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Amazingly Simple Scalping Price Action Trading Strategy To WIN On Forex & Stock Market - YouTube
Channel: The Secret Mindset
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Many traders prefer to get involved on lower
timeframes and to make quick profits scalping
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Forex or stock market.
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Others are price action traders, reading the
markets and making trading decisions based
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on the recent price movements, not relying
on technical indicators.
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But can you combine both?
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Scalping and price action?
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Sure you can and in this video I am going
to show you a simple price action strategy
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to scalp the lower time frames, strategy which
involves a trendline and a double top or a
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double bottom pattern.
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Just as the name implies, this price action
pattern involves the formation of two highs
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at a critical resistance level for a double
top, and the formation of two lows at a critical
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support area.
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The idea that the market was rejected from
this level not once, but twice, is an indication
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that the level is likely to hold.
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A double top pattern is where price fails
to break a previously established price level.
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This indicates an area of resistance where
sellers overwhelm the market.
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As a result, the buyers eventually give up
leading to a double top pattern.
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A double bottom pattern is the exact opposite
of a double top pattern.
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Here, price initially forms a low and then
bounces back.
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Following this bounce, price once again tests
the same level but fails to break any lower.
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The double bottom pattern indicates an area
of support or demand where buyers overwhelm
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the sellers, leading to price forming this
pattern.
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A validation of these patterns signals a reversal
in the price’s direction.
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When these patterns form, it tells you that
the market momentum in the direction is stalling.
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When price fails to make any fresh lows or
highs but closes at or near the previously
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established high or low, a double top or a
double bottom pattern is formed.
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In this 1-min chart, you can notice that after
the double top pattern is formed, price tends
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to eventually move lower.
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And here, you will see the double bottom pattern
that emerges.
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A successful formation of this double top
or double bottom pattern results in a change
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of price direction.
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Now, here’s an important point.
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Not all double top or double bottom patterns
are perfect.
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It is very rare to find price forming a pattern
at exactly the same price level.
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A more common pattern is the double top or
double bottom with a fake breakout, especially
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on lower timeframes.
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Fake breakout patterns are one of the most
important price action trading patterns to
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learn, because a false-break is often a very
strong clue that price might be changing direction
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or that a trend might be resuming soon.
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A false-break of a level can be thought of
as a ‘deception’ by the market, because
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it looks like price will make a strong move
in one direction, but then it quickly reverses,
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deceiving all those who took the ‘bait’
of the breakout.
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It’s often the case that amateurs will enter
what looks like an ‘obvious’ breakout
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and then the professional’s will push the
market back the other way.
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As a price action trader, you want to learn
how to use double top and double bottom false
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breakouts to your advantage, rather than falling
victim to them.
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One common misconception is that the double
top or double bottom pattern become tradable
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once the second top forms.
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The truth is that a double top or bottom is
only confirmed and therefore tradable once
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the market closes below its neckline.
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This is the intermediate high in case of a
double bottom pattern or an intermediate low
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in case of a double top pattern.
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When this reference point is breached, you
can expect the pattern to be validated.
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Once the pattern is formed, price now changes
direction.
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When you combine these patterns with the concept
of trends, this approach will be even more
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powerful.
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Now that we have an understanding of the double
top and the double bottom patterns, let’s
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see how we can apply this to scalping.
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Most trading books teach you to trade double
tops and bottoms as reversal patterns.
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I prefer to do the opposite.
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I trade them as continuation patterns.
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Yes, a double bottom or a double top when
formed within a trend can signal a continuation.
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For this approach, you will first need to
determine the main trend on the lower timeframes
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and plot a trend line.
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An upward trendline when you see higher highs
and higher lows and a downward trendline when
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the market makes lower lows and lower highs.
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Now, you need to identify potential setups
such as the double bottom or double top pattern
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that can occur close to the trend line.
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When this pattern emerges, you can be confident
in trading in the direction of the trend.
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So in the case of an upward trend line, you
search for double bottoms near that trend
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line.
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And conversely, you search for double top
patterns near a downward trendline.
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Let’s look at an example of a long setup.
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In this instance, we identified a rising trend
line on the 5 minute chart and we waited for
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the price to post a double bottom pattern.
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This pattern forms right near the trend line,
increasing the validity of the double bottom
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pattern.
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Since we already know that price is in an
uptrend, the validation of the double bottom
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pattern off the trend line increases the odds
of this setup being successful when compared
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to trading it in isolation.
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You enter once the price breaks above the
neckline of the double bottom.
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Now, the first thing you need to know is that
the initial breakout is not what triggers
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the trade setup.
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What we need is a retest of the neckline as
new support.
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This ensures a favorable risk to reward ratio,
which is an essential factor if you wish to
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succeed when scalping.
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Notice in this example how the market retests
the neckline as new support.
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This is where we now have an opportunity to
go long.
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A potential profit target is made by projecting
the distance of double bottom to the upside.
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You simply take the distance from the double
bottom resistance level to the neckline and
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extend that same distance beyond the neckline
to a future, upper point in the market.
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You do not necessarily need to wait for the
DT or the DB patterns to form right near the
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trend line.
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These patterns can appear at any point in
the uptrend.
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The key thing to remember is that the trend
line still remains intact and that price has
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not deviated too far away from the trend line.
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This is because when price deviates too far
away from the trend line, it can revert to
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the mean, or snap back to the trend line.
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This can reduce the odds of the double top
or the double bottom pattern being a successful
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trade setup.
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Here are other examples of valid double bottoms,
near upward trendlines on lower time frames.
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The second scalping scenario involves a downward
trendline, and a double top on lower timeframes.
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So let’s analyze this example.
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We have a downward trend, with a bearish trend
line.
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The price creates the first top and then makes
another top.
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Notice that the created pattern is near main
the trend line and doesn’t go through it.
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We plot the neck line on the bottom between
the two tops of the pattern.
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You go short when you identify the breakout
and price retests the neck line.
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Needless to say, you should always secure
your open trades with a stop loss order because
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there is never a guarantee that the trade
will work in your favor, especially when you’re
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scalping.
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The optimal place to put your stop loss order
is just above the second top.
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If you want a higher risk-reward ratio, you
could set your stop loss closer to the entry
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price.
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For example, you can put your stop loss at
another smaller swing point or a candlestick
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high, which comes after the second top.
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If the price move after the neckline is consistent
with no corrections, then simply measure the
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distance between the second top and the trigger
line, and place your stop loss in the middle.
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It might be a better risk reward solution
for the double top and double bottoms.
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This way, you will get at least 1:1.5 risk
reward ratio.
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After setting the stop loss, you measure and
apply the size of the double top pattern as
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your target.
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So the minimum target equals the size of the
pattern.
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Now, here is a very important point.
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A double top pattern without the close below
the neckline is not technically a double top.
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Unless the neckline has been broken, this
is not a double top.
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It could be consolidation, ranging price action.
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The main thing to remember is that no double
top is completed until the market closes below
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the neckline.
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Not only is it not completed, but attempting
to enter before having a confirmed setup can
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get you in a lot of trouble.
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Perhaps the most important aspect of a Double
Top is to avoid entering before confirmation.
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Wait for support to be broken in a convincing
manner, and usually with an expansion of volume.
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Yes, you can pay attention to volume to get
an extra confirmation that the breakout of
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the neckline has some momentum.
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Here are several valid double tops, near a
bearish trend line.
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Most traders use indicators for scalping and
there is nothing wrong with this approach.
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The problem with indicators is that they lag
behind price.
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And scalping trading and lagging behind just
don’t mix well together.
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Scalping requires quick analysis, quick decisions,
and quick trading.
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That’s why price action represents a good
fit for scalping.
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At its core, price action trading is all about
speed and efficiency and might bring better
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and more consistent results in the long term.
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As always, if you learned something new and
found value, leave us a like to show your
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support, subscribe to our channel and hit
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Until next time.
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