Bob Volman Price Action Scalping

E1: I got caught in an obvious tease break. According to Bob, a trader's main concern is to avoid the most classic and costliest mistakes because those are the biggest threats to profitability. I think I am ready to accept that now.

So I think I'll try something new. It seems there are a few lurkers on this thread and I want them to participate. I don't care what you have to post as long as it's related to trading Bob Volman's method. Post your questions, concerns, results of manual back testing, etc. You don't have to post actual trades you took. I understand some of you may be busy but just take a little time to post something. Maybe introduce yourself like UnderstandingContext has.

So here's what I want. I want somebody other than Kalp and UnderstandingContext to post in this thread. At least one person who can post on a somewhat regular basis, maybe 1-3 times a week. Until then I'm not going to post any (detailed analysis) of my trades.

Hi BLS, thanks for encouraging lurkers like me to participate. I'm new to trading, had a few months' demo experiences then stopped completely to study technical analysis and Volman's book. Right now I just finished the Second Break chapter.

I do have a few questions but was too timid to ask since I saw you guys posting advanced setups. Now that I've read your kind words, let me start with the following:

1. About ProRealTime. Volman mentioned that one should use a stand-alone package solely for charting purposes, and should not use the charts from the trading platform. I wonder why. What if the data feeds are quite different. Where does ProRealTime get the forex data? Are prices from ProRealTime similar to those from your broker? Do you use free access to ProRealTime (it mentions that smartphone can have real time data) or do you pay for the service?

2. One concern I have about tick chart is different brokers can have very different tick charts while time charts should be a lot more similar. What's your thoughts about this issue? Has anybody ever applied Volman's methods on 30 sec, M1 or M5 charts?

3. On FB. Is my understanding correct that "the first bar in a substantial pullback that gets taken out in the direction of the trend" (from page 61) means price should break at least 2 pip from the low or high of previous bar? This 2 pip thing was mentioned near the bottom of page 64 but never stated "officially" elsewhere.

4. In Figure 9.2 (page 86) why is the first break skipped? The only reason I can think of is because of the round number 1.2850 but it applies to SB as well, besides Volman said it's obvious one should skip FB before he mentioned the RN issue.

Thanks in advance!

Welcome to the thread sonatine!

1. Volman recommends a standalone package because he doesn't want a scalper to be distracted by his profits and losses. By using a standalone package, a scalper can hide his broker platform window,thus hiding his current P/L and account balance (this is assuming you can find a platform with a "always on top" ticket window). I don't know the source of ProRealTime's feed but I do know that the prices are pretty close to my broker's (I am using Trader's Way) because I took the time to compare them. Volman suggests either using a different charting package/data feed or a different broker if you see (noticeable) differences between the two. ProRealTime's mobile package doesn't include the tick chart so you'd have to have a subscription. They do offer a one week free trial (no need to give them any credit card details).

2. This might be a reason why Volman suggests using a standalone charting package. While the price action principles are universal, his setups are less so. His setups typically require a signal line to trade off of, which is harder to determine when you don't have a charting platform that only shows candles in 1 pip increments. It is possible to use the 30 second chart but it's not ideal. You can check out the posts from Mike in this thread where he uses the 30 second chart to trade (sorry, I don't know which broker he is using).

3. No. Prices just need to break the signal bar by one pip on the chart. The 2 pip break he mentions is about calculating the discretionary stop loss. Bob's method involves two stop. One is the 10 pip stop that is set when you enter a trade. Typically you won't need this 10 pip automatic stop, it's just there in case something goes wrong (computer crashes, loss of internet connection etc). What he was talking about on page 64 was calculating the desired stop loss, which is usually one pip below a signal bar (for a long trade). So if your signal bar is 5 pip tall, and you enter long on the break of it, your stop becomes 1 pip (for the break to the UPSIDE) + 5 pip (for the length of the candle) + 1 pip (for the break of the signal bar to the DOWNSIDE) = 7 pip. You don't have to worry much about this yet, he will explain this in greater detail in the Trade Management section.

4. The first break is skipped because it does not meet the requirement for a FB setup to come from the first pullback against a trend. The with trend move for the skipped first break came from an earlier pullback against the trend (from 3 to 4).

My advice to you, if you aren't already doing so, is to take notes as you read Bob's books. Try to summarize the conditions for each setup type that he lays out in the beginning of each chapter. Take note in the examples that he covers why it is sometimes okay to trade the less-than-ideal setups. There are many subtleties involved in reading the price action and Bob will explain these throughout the book so don't just skim over them. Those little clues he points out are very important in the determining what the direction of future price action is likely to be. Don't rely on the setups to tell you what direction to trade in. The setups should only be used to determine WHEN to enter.

When you are done with your first reading and taking notes, reread the book again. I didn't pick up on all the important points in the book on my first or second reading because I was too focused on the setups themselves. Read each example carefully. Try to write down the reasons that Bob gives for AND against taking a trade because this is what you'll have to do when trading. You will have to rationally defend your reasons for taking a particular trade if you want to be successful. Bob will reiterate many important points throughout the book so try your best to pick up on them.

Don't feel bad if you feel the need to reread the book several times more. I had to reread the book many times before I was ready to accept many of the points Bob tried to make because I wasn't ready to accept time until I had some trading under my belt. For example, Bob says on page 265 that the most important part of scalping is to understand the price action principles so that you can avoid the obvious bad trades. I didn't really "get" this point until this week and I've been trading live for almost two months now (I started reading the book in the middle of February). So don't feel discouraged if you feel confused. The learning process will take awhile but as you start to trade live (even on a micro account) you will start to understand more and more of what Bob is trying to teach you (I still have much to understand).

Or maybe I'm just a slow learner.

Guess I'll post one trade from 7/19 (I took a total of four trades). I think there are a couple more lurkers in this thread.

Charts are in GMT.

E1: Prices near the beginning of the chart came up from an up trend but formed a head and shoulders pattern (1,2,3) under the 1.2320 level. The bears capitalize on this topping pattern by slamming prices back down below the 00 level. The bulls haven't given up yet. They form a small base of support (4) and bring prices back up past the 1.2310 level. This higher price brings in some sideline bears as price are sold back down, creating a lower high. The bulls are fighting to keep prices above the 00 level (6) but the bears are tightening the screws them with yet another lower high (7). We can draw a bottom barrier after (7) formed but it's a little rough. I kept my barrier here (1.2297) after prices broke with what looked like a tease at the time. Three tiny dojis cluster above the 1.2296 level, forming a signal line to trade an ARB. This entry is rather aggressive but I thought it was worth the risk to take this trade. We don't have the best looking squeeze, such as those found in Bob's book, but the context in which this setup appeared is very supportive of a short trade. If you decided to draw the barrier at the 1.2296 level (one pip below mine), you could enter at the white arrow as a pullback ARB, placing your stop at the 1.2297 level.

Hi all...

I was checking out Bob Volman's book, and I'm thinking about buying it but the one thing holding me back is the whole 70 tick chart requirement. I trade with Oanda and I can't get tick charts with them, MT4 and MT5 don't support tick charts either, though you can see the tick in line form in a small window that doesn't give you the candlestick formations.

Is it a useless strategy without the tick charts? Would be a shame to waste a lot of time studying it and then not being able to apply it, or having to invest in an expensive charting package/data feed.

Welcome to the thread.

If price action scalping seems like something you would like do then buying the book and spending the time to study it will not be a waste. The price action principles that Bob lays out is universal, thought his setups may be so. This has more to do with a charting platform's ability to display candles in 1 whole pip increments (no pipettes). It is possible to trade Bob's method on the 30 second chart in OANDA. It's less than ideal but that's okay when you are starting out. Once you start to get the confidence to trade regularly you can invest in a tick feed data/charting package.

Thanks! I guess the big advantage is that the tick becomes a proxy for volume which is such an issue in FX. I like the book and I think it pays to give it a read. I'm more of a 1H - 4H chart type of guy but there are times when the market simply doesn't give you anything there and it'd be good to build a scalping style as well.

BLS,

Thank you so much for your reply. I'm actually doing exactly what you suggested -- taking detailed notes from the book, making tables of those examples, and I plan to reread the book many times later.

Another thing I'm thinking about is how to do trading simulation. In MT4 you can only do M1 time charts (the lowest TF) with some simulator. Can you do it with tick chart in ProRealTime?

Yes. You can either use the paper trading module in ProRealTime or use MT4 to execute your demo trades. If you only have one monitor to trade off of, you can check out One Clicker. One Clicker is a separate program that lets you enter/exit with only one click. You can set it to be "always on top" so it'll always stay visible on your screen. The window is a bit big and you can't re-size it, so that may be a problem. I'm using it on two screens so I can hide the MT4 platform window. I just found out about it yesterday so I'm still testing it out.

http://www.softpedia.com/get/Others/...-Clicker.shtml

Though I wouldn't worry too much about demo trading Bob's method just yet. The most important part of your learning process right now is getting those price action principles down. I will post the rest of Thursday's trade when I am done with today's session.

Rest of my trades from 7/19/2012 (Didn't trade on 7/20):

Charts are in GMT.

S1: Skipped DD setup. There seems to be some strong resistance at the 40 level with the bears trying three times to pierce the level (1). That pullback was more horizontal then diagonal. Though perhaps a more aggressive scalper could trade this given the strong trend.

E2: Failed DD setup. The with trend move and that 50% retracement are textbook. Prices pullback into former resistance area at (1) which coincided with the 20EMA. A setup like this isn't guaranteed to work out but the odds do favor it. Textbook setups can fail from time to time and this was one of those times. Oh well.

E3: Countertrend RB. After a strong down trend, prices swung violently and ranged around the 40 level. The bears have the advantage but the bulls aren't just going to take it. They manage to form a mini double bottom (1,2) as the bears try to push prices below the 40 level; the bears were doing a decent job too since they capped prices under the 20 EMA. From this base of support, the bulls gradually bring prices back up the 40 level. There's a lot contracts being exchanged here given the slow manner the prices came back up, which shows the bulls struggling. The bears whack the bulls back down at (3) in a strong move, but the bulls counter with an equally strong move, forming an equal high (4). The bears are eager to defend this level of resistance but sideline bulls come in a buy up at a higher price (5). Things are getting interesting.

One could draw their top barrier where the green line is given the amount of resistance there. The bears yet again sell off heavily at resistance (6), breaking that low of (5), but still printing a higher low overall. The pressure inside this range isn't too obvious. It looks like the bulls and bears are locked in a stalemate between swinging prices up and down, so we have to look for subtle clues to determine what the future direction of price action is likely to be. After being slammed down yet again (6), the bulls pushed their way through that heavy resistance (green line), perhaps surprising the bears. We can redraw the upper barrier after the high of (7) formed. The bears may have been surprised but they try to redeem themselves and bring prices below the broken resistance (dotted block, 8). The subsequent bullish response however shows us who's really in charge. With a false break to the downside, the bulls have made it clear that they are going to push prices even higher.

This is not the best of range breaks. My preferred stop would have been at the green line or even the low of (8) but that's an extra 3-5 pip for insurance. I forgo this insurance only to see my trade get stopped in a false counter move.

E4: I did not throw in the towel after that false break move stopped out my trade. That bullish response encouraged me to look for another way in the market. The bulls brought prices back to resistance (red segment), where we had some pre-breakout tension from those three dojis. This wasn't a good looking clustering ARB but was valid nonetheless. We have some hesitation after a range break, which forms some clustering and a signal line to trade the break of. I end up closing out 2 pip short of target after prices stall because I was really hungry and wanted to grab something to eat.

Today's trades:

E1 & E2 (-5.7 + 8.7 = +3 pip): Took a couple of IRB setups. I got caught in a sneaky false counter move which stopped me out of my first position but I was ready to trade on the re-break. The range was pretty iffy as we don't have clear top and bottom barriers, though the top barrier I drew here was good enough. The overall pressure inside the range wasn't all too clear until the setup started to form. The chart starts off with the bulls retaking the 80 level after a downtrend (not on chart), with prices moving 20 pip (1 to 2). The bulls formed a base of support at the end of the pullback (3, a higher high) and drove prices even higher (4). They made a big mistake by trying to break the 1.2100 level after the bears started pushing back (5). This one directional move into resistance invited sideline bears to enter and slam the bulls back down, a typical false break. The bears assert their control, slowly squeezing the bulls (6), until they sell price back down past the 80 level, making a lower low (7).

I'd say that at this point the pressure inside the range is about even. A lot of contracts are exchanged within those dojis in the lows of (7), indicating that some bears are taking profit and some bulls are buying back in at lower prices. The pressure of the bulls brings prices back above the 80 level, printing a mini double top (8). With a visible resistance level inside the range, we can begin to draw a upper barrier for a possible IRB. Of course this upper barrier is only tentative and is used to give us a clearer picture of what is going on. The bears slam the bulls back down yet again but only manage to form a higher low (9); prices are quickly bought back up into the highs of (8). We may have a squeeze to the upside here. After two dojis, prices test the 20EMA and break out of the IRB setup on the next candle. I felt that this was sufficient buildup for a trade, though others may want more buildup. I remembered that Bob said that some aggression is required for IRBs because we seldom get a second chance on these. I placed my tipping point 4 pip below the barrier, right under that cluster before the break. I was stopped out but I re-entered because I was encouraged by the bullish response to the false counter move. I place my tipping point one pip lower to avoid another false counter move.

Price had trouble clearing the upper barrier of the bigger range but there was no technical reason to exit. I moved my tipping point up when prices dipped inside the IRB setup and shot back up. I ended up closing my position about 1.4 pip short of target because I was worried that the 00 level would ruin my trade and I did not want to risk my paper profits for 1.4 pip.


E3 (+7.3 pip): A nice horizontal pullback into the 20EMA after an uptrend formed this wonderful BB setup. Prices were moving rather fast in terms of ticks which spelled tension to me. I normally would be wary for setups like these after a break of the 00 level but given that cluster before the break and the seven touches forming the upper barrier, I felt it was worth taking a risk to get in on the break. I was so excited that I accidentally front-ran the break. I had my cursor on the "buy" button on my platform as I was waiting for the break. I was lucky this time and didn't get stopped out on a counter move. The bar after my entry (after the green arrow) was the first break and could have been skipped for more buildup, but then again a more aggressive trader could've taken it. There were two more opportunities (white arrows) to trade this BB as prices had trouble clearing the 20 level. I ended up closing my position about 2.7 pip short of target after prices seemed to have trouble break an earlier high (1). I might be forming a habit of closing out trades early for no technical reason but I did not want to take the risk of my trade souring on me for 2.8 pip. This might be a slippery slope but I'll try to find a balance between not forming a habit (and overestimating potential obstacles to the 10 pip target) and not risking current profit for an extra 1-2 pip. Prices may have hit my target on my platform.

Made 10.3 pip today.

E1 (+8.5 pip): We had an extended 00 level fight for the past 2.5 hours before I took my trade. Things started to get interesting with that enthusiastic bull move from the low of (1) to the high of (2). The bulls had formed a base of support around (1) and tried to attack the 00 level fiercely. Price action around this time sped up compared to earlier. The bears weren't going to give in so easily so that slammed the bulls back into support (3), but the bulls were ready for it and quickly bought prices back up past the 00 level (4). Attacking to 00 level like that without much buildup left the bulls demoralized. Some bulls remained try to fight the inevitable as the bears pushed prices lowers. The bulls couldn't even test the 00 level to the pip anymore (5).

The bottom barrier is rough any way you try to draw it; it could've been drawn one pip lower. With my barrier drawn at the 1.2088 level, the bears were trapped in a tease break as they tried to break that level of support. But the bears capped prices under the 20EMA and formed a stalling candle. That spells ARB. I entered when the barrier was broken though I guess you could've have entered when that red signal candle was broken to the downside (enter on the barrier). There's some hesitation after the break as the bulls manage to test my tipping point before giving up this area. Prices dropped down around the 80 level where sideline bulls entered on lower prices and bears started to take profit. I closed my trade 1.5 pip early when I saw some support around the 80 level. I had a feeling that the 80 level would ruin my trade. Though I was right this time (my trade would've been ruined), I might be developing a habit of closing out early, which may lead me to overestimate the possible effects of resistance in the future.

E1 (-5.4 pip): Another 20 level fight. The bears tried to break the 20 level with a big move down (1) but these lower price levels were bought up by the bulls, all the way to the top of the barrier (2). Prices test the 20 EMA for a bit before the bulls brought them up again to test the upper barrier, eventually forming a squeeze. I took the break of the range but the bulls couldn't follow through. The bears capped prices at 1.2135 (3) and eventually took out my stop. I usually have a rule about not trading into the NY lunch hour because I've been burned many times before like this; I usually get screwed by low liquidity/volume which leads to less follow through on setups. I noticed in the past few days that there was more follow through around this time so I thought I'd give it a try. I'm not sure if I should just trade opportunities as I see them and not worry about volume/liquidity dropping off or if I should just avoid the second half of the NY session altogether.

Hi everyone!

I'd like to join your discussion. Unfortunately at this point I have more questions than experience to share and would appreciate your help.

Yesterday I was watching this range forming and it seemed to me there were some opportunities for the IRB trades. Do you see any technical reasons to skip these setups?



Thanks.