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Moving Average Channels

One of the methods described earlier in this book, the MAC (moving average channel) lends itself readily to use by scalpers. My recommendВэed parameters for the MAC are 10 units of the high and 8 units of the low. For scalpers these parameters are likely to be somewhat long. I recВэommend instead using 5 units of the high and 4 units of the low.

Figure 14-1 illustrates how the MAC will look in relation to 5-minute price bars in T-bond futures. Figures 14-2 and 14-3 illustrate the same methodology in Swiss francs and S&P futures.

These illustrations are included here merely as examples, but they are fairly typical in terms of structure and clearly show that scalping the market by buying the low of the channel and exiting at the high of the channel in an up trend is a good procedure. Conversely, in a down trend, you may scalp the market by selling the high of the channel and buying the low of the channel.

Alternatively, in sideways trending markets, the procedure is to buy the low of the channel, reversing position and selling the high of the channel, and then reversing position again by covering shorts at the low of the channel and going long.

Ideally, this technique will work in any market which has established some specific channel relationships. It is your job to identify markets which are suitable for scalping. I have included several more examples which will help you identify the types of markets you want to trade for scalping purposes. Remember that as a scalper it is your job to exit profitable and losing positions quickly in order to capitalize on the many price swings each day. It is especially important to exit your losing positions promptly so that your small profits will not be erased by one large loss. Unfortunately, this happens all too often. Sadly, some traders will scalp the markets very effectively all day long, only to allow one large losing trade to eliminate their entire profit for the day or worse. Therefore, the scalper should be particularly attuned to exiting positions which are not working, quickly, without hesitation, and, of course, decisively.

Another technique which lends itself readily to use by scalpers is point-and-figure charting. This book cannot provide you with a detailed disВэcussion of point-and-figure charting, but I will tell you that many floor traders I know use point-and-figure charts with great success on the trading floor. Their charts are kept up to date as they trade. Figures 14-4 and 14-5 show two sample intraday point and figure charts as well as my illustrations of how to determine support and resistance levels for the purpose of buying and selling. Also, I recommend reading sevВэeral of the excellent point-and-figure texts available. Here are some sugВэgestions: