Scalping Channel Reversals and Trendline Breaks
Hello, traders. Welcome to the Scalping Course, and the third module, “Scalping Setups.” In this lesson we are going to talk about channels and trend line breaks during the session, which will mean that we are going to be trading reversal or we are going to be scalping a reversal.
Now most of you might think that it is very obvious for me to be saying this, but what’s not obvious is how we are going to manage the scalp, how we are going to maximize the profit that this reversal can give us. So we’re going to go again through a Euro/US dollar session and I’m going to show you how it’s done.
So here is the Euro/US dollar 3-minute chart again, and just a reminder that when we are talking about channels, we’re not talking about flags. Flags are corrective, small channels within a bigger trend. What we’re talking about is the immediate move. And remember that when we’re scalping, we don’t mind too about the overall market direction. We do mind about levels of support and resistance on the higher timeframes, but right now since we are just looking at the actual set ups, we are just going to be looking at the immediate moves.
Remember that when you are scalping, price can move up and down or can be in an uptrend or in an immediate downtrend two or three times throughout your session. And this is why scalping is so much fun. It’s because you can be short at the beginning of your session on an asset, and then be long by the end of it and make money on both sides. This is what’s important about scalping.
So the first thing you’re going to do is you’re going to look for the immediate direction or the immediate trend in the market. And you can see that right here we do have a descending trend line and the price is also respecting a descending support, meaning that price is trading inside this descending channel. And this is at the beginning of the London session, so there is some volume in the market as you can see on these big candles, or red candles, or bearish candles. When price breaks with this channel, we’re going to manually take a position. Now we are going to take the position at the break of the channel. Remember we are just scalping. We are going to use also the previous high method. Not the method that we went on the last lesson, but not only do we want price to break the descending channel but we also wanted to break the previous high. Why? Because we need confirmation that this is in fact a reversal, guys. And when price breaks with a previous high, it breaks with the down structure that we were in, meaning that the break of the channel is an actual break and we are going to move higher.
This is the first clue and we are going to enter the market here, or we can also position a pending order, a few pips about this high right here. So this will be our entry order, and our stop loss level would go below the previous low as always meaning that we would have risked on this position 13 pips, which is fine. We’re scalping, so anything from 5 pips to 15 pips on a Star Plus is okay by me.
Now you can see that we do have a very conflictive zone right here. So let me just put a horizontal line to show you where these zones that we need to be looking for are. Let me just thicken it out for you, and this is the first one. You can see that when we break and we get filled, price hit this area and then comes back below our entry price. Now you are not going to take profit at this area, because we are trading a reversal, guys. We are not scalping a move to a previous area of resistance. No. We are trading a reversal. And of course if you take profit right here, it would mean that you are taking out negative risk to reward trade or a negative risk to reward scalp, which we don’t do. We are looking for a break of this area, because we are in a reversal.
Now remember that we need at least a one-to-one risk to reward ratio on the trade, meaning that the actual area that we are going to be looking for is this high or this zone right here. Now let me point what zone I’m referring to, and the zone I’m referring to is this one right here. You can see the price tests this area, support, breaks it, tests it as resistance, then it’s trapped inside this range before going lower. Because price is trapped inside this range, this is a very important zone for us, meaning that the first target should go a few pips below this zone, which you can see that we hit at 70 pips, making this almost better than a one-to-one risk to reward scenario. So here is your first target. Your second target has to go at these lows right here. Let me point them out for you with a horizontal line. It’s these lows right here. You can see that… Let me straighten this out. That’s good enough. You can see that we have a very important base here before price started to move lower.
This is our first target on a one-to-one, and our second target should go a few pips below this area, meaning that should go around here. The reason we are putting our targets a few pips below those areas is because we want to get filled. We don’t know if price is going to test these areas exactly to the pips. So we want to get filled on our profit targets. So we are going to put our second targets right here a few pips below the previous base, and you can see that we made 34 pips on the second part of our trade for a total of 51 pips on a reversal scalp. This is how you’re going to be deciding on your profit target levels. Look for previous bases on a down… If you are trading a reversal, to the outside, look for previous zones of support. If you’re trading a reversal to the downside, look for previous zones of resistance. It’s the same but on the opposite side.
You already know how to pinpoint your targets, what you are going to do is what I’m going to teach you right now is how to manage your trade. Now you take half of your position here, and when you take half of your position, you move your stops right here. A few pips above your entry target because if price reverses on you, you want to get out and you want to cover your trading commissions. And of course if price reverses the second time, the second half of your position will be stopped out and break even. But that doesn’t matter, because by doing this, you are allowing the rest of your position run on a free trade. Once you hit your final target, of course your position is closed, so you don’t need to trail your stops higher.
So this is how you’re going to be scalping reversals, and with everything we’ve learned so far on this course on this module, you have enough armor to start scalping, and remember these are just the setups. On the next module, we are going to go through live trades, looking at each and every single one off of these setups in real-time using the indicators that we learned how to use on the second module.