Previous Lows and Highs Scalping Strategy
Hello, traders. Welcome to the Scalping Course, and the third module of scalping setups. In this lesson, I’m going to teach you how to trade the previous lows and previous highs setup. And the cool thing about this one is that not only can you scalp with it or look for entries in the market, but you can also use this as a technique to add on to an already winning trade.
Well, I told you about the misconception that scalpers only take four to five pips per trade. Well, we have proved them wrong. I’ve already taught you that you can take off of your position, and then keep the rest running for maybe a very strong trend. Because you never know when the market is going to be trending strong, and whenever it is, you want to be in it. Now this particular technique can be used to add onto this second position or second half of the position that you have left open and running. So we are going to go to a Euro/US dollar session, and I’m going to first show you how to trade the setup, and then I’m going to show you how we could have added on the same setup to an already existing winning position. So let’s go the charts, and let’s start to analyze this.
Okay, so here’s the Euro/US dollar three-minute chart, and as you can see, this is the start of a session. Now the first thing you’ll need to do is look for the immediate market direction. When I say the immediate market direction, I am talking about a few hours into the session. You can see that we’re in a consolidation period, and then we started to trade higher. If we are trading higher, it means that we are in an up move so we are going to be focusing in the previous highs.
When we are in a downtrend, we focus on the previous lows. But when we are in an uptrend, we focus on the previous highs. The first thing we need to do is just to spot the previous high. The previous high is this one right here. Let me just color it black for you and thicken this line out also, so we can better see the actual level. Price moved up of course breaking with this… We can’t say it’s a down structure because we were trapped inside a range. Well, breaking with this immediate down structure. You made this high, meaning that right here, we found sellers, or the traders or the scalpers that were long were taking profit. In either case, it doesn’t matter if there were actual sellers or long scalper just taking profit. The action is the same.
We have a selling pressure at this point, meaning that this is the high that we are looking at. And we are going to wait for this high to break, and when this high breaks, we are going to position a pending buy order, a pip above this high. Now I’m going to use our rectangles to show you the areas where you are going to put on your pending orders or pending buy orders, and your stop loss, and of course your target. Now your pending orders should go here, and this trade or this setup uses the mentality of a KYM trader, Kiss Your Mama. Of course if you want to learn about Kiss Your Mama, you should go the price action course. We have an entire lesson devoted to it.
Now to simplify things, what we aim here to trade is a break of the previous high, and then a retest of this high as support for a move higher. Now this is plain and basic KYM. So we put on our pending order a pip above the previous high, and we put our stop losses below the previous low. And the previous low is right here. So we are going to put our stop losses at this level right here. And you might think this is a very wise stop loss for such a perfect entry, and the reason we are going to position our stop loss there is because we are moving an up structure. We are making higher lows and higher highs.
Okay, now we are taking this position because we want to profit from the move up to a new high. Okay, and what we are going to do here is we’re going to position our stop loss below the previous low, because if price breaks with the previous low, we want to get out of that long trade because the structure has been compromised. Now another reason we are going to put our stop loss right there is because we are in an up structure. We are making higher lows. So price might respect this up structure and price might want to test this trend line before moving higher. We don’t know that. We only know that we are using the previous high as a trade setup.
Now you can see the price actually reaches this high and then moves back up. When price makes this low and then spikes up and makes this high, we can move our stops to break even or below this low locking in a few pips. Then when price makes a new high, you can move your stops here and here. Okay, and of course then price makes this high and you move your stops right here. And here you get taken out on a very nice scalp.
And some people might argue that this is actually a day trade, but if you look at the time of the entry, the entry was around 21:30. The exit is around midnight. Yeah, it took some time to get there, but you don’t want to miss from this explosion, guys. You just got 39 pips out of this scalp, so you don’t want to miss on this explosion. So you respecting the previous highs and previous lows, and the way the market is moving up. And when you get stopped out because you’re trend has stopped, it has to be this type because we are scalping. We are locking in every single pip that we can. We are not magicians. We don’t know that this is the high, that price is going to go in this move. So that is why we’re trailing our stops. Now you are going to trade the previous high and previous low setups. Of course if you are in a down trend, you are going to use the previous lows in the same but opposite manner.
Now let me explain to you how you can use this setup as a technique to add on to a position. Let’s say that you were trading here this corrective flag right here. If you didn’t notice, this was a very interesting spot to trade a flag. Now price started to move up, then it started to make this flag, and you could have positioned your pending order right here above this high. Now you position your order above this high, and you get filled with a stop loss below this low. So what you ended up risking on this trade was about six pips. And if you measured the flag, of course you remember the previous lesson about flags. You need to have a 14 pip target, meaning that should go right here. Now your target should go around here. Now let me just grab another one of these rectangle tools to show you that your targets are hits to the pip again on a flag.
Now the reason this is also a cool technique to add is because you can take out your position here on a 14 pip win entirely, and then look for a new setup. What you can also do is take half of your position here at the target, and then add when price tests this previous high, meaning that you would have an open position from around this area and a second position or an add at this area right here, meaning that you would have made 14 pips on this first scalp. But then if you want to keep your trade open for a rally of this magnitude, you would have made 46 extra pips with the previous high, previous low technique.
So remember this is not only a technique for entries, but it’s also a technique to add on a winning position.