, but starts to fall toward the zero
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line, it signifies the uptrend is weakening.
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Conversely, when the histogram is below its
zero line, negative, but starts to rise toward
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the zero line, it signifies the downtrend
is weakening.
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In other words, the decrease in height when
above and below the zero line signifies that
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the underlying momentum is getting weaker.
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Now very important: it just give a warning
but never provides a signal to go long or
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short.
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Now, how to filter ABC signals using MACD
histogram.
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Itās very simple.
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Hereās a long ABC pattern entry.
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We identified point A, and the first movement
higher is point B.
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This is followed by a retracement back lower
that creates a higher low and point C.
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The ABC pattern is fully formed when price
takes out the recent high of leg B.
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This is the time when weāll make our breakout
trade.
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But we need a confirmation, because if you
take all signals, without context, you will
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slowly blow your account.
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The key here is the MACD histrogram.
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For this long setup, during the formation
of the third point, point C, the MACD histogram
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must remain positive.
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It shouldnāt go below the 0-level.
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This is very important.
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This means the MACD decreased in height during
the formation of point C, but remained above
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zero line.
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So even if the underlying momentum is getting
weaker, itās still positive momentum.
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And when price breaks point B, then we can
safely enter the trade, because during the
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correction, when point C was formed, bulls
remained strong and maintained the upward
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momentum.
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Hereās how you filter short signals using
the ABC pattern and MACD histrogram.
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We have a downtrend.
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Point A is the highest point when price finds
resistance and moves down.
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Point B becomes a lower low point, and forms
support.
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Point C forms when the price moves up and
forms a resistance.
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Remember that point C must be lower than the
point A.
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For this short setup, during the formation
of the third point, point C, the MACD histogram
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must remain negative.
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It shouldnāt go above the 0-level.
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So during the formation of point C, MACD increased
in height, but remained below zero line.
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Even if the underlying momentum was increasing,
was still negative momentum.
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And when price broke point B downwards, we
entered the trade, with the downward momentum
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on our side.
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The price breakout below point B support level
indicates that the market is most likely to
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continue going down.
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ABC patterns are also known as continuation
patterns that represent breakouts of consolidated
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prices in the direction of the trend.
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But they might also signal a reversal move.
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My favourite setups and the safest ones are
trend continuation.
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Being a scalping and day trading strategy,
you must consider the short-term trend and
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trading in this direction.
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You do not need to consider the long-term
trend because you donāt aim to trade it.
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For example, if you are trading the M5 time
frame, it does not really matter what the
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daily time frame is doing.
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This is critical, as every chart has its own
trend.
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In this example, we aim to trade from one
swing to the next using the short-term trend,
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to ensure we are on the right side on the
next swing.
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If you are experienced, you can also use this
scalping setup to trade reversals.
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If there is an uptrend, point A would be the
first leg to the new lower low (LL).
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Point B, or the second leg of the pattern,
is when the price is retracing, but does not
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make a fresh high.
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Thus, in this uptrend example, the first leg
is moving lower, and the second leg is moving
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the price back higher, but doesnāt make
a new high; so point B completes a new lower
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high (LH).
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If the price does make a new high, the uptrend
is still in play.
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For the last and final leg of the pattern,
the price, again, moves lower, past the point
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B and goes on to make a new lower low.
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I personally tend to ignore those setups,
simply because trend continuation scalping
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setups have a higher chance of succeeding.
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However, the trend reversal setups can offer
much higher risk-to-reward ratios.
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Target Level
Your target level during a ABC trade should
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be at a distance equal to the size of the
ABC chart pattern.
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Applying it from the start of the confirmation
level will give you an approximate target
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level.
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To measure the size of the pattern, you will
need to add several lines.
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Line 1 should connect Pivot Points A and C.
Line 2 is the horizontal level at Pivot Point
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B.
The size of your ABC pattern equals the vertical
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distance between Line 2 and the midpoint of
Line 1.
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Or, even simpler, you project the size of
the AB leg from the breakout of point B.
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Your stop loss order should be placed in the
area of Point C. Sometimes, volatile market
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conditions can push the price to go beyond
Point C for a short period.
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Then, the price will return and reverse again.
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You donāt want to get your stop activated
in this way.
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Thatās why the smarter approach here is
to put your stop slightly beyond that level.
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If the pattern is bearish, the stop loss should
go above the top of Point C.
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If the pattern is bullish, then you should
place the stop loss below the bottom of Point
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C.
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The
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ABC reversal pattern combines well with the
MACD because the histogram can help signal
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extreme values, which can provide confirmation
of trend reversals.
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The idea is to match a reversal signal from
the ABC reversal setup with a reversal signal
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from an MACD histrogram.
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Matching ABC signals with MACD divergences
will give you a higher probability trade .
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Also, itās important to use price action
to improve your decision making.
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After all, the knowledge of another price
action pattern emerging can always come in
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handy.
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In this chart, we found a bearish trend.
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At the beginning, it might be hard to spot
the first two Pivot Points on the chart.
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However, when the price closes a higher low
at Point C, and moves slightly upwards, this
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triggers some bullish thoughts.
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At the same time, MACD histogram shows a bullish
divergence.
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A bullish divergence occurs when the MACD
histogram is indicating that price should
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be bottoming and heading higher, yet the actual
price action is continuing downward.
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So we had a previous bullish MACD divergence,
the ABC pattern and the MACD remained positive
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during the formation of point C. A confluence
of factors.
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So when price broke point B, it went straight
to our profit target.
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Hereās an example of a bearish scalping
trade.
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You will see that price action formed the
first leg lower, the second leg higher with
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a lower high and then finally price broke
out and confirmed the pattern.
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At the same time, MACD was previously indicating
a bearish divergence.
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A bearish divergence occurs when MACD histrogram
is suggesting that price should be going down
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but the market price is continuing to maintain
its current uptrend.
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And as the price corrected to form point C,
the MACD remained negative.
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So, a valid signal.
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This is a simple and powerful setup.
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As always, if you got any value from this
and learned something new, leave us a like
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Until next time.
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