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It started to go wrong for the bulls when the reaction to this top a tiny countermove was not being picked up by new bulls in the 20ema a few bars later. That would have been a perfect opportunity to swing prices back up. From there on, they could have created themselves a nice squeeze by not giving in to whatever bearish pressure and then force themselves a way through the top barrier of the range.
In fact, the three earlier tops 1, 3 and 4 would have made for an excellent barrier to trade that upside break from. However, instead of working on that upside break, the market set out on its way to the bottom of the range again 5 and now even showed a classic triple top in its wake. These are not bullish signs.
But there was hope still. After all, the round number zone was cracked to the upside and successfully tested earlier on, and that should at least amount to something. If somehow new bulls found it in their heart to aggressively step in above the 1. And that would look quite bullish. Forex Price Action Scalping Excerpts Sometimes it only needs one bar to turn pleasurable hope into the idle variety. How about that little doji 7 that stuck its head a pip above the high to the left of it 6. A higher high in a bullish market after a possible double bottom in round number support, that should have attracted new bulls to the scene.
What kept them away? We can imagine it to be the triple top pattern to the left; but it is not our business to decipher or explain the actions or non-actions of our fellow traders. Everything is just information. As observant scalpers our task is not just to monitor a chart, but to look for clues in it. The more crucial the signs we can assemble, the more we can solve the puzzle of who is possibly toppling who in the market.
The best indication to determine the value of a particular chart event is to consider its place in the chart in relation to whatever price action preceded it. To give an example, the tiny false upside break of 7 would have been considerably less indicative had the market not printed that triple top shortly before. With prices now trapped below the 20ema, the market was on the brink of being sandwiched into a bearish breakout through the bottom barrier of the range. For my own personal comfort, I would like to see prices get squeezed a little bit more before breaking down.
Preferably, I would like to see the market print a couple of dojis right on the bottom level of the range as in a regular BB setup.
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It must be stated, though, that a conservative stance is not always the most successful approach. It would be nice if we could really put a rule of thumb on these false breaks, particularly on the tease variant, but alas, it often depends on the situation at hand. That makes me want to wait for superior conditions just a little bit longer than, for instance, in case of a speedy market, where I might run the risk of fully missing the break on account of being too conservative.
Note: As for the difference between the false break trap and the tease break variant, imagine for a moment the low 5 to have dipped a pip below the range barrier. That would have turned it into a false break of the earlier bottom of 2 and not a tease. And most of them will have no choice but to sell back to the market what they had bought at bottom prices just moments before.
Add to this a number of sideline bears eagerly stepping in and we have ourselves the perfect ingredients of double pressure and thus follow-through. At times, the anticipation of this little chain of events is very straightforward. At other times, the assessment of the squeeze can be a lot more subtle and it may leave a scalper wondering whether or not to trade.
Particularly when the space between the 20ema and the barrier line is no more than a few pip in width, the tease break may be almost indistinguishable from a valid break. As we have seen already in several examples, the 20ema, just like in the chart above, can still guide prices back out in favor of the trade. Take a moment to compare the string of black bars after the break in this chart with the string of white bars after the break in Figure What do these moves represent? They clearly show us the unwinding of positions of those traders trapped on the wrong side of the market.
In the chart above, for instance, all scalpers that picked up long contracts inside of the range are carrying losing positions the moment prices break down below 1. That string of black bars represents their predicament and their panic, so in essence a rapid unwinding of long positions that are being sold back to the market.
As a result, prices will fall even more until eventually the market calms down and more bulls than bears are willing to trade. This, in short, is the principle of supply and demand. It works the other way around in equal fashion. And it is our job to anticipate it before it even takes place. To the non-initiated this may seem like quite a daunting task. Yet those who observe, study and learn will most likely come to see the repetitive nature of it all.
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And soon they will be able to exploit those who do not. For example, if, say, 1. Variations on this pattern repeat themselves with such relentless persistence that it is not hard to imagine how numerous intraday strategies are solely built to exploit this phenomenon. Of course, as scalpers we are only interested in one thing: can we exploit it? Anyhow, if nothing else, round numbers do have the pleasant side-effect of framing things in organized manner, just like wrapping boxes around ranges gives us clarity on resistance and support. They may do so at the moment, but I rather leave that to the price action itself.
Frankly, in the never-ending quest for simplicity I have tried to scalp with a clean chart, meaning without the lines in it, but somehow my conditioned brain felt less comfortable without these levels framing the action. This may very well be a personal quirk and any scalper can try for himself what suits him best.
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One last thing: on the road from 40 to 60, and the other way around, things can get very tricky. Currency trading, like it or not, is a big players game, and the level is arguably their favorite toy. Unlike the 00 round number, this level is not a level itself. More often than not, these levels are what the bigger chart is all about and why we see so many ranges appear as a result. Let us look at Figure Halfway through the chart, the options are very much open. There are no trades near and a scalper should just relax and apply patience. Tip: you do not necessarily need to draw boxes, a horizontal line across the tops and one beneath the lows will do just ine.
At any moment in time there are always three ways to look at a chart. Through bullish eyes, bearish eyes, or neutral eyes. Needless to say, observing the price action with a neutral disposition is the way to go. Should it continue its pattern of slightly higher bottoms, then breaking out to the upside, eventually, would technically be the most logical result. As neutral scalpers, we can only sit back and enjoy whatever the market has in store for each party. One thing is of importance, though, and that is to not walk away from this chart in a silly act of boredom.
If the bulls show a bit more persistence, particularly when entering a potential squeeze phase, we may have a trade on our hands in a matter of minutes. As a matter of fact, the subsequent price action after the tease, that is the perfect squeeze that led to an excellent textbook RB trade 9. That is a very fair question. So far the examples here show outcomes that point in favor of that option. It is my observation, though, that in most cases you can get away with being a little more patient. In other words, missing a range break trade due to a conservative stance is less common than one might think.
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As we will see in the section on Trade Management, squeezes provide excellent levels for stop placement. Conversely, a tease break situation, in essence a somewhat hastier break, seldom delivers the same technical clarity in terms of where to place the stop. When trading breaks, patience truly is a virtue. Therefore, my advice would be to shun the non-buildup breaks entirely false break traps and those resulting from little buildup as much as you can tease break traps.
Note: If prices after a tease break are pushed back inside the range but not much later break out again as in a valid RB, then it is not necessary to postpone entering until the tease level is taken out, too. An exception would be if there are multiple tease breaks in a row that together form a new barrier by themselves.
Then it may be recommended to assess the situation from the perspective of that new barrier see Figure Despite the many false breaks, there was no need to get caught in any of them. This chart, obviously, shows the market being a bit nervous. By that information alone, it is quite safe to assume that halfway through it, the market was bracing itself for a typical news release. News releases bear an intrinsic potential to really rip a chart apart. It means that contracts change hands so feverishly that it looks like the bars are literally being spit out on the screen.
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Not seldom, these spikes are extremely short-lived, but that is of little consolation to those shaken out. All in all, news breaks offer a dangerous environment to scalp in. To avoid getting caught by surprise, traders can check the economic calendars freely available on the web for the exact moment of major announcements like interest rate decisions and non-farm payroll numbers. If caught anyway, and not immediately shaken out, just remain calm. Always aim for a technical way out of a trade.
If the broker is okay in any other respect, offers a solid platform to trade from and keeps the spread at 1 pip throughout 99 percent of your sessions, then a simple solution would be to avoid the occasional mark-up by simply not trading during a hefty news release. The brokers to absolutely avoid are those who mark up their spreads more sneakily for no particular reason and for hours on end.
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Even if they just add a few pipettes either side, it can have a devastating effect on even the best of scalping strategies. In terms of turmoil, the reaction to the news in this chart was rather subdued. But not without tricks, though.