Last week we were talking trend following as a method of trading and highlighted some of the issues concerning this form of trading. Focusing on the short term or day trading is not a reason to ignore the trend though. If we follow the direction of the primary or secondary trend with our short term positions then we can run our profits for that little bit longer than if we are fighting the trend!
Despite the decent move north in the FTSE on Thursday (we were long from our level at 5785) there were 2 nice opportunities to make 10 points or so back in the opposite direction, one from the level at 5804 and one from 5818. Now we took the second of these trades and made just over 10 points in the trade, the important thing to note though is that our risk was virtually zero! The chart below shows an overview of the two trades and the lower chart is the 1 minute displaying how the move played out.
View this chart in interactive mode on IT-Finance.com – https://10.92.10.68/LinkRef.php?to_url=http://www.it-finance.com/
We can clearly see the resistance at these critical levels and they gave us perfect low risk opportunities. Again we would never be looking to make 20-30 points on a trade like this, they are scalps and should be treated as such, you enter with a very tight stop 3-5 pips, ideally at the end of a 15 minute candle and what you want to see is prices start moving in the opposite direction as soon as the next candle forms. See the 1 minute chart below…
View this chart in interactive mode on IT-Finance.com – https://10.92.10.68/LinkRef.php?to_url=http://www.it-finance.com/
Now i know we suffered a pull back right to the entry but it was so brief before making the new low that it kept us from exiting, at this point we would have said if it goes 2 points higher than the previous high we would have closed the trade out for a 3-4 point loss. Fortunately the market sold off quicker than it reversed and we took our profit at 10.5 points! It must be noted that scalping is not a method that suits every trader but can provide those little extras if you know how to use a scalping method properly. In next weeks stock market update we will be talking future direction the FTSE.