CHAPTER 16

Extreme Scalping

There are high-frequency trading firms that make tens of millions of trades a day on a basket of 4,000 stocks, and they scalp for just a penny profit on each trade. That form of scalping is as extreme as it gets, but it is something that average traders without supercomputers located right next to the exchanges cannot hope to do. I have a friend who is an extreme scalper in the Emini, placing about 25 trades a day and scalping for two ticks per trade. I could never get him to tell me whether he used a protective stop or how big a loss he would allow. He also would never clearly answer my questioning about scaling in. Some traders are resistant to telling too much about what they do. I am not sure if it is because of the unrealistic fear that the world would copy them and their system would no longer work, or if they would be embarrassed to have people realize that they take lots of trades but still net only a couple of points a day. However, he did say that he trades about a hundred contracts per trade. A mutual friend told me that he had been to his $2 million house, and I believe that he is making over a million dollars a year.

Although I think this is possible for the very few people who have a personality that would allow them to do it, it would be virtually impossible for most traders, so most people should never attempt it. In general, since scalping usually requires the risk to be greater than the reward, the winning percentage has to be at least 70 percent to be consistently profitable. That is not realistic for most traders, even for very successful traders. However, there are some people who can make a living scalping. Most traders, however, should only take trades where the reward is at least as large as the risk, because the required winning percentage of at least 60 percent is much more realistically achievable. Even better, traders should focus on trades where the reward is at least twice the risk because then they will make money even if they win only about half the time.

Even though traders should focus on swings, they might be surprised to learn that there are far more scalp setups on a 5 minute chart than they would ever imagine. However, just because the setups exist is not an adequate reason to take the trades. In fact, virtually no one should attempt to take the 30 to 40 scalps that are present on a 5 minute chart of an average day because it is so difficult to read the chart accurately enough to quickly be able to trade profitably this way. About a third of the setups are for stop entries and about two-thirds are for limit order entries. This is true of all markets and all time frames; about half of the bars have reasonable scalp setups. Showing an example of extreme scalping is a good way to demonstrate just how much subtle price action information is in front of you all day long, and it might help you increase your focus. Some traders might be able to do this for an hour or two at a time, but most should look for two- to four-point swings instead.

There are many times when scalpers can make money by either buying or selling at the current price, as long as they manage their trades properly. This is true of all trading, and beginners might find it surprising. For example, if there is a big bull trend bar in an established bull trend in the Emini and it is likely to have follow-through, traders could buy around the close of the bar and risk about three points to allow for a possible pullback. If the market goes right to his target, they could exit with a profit. If instead it pulls back for five to 10 bars but does not hit their stops, they could wait through the pullback for the trend to resume, and then take profits at their original target. Many experienced traders would scale in during the pullback and on the breakout of the bull flag. Some would hold their entire position until the market reaches their original target, where they would take profits. Others might choose to exit at the original entry and get out at breakeven on the first entry and with a profit on the later entries.

Bears could have shorted at exactly the same price that the bulls bought, expecting the large bar to represent exhaustion. If the market sold off over the next few bars, the bears would exit with a profit. If instead the market went up for another bar or two, they might scale in and sell more, maybe risking as many ticks as there were in that large bull trend bar. For example, if the bar was 12 ticks tall, they might add to their short at four or eight ticks higher, and risk 12 ticks from their original entry for the entire position. If the market turned down after they scaled in, they could exit the entire position at the original target or at the original entry. If they exited at the original entry, they would make a profit on their late entries and would get out at breakeven on their first entry. Both the bull and the bear scalpers could therefore make a scalper's profit by entering at exactly the same time, but in opposite directions. The key is money management.

FIGURE 16.1 Extreme Scalping

The 5 minute Emini chart shown in Figure 16.1 illustrates extreme scalping. There are 81 bars in a day, and every third one is numbered in the chart. If a trader wanted to scalp 1 point using a two-point stop, there were at least 40 opportunities to do so today. Remember, a trader entering on a stop usually needs a six-tick move beyond the signal bar to be able to scalp four ticks with a profit-taking limit order.

Bar 1 was a bull reversal bar and a possible failed breakout below a bear flag from yesterday's close. However, it had a two-tick tail at the top and its high was only four ticks below yesterday's close and the moving average, so there might not have been enough room for a buy scalp. Traders who bought above bar 1 saw the weak close on the entry bar, and many would have exited around breakeven.

Bar 2 was a doji, and it could not close above bar 1. This was a sign of weakness for the bulls and a sign of strength for the bears. This one-bar rally could have developed into a breakout pullback, and it could have been followed by another leg down. A trader could have placed an order to go short at one tick below bar 2.

Bar 3 did not fill the short order, but it had a bear close and the bar failed to go above bar 2. It therefore formed a double top with bar 2, just below the moving average, and could have led to a leg down. A trader could have shorted the close of the bar and exited above its high or reversed to long there, or shorted on a sell stop at one tick below its low. This would also have been shorting at one tick below the bar 2 long entry bar. Many of those longs would likely have been exiting at this exact location (below the entry bar), adding to the down move. If triggered, this would have created a breakout pullback and likely led to a swing down. Traders could have considered scalping one or two points, swinging the entire position (they would have netted six ticks), or scalping part (maybe half) and swinging part, hoping for three or four points on their swing portion.

The bar 4 entry bar was a strong bear trend bar and likely to form a new low of the day at a minimum. The market tried to break out above bar 1 but failed and was now trying to break out below its low. Since the market was below the moving average and it gapped down out of a bear flag from yesterday, the bears were strong and could create a good swing down for a measured move. Bar 2 could have ended up as the high of the day, and the day could have become a strong bear trend day. With this bear strength, traders could have shorted more on the bear close below the bar 2 long entry bar, or on a stop below the low of bar 4, or on the breakout below bar 1 to a new low of the day.

Bar 5 expanded into a large bear trend bar on the breakout below bar 1. This could have been either a sign of increased strength by the bears or of climactic selling. Since the bar poked below a bear trend channel line, if the market had reversed up from there it could have had at least two legs up. Also, since that would have been the second attempt to reverse up from below yesterday's low and it also would have been a wedge reversal, it could have formed the low of the day. Traders could have shorted the close of the bar, but if they did, they had to be prepared to exit around breakeven if the market paused down here, and they had to be prepared to reverse to long. There was a gap down on the open and then a pullback to the moving average and now a sell climax. This could have been a spike and climax bottom, and since the high or low of the day forms in the first 90 minutes or so in about 90 percent of days, traders had to look at every possible early reversal as a possible extreme of the day.

The low of bar 6 was only five ticks below the close of bar 5, so those bears who shorted below bar 5 came up one tick short of being able to scalp out one point. At this juncture, they were nervous. They might have exited above this bar, and some might even have reversed to long. Since the bar was a bear trend bar, the bears were still in control, and most traders would have held short. The bar 6 low was also an exact measured move down from the high and low of bar 1, and a perfect breakout test of a strong move up from two days ago (not shown).

Bar 7 was a bull two-bar reversal. This was a problem for the bears. Most would have tried to exit at breakeven, but would have been willing to take a one- or two-tick loss. Some traders would have bought the bull close for a possible low of the day and a likely two-legs-up rally. Other traders would have entered long on lower time frame charts and on reversals on other types of charts, like volume or tick charts. Since about half of the range of bar 6 was overlapped by both the bar before and the bar after, a small trading range was forming. Countertrend trades usually have pullbacks, so if traders bought above bar 7, they needed to hold their longs during the expected pullback and hope that it formed a higher low.

Bar 8 closed on its high, so the bulls bought into the close of the bar, indicating that they were eager to get long. However, the selling down to bar 6 was strong, so the first attempt to reverse up was likely to fail and probably to be followed by an attempt to drive the market down. An alternative was to buy this strong close. If traders believed that a second leg up was likely and they were expecting pullbacks along the way, they could have looked to buy at or one or two ticks below the low of any of the next few bars, expecting a failed low 1 and a higher low.

Bar 9 was a bear reversal bar, and it was unable to close above the high of bar 8, which was a strong bull bar. There was no follow-through buying. Maybe the bulls were weak and the bar 8 reversal up would fail and become a breakout pullback on the breakout below bar 1 and therefore a low 1 short. Since the market was correcting from a wedge bottom, a second leg up was likely, so rather than shorting at one tick below bar 9, those already long would have held with stops below the bar 5 signal bar. Because it was only one tick above the low of the day, they would probably have put their stops one tick lower at just below the low of the day. Some bulls who hadn't yet bought would have waited to buy a higher low, if one formed. Aggressive bulls would have bought on limit orders at the low of bar 9, thinking that the market would probably have to dip one tick below its low for those long limit orders to get filled, and if the market reversed up from there, the bears would be trapped short on a one-tick failure and they would be very eager to get out and help drive the market up. Other bulls would have placed limit orders to go long at one, two, or three ticks below the low of bar 9. All of these orders would have given support to the market. If the market dipped one tick below bar 9 and then bounced up two or three ticks within the next few seconds, some bulls who had limit orders to buy at one or two ticks lower would have moved their long limit orders up by a tick or two because they would have become more eager to get in when they saw the market failing to sell off. Bar 9 was a bad low 1 short setup, and therefore a higher low was likely. The market had a strong bear spike, which is needed for a low 1, but it was not clearly in a bear trend, which is also needed before shorting a low 1. Also, a trader should not short a low 1 after a sell climax, and this was possibly one.

The bears saw bar 10 as a double top in a bear trend and hoped that it would have resulted in a move similar to the move that followed the bars 2 and 3 double top. However, they were concerned about that wedge bottom and would have exited any new shorts quickly if the market did not fall sharply, as it did earlier in the day.

Bar 11 fell two ticks below bar 9 and then rallied up sharply. The bulls who tried to buy at the low of bar 9 and at one tick below it were happy to be long, and those who wanted to buy at two or three ticks below bar 9 were afraid that they had missed their chance. They were changing their limit orders to market orders, which caused bar 11 to move up quickly. Also, those bears who shorted below bar 9 were afraid that the low 1 would fail and that the wedge would have a second leg up, so they were now covering at the market or above the highs of 1, 2, or 3 minute bars, or above bars on volume or tick charts. Bar 11 closed above the closes of the past six bars (a sign of strength), and it was essentially an outside up bar at the start of a possible new bull trend. Some bulls would have bought this strong close, given that it followed strength in bars 7 and 8 and the trend might have reversed up. It failed to have a high above the high of the prior bar, but with a low below the prior bar and a high at the high of that bar, it was close enough for the market to react to it as if it was an outside bar. At this point, it was a triple top with the two prior bars, and if the market failed to reverse down and instead went one tick higher, the pattern would have become a failed top and would likely be followed by more buying. Bar 11 also broke below the trend line from bars 6 and 7 and below the trend channel line from bars 9 and 10, and this created a small dueling lines long setup. Bars 9, 10, and 11 formed a small expanding triangle that should have acted as a bull flag instead of a reversal pattern because a second leg up was likely.

Bar 12 broke out above the triple top and above the high of the bar 11 outside up bar. Even though it was a small bar, it reached two ticks above the triple top. If it reversed down after just a one-tick breakout, traders would have viewed that as a possible bull trap and they would have looked to exit longs. Bears would also have shorted it as a two-legged bear rally. Some bears would have placed orders to go short at one tick below this bar, in case it became a low 2 short. However, with its high so close to the moving average, they would have felt more confident about their shorts if the market first touched the moving average. Many would not have looked to short until after the moving average was touched, because until it was touched, they would have worried that the market might just go sideways until it was tested. When the market gets within a tick or so of a magnet, traders do not feel confident about the test unless the market gets that extra tick and actually touches the magnet. Until that happens, they usually will not aggressively trade it as a completed pullback. Some bulls would have added to longs above this bar, thinking that it was a failed chance for the bears to take control, which made the market more likely to go up. The high of bar 12 was two ticks below the low of bar 3 and missed the breakeven stops on those shorts by one tick. If the market sold off here, this would have created a perfect breakout test (perfect because it tested those stops as closely as it could without actually hitting them). If instead the market went one tick higher, this breakout test would have failed; those remaining shorts would have covered, and their buying would have propelled the market upward. Longs knew this and would have placed buy stops to add to their longs at exactly that price to profit from that short covering.

Bar 13 was a strong bull breakout bar, with the market breaking and closing well above the moving average, the bear trend line, and the high of the strong bar 5 bear trend bar. The bear flag failed and broke to the upside, and traders would have looked for about a measured move up. If it was a successful bear flag, they would have expected a test of the low of the day. Once it failed, they would have looked for it to go up for about the same number of points. Bulls would have bought this close for a test of the high of the day. The day's range had been only five points, which was about half of the recent average daily range, so the market could have formed a measured move up or down. At this point, since the bears had just covered, they would have been unlikely to go short until at least two more attempts up and that would have left the bulls in control for the next few bars. If there was to be a measured move, up was more likely than down at this point.

Bar 14 was a bear reversal bar that could have formed a lower high, a failed breakout, and a low 2 short. However, for the reasons just stated, it was more likely that the market would have at least two attempts up after the bar 13 breakout, so if this short triggered, it would be more likely to fail, and the failure would create a breakout pullback long. The bulls would therefore have been trying to buy any move below its low. If there was going to be just a one-tick move below its low, forming a one-tick bear trap, aggressive bulls would have wanted to buy that move. To do so, they would have put their limit orders to go long at the low of bar 14. This is because there probably would not be enough bears shorting below bar 14 to fill all of those long limit orders placed by aggressive bulls. Since the bulls were in control, there would probably have been more traders looking to buy than looking to sell. Alternatively, the bulls could have placed a market if touched buy order below the bar or simply bought at the market as soon as the market dipped below bar 14. Other bulls would have placed limit orders to go long at two and three ticks below.

Others would have wanted to buy two- and three-point pullbacks and would have placed limit orders to go long at seven ticks and 11 ticks below the bar 14 high. If the market pulled back exactly two points, most traders trying to buy the end of that pullback would have only been able to get long at seven ticks down and not at the exact low, because there would likely have been far more contracts being bid than being offered at the low tick, and those bulls would instead have had to buy one tick higher.

Finally, some bulls would have seen every bear setup as a bull setup and would have assumed that there would have been trapped eager bears who shorted into the bear close. Those bears would have had to buy back their shorts at some point, and many would have had their buy stops at one tick above this bear reversal bar. Smart bulls knew this and were always trying to go long exactly at the price where trapped bears would have been buying back their shorts. These longs would therefore have placed buy stops at one tick above bar 14.

Bar 15 took out the high of the bar 14 bear reversal bar, but pulled back on the close. It was possible that the bars 14 and 15 double bottom could fail to be a bull flag and lead to a sell-off, just like what happened with the bars 2 and 3 double bottom. Also, the high of the bar formed a double top with the high of the open, so the day could have turned into a double top bear flag and could have a measured move below the low of the day. The highs of bars 13, 14, and 15 created a micro wedge. If it triggered, by the market moving below the bar 15 low, there could have been a two-legged sideways to down correction. If the market instead broke to the upside, the move up would have been a breakout to a new high of the day and above a micro wedge, and there would have been more bears covering their shorts and new bulls scalping the breakout.

Bar 16 was a big range breakout bar that broke a trend channel line. It could have been a buy climax and it could have been followed by at least a two-legged sideways to down correction that could have lasted an hour or more. Whenever there is a large bull trend bar after a bull trend has gone on for a while, the odds favor it representing exhaustion, with the last weak bulls buying, the last weak shorts covering, and the strong bulls and bears waiting for the close of a large bull trend bar like this to sell (the bulls selling their longs to take profits, and the bears initiating new shorts). The remaining shorts would have exited only on a pullback, and the strong bulls would have bought again only after a pullback. This would be similar to the sell climax that bar 5 represented. The high of bar 16 was just five ticks below yesterday's high, which is always a resistance area, and therefore traders looking to buy above the high of this bar for a scalp would have been concerned that the market would have to go above that resistance for them to make their one-point profit. Some bulls would have bought the close of this bar because they could have exited with a one-point profit on an exact test of yesterday's high. An exact test was more likely than a breakout above the high, but a lower high was even more likely, especially after a trend channel line overshoot. Some new bulls would have been quick to exit their longs on any hesitation or pullback because they wouldn't want to lose even one tick when they bought a possible buy climax in an area of resistance. Others would have used a wider stop and added on as the market went against them. These traders would have ultimately been successful. Aggressive bears would have shorted the close of bar 16, or at or above its high, and would have scaled in higher, risking about as many ticks as there were in bar 16. Since it was two points tall, they might have risked two points to make one point, and they would have tried to sell more at one point above the close or high of bar 16. They were unable to scale in higher, but were able to scalp out with a one-point profit on the bar 26 strong bear trend bar. Their profit taking contributed to the reversal up after bar 26. Remember, all traders look at every tick as both a buy and a sell setup, and constantly assess the trader's equation for both possible trades. There are many times every day where both bulls and bears can enter for a scalp and both make money, if they manage their trades correctly. The close of bar 16 is an example.

Bar 17 reversed down after moving three ticks above bar 16. Those late bulls were quick to exit, and aggressive bears were beginning to short. Bar 17 became a strong bear reversal bar, and bears would have looked to short at its close and at one tick below its low. Other bears would have already shorted on smaller time frame charts. This was one bear setup that the bulls wouldn't buy. Once the market fell below the bar 17 low, the bulls saw that as a failed breakout above the bull trend channel line, and they and the bears expected a two-legged correction that would last an hour or more. Bulls would not have looked to buy aggressively until the correction was complete. Since traders were looking for a two-legged correction, bears would have started placing limit orders to short a lower high. The move up to bar 17 was a strong bull spike, so bulls were hoping for a bull channel and a measured move up that would have about as many points as the spike from the low of bar 6 or bar 11 to the bar 17 high.

Bar 18 did not trigger a short and became a bull inside bar. Since traders were expecting a two-legged correction, smart bulls wouldn't have been looking to buy above its high, and aggressive bears would have had limit orders to go short at its high and one and two ticks higher with a stop above the bar 17 bear reversal bar high.

Bar 19 did not fill those short limit orders at the bar 18 high, and it also did not trigger the sell stops below the bars 17 and 18 low. Instead, there was now an ii pattern. Bulls, however, still wouldn't buy, and bears were getting eager to short.

Bar 20 was now an iii setup and it had a bear close, which favored the bears. Smart money was still looking to short below bar 17 (which was below the iii), and on a lower high.

Bar 21 might have been the bull trap that everyone was expecting. It was the second leg up (bar 18 was the first) and it extended one tick above bar 18, where other mistaken bulls also likely went long. There were not any trapped bears, because the most conservative bears would have entered on a stop below bar 17 and that had not yet happened. The only bears in the market now were the smart, aggressive ones who were hoping for a lower high bull trap. They wanted trapped bulls in the market because if the market went down, these bulls would have to sell out of their longs, and this would add to the selling. Also, after there were trapped bulls, bulls would have wanted to wait for more price action before looking to buy again. Smart bulls were already waiting for a two-legged correction, so there was no serious buying here. Weak bulls mistakenly bought the iii pattern. Smart bears were shorting at 1, 2, and 3 ticks above the iii pattern with a protective stop above the high of bar 17. Bears would have looked to short below this bar and especially below bar 17, which was a strong bear reversal bar. Most bears would have waited to short below bar 17 because they would see that as a confirmation of the top. However, smart bears were only looking for a scalp since the move up had been strong, and the day's range was still smaller than average. At this point, if the range was to expand, up was much more likely than down. Also, everyone believed that the buy climax was most likely a pause that would be followed by at least one more leg up. This sideways to down correction had the potential to create a final flag and then a swing down, but that would happen only after an upside breakout.

Bar 22 turned bar 21 into a lower high final flag short (the iii descending triangle was the final flag), but the bar was not able to extend below the iii pattern and bring in additional shorts who were looking to enter on a stop below the flag and below bar 17. Also, the bar closed in its middle, which means that traders bought into the close of the bar, which was the opposite of what should have happened if the bears were in control.

The sideways correction was continuing at bar 25 and the market was forming a tight trading range, which is a breakout setup. The bears would have preferred that the market fell below bar 17 within a bar or two of its formation, which would have indicated that there was an urgency to sell. The market was correcting sideways instead of down, and this is a sign of bull strength. Also, the market was now only two ticks above the moving average, and since the market might have found support there and because the correction was 10 bars long, bulls would have begun to look to reestablish their longs. This was a problem for the bears. They were originally expecting a high percentage bear scalp and now the chance of success had become less. They would have been quick to cover if a bear breakout stalled. Bar 25 touched the bar 17 and 21 bear trend line and created a descending triangle, which is a bull flag when it occurs in a bull trend. However, bars 21 through 25 were also in a small channel if you use the bodies of the bars. A channel often has three pushes and then tries to reverse, just like a wedge. Bars 22 and 24 were two pushes down, so there might have been only one more push down and therefore a downside breakout of the triangle might fail.

Bar 26 was a bear breakout that closed on its low and below the moving average. The new bears were hoping that the market would fill their profit-taking limit orders just a couple of ticks lower. However, the bear trend bar closed only one tick below the moving average, and a strong breakout would have closed several ticks below, just as the bar 13 bull breakout closed several ticks above the moving average. It was also an exact test of the breakout above the high of the open. Even the aggressive bears who shorted the close of the bar 21 bull trend bar had not yet been able to scalp out one point; and if the market reversed up here, they would have had a five-tick failure and would have bought back their shorts. The bears who shorted the close of bar 16 or above its high bought back their shorts here. The bulls saw bar 26 as an attempt by the bears to flip the market to always-in short, but they knew that most reversal attempts fail. They believed that the bears needed the next bar to be a strong bear trend bar to convince traders that the market had reversed its always-in position. Since the bull trend was so strong, they doubted that the bears would succeed, and were not even confident that the bears would be able to push the market below the low of the bar 26 bear trend bar. Because of this, they bought on the close of the bear trend bar, and they would have bought more below its low. Other bulls would have had limit orders to buy seven ticks below the bar 17 high because they were trying to buy two- and three-point pullbacks in a bull trend.

Bar 27 was a bull inside bar and could have been setting up a high 2 long at the moving average. It would have been a two-legged correction that lasted about 10 bars, which was about long enough for the bulls. The bulls wanted a channel up after the spike up to the bar 17 high, and this pullback to the moving average could have been the beginning. It would also have been a breakout test of the bar 2 high. It could also have been seen as a breakout pullback and bears would have shorted below its low, which would also have been the low of the bar 26 bear breakout bar. The bears wanted a bear body to increase the chances of the always-in direction flipping to short. Once traders saw the bull close, they assumed that the bears failed and that the always-in direction remained up, and they bought the close and above the bar.

Bar 28 was a second bull inside bar and formed an ii pattern. At this point, traders were wondering if the trading range was continuing, if the breakout was pausing before more selling came in, or if the breakout had failed and the bulls would take control again.

Bar 29 was a bull breakout of the ii pattern and a successful test of the moving average and of the breakout of the opening range. However, it was only a one-tick breakout and a small bear trend bar, and it could easily have set up a short as a pullback from the bar 26 bear breakout. Bears would have placed orders to short below its low. However, all of the bears who had been shorting for the past hour were now concerned that the market had an opportunity to give them a scalper's profit and it failed. They would not have held on to their shorts much longer. They would have had buy stops above the bar 26 bear trend bar high; the bars 23, 24, 25 triple top; the bar 21 lower high; the bar 17 bull climax high; and yesterday's high. Since all of these stops were within a tick or two of each other, the stops could have been quickly hit in a cascade of stop running, resulting in the bears giving up and the bulls taking control of the market.

Bar 30 took out the high of bar 29 and broke above the bear trend line by a tick, but failed to break above the bar 26 short entry bar. This was two legs up, and the bears would have allowed that as an acceptable pullback from the bear breakout, but they would have been concerned that their shorts were not behaving well. They would have been quick to buy back their shorts. The bulls knew that the correction had two legs and had now lasted about 10 bars, so their minimum criteria had been met and they were getting ready to buy aggressively, hoping for a measured move up to the 1,127.50 area. This was far enough up for them to be swinging some or all of their new positions. They would have seen each of those bear stops as buy setups and would have been buying at the exact same prices at which the bears were covering their shorts. With both bulls and bears buying at the same prices as the market went up, the market should have accelerated upward. Some bulls also viewed this trading range as a wedge bull flag with bar 17 as the first push down, bar 20 as the second, and bar 26 as the third. They also saw the third push down as being composed of a smaller wedge, with bars 22, 24, and 26 forming the three pushes down.

Bars 32 and 33 were small dojis and were a sign that traders were deciding to run those buy stops. At this point, bears were beginning to cover at the market because they knew that their shorts were only countertrend scalps. They were likely happy to get out at breakeven or even with a one- or two-tick loss. The market was holding above the moving average, and after a big spike up, that was bullish.

Bar 34 was a bull trend bar, but it closed a couple of ticks off its high. The market found sellers at the bar 17 high and in the area of the high of yesterday.

Bar 35 gave the bulls a scalper's profit, but formed a bear reversal bar with a one-tick new high of the day. Some traders would have shorted the close of the bar, and others would have shorted at one tick below its low. Aggressive bulls would not have been bothered by the pullback, hoping that it would become a breakout pullback and lead to a move above yesterday's high. They would have stayed long as long as the market held above the moving average, above the bar 26 higher low, or above the bar 34 bull trend bar low.

The bears who shorted on bar 36 were worried that the bar closed at their entry price and that they could not push the market below the bar 34 bull entry bar. They would have covered their shorts at the close of the bar and above its high. Some bulls would have gone long above its high, but most would not have because it would have been buying near the high of the day when the day had been in a trading range for a couple of hours. Buying the high of the day is a good strategy only in strong bull trends, and that was not the current price action.

Bar 37 was a bull trend bar, but it is bad to buy above three large bars that mostly overlap. The three bars create a trading range, and it is risky to buy at the top of a trading range since most breakouts fail. If anything, it was better to short up there.

Bar 38 reversed down at five ticks above the bar 36 long signal bar and one tick above the high of yesterday. Many bulls who were long from earlier in the day likely had limit orders to take profits at yesterday's high, and aggressive bears would have shorted there as well. The bar 37 longs would likely have moved their stops to around breakeven after the five-tick move up, and the market fell through those stops. Bar 38 became a large bear reversal bar, but since it overlapped the prior four bars by so much, it was forming more of a trading range than a reversal. This was the second attempt to reverse the high of the open, so some traders would have placed stops to go short at one tick below this bear reversal bar. Others would have looked to short a lower high. The move up to the bar 38 high can be seen as a two-legged higher high after a bull trend line break, and therefore it was a possible trend reversal. Because of this, bulls might have waited for a two-legged correction before buying again.

Bar 39 was a doji inside bar. Bears would still have tried to short below the bar 38 low, and now other bears would have placed limit orders to short a lower high. They would have had limit orders to go short at the bar 39 high and at one or two ticks higher. Overly eager bulls would have seen this as a high 2 buy setup (bar 37 being the high 1) and would have gone long exactly where aggressive bears were shorting. The market was now in the middle third of the day and was more likely to have trading ranges, so bulls had to be patient, and they had to avoid buying at the high unless the market became very strong again.

Bar 41 again lacked strength, and those early bulls who bought bar 40 would have been quick to take a two-tick loss if the market fell below the low of this bar. Bears would have shorted there for a possible lower high, but they would not have been enthusiastic, because the market was starting to form overlapping small bars with tails (which is barbwire behavior), and breakout entries would have been more likely to fail. It is usually better to buy breakouts near the bottom of barbwire and short breakouts near the top.

Bar 42 would have made some of those high 2 longs cover, and the rest would have covered below bar 38 and the signal bar low.

Bar 43 would have made traders wonder if the market was setting up a wedge bull flag. A small, sideways head and shoulders top often becomes a triangle or a wedge bull flag, and bars 35 and 40 were shoulders. Since traders were looking for a wedge bull flag, they were trying to find three pushes down and a high 3 long setup. Bars 36 and 38 were the first two. Bar 42 could have been the start of the third push down, and if there was a reversal up from there, the wedge bull flag (and the failed head and shoulders top) would have triggered.

Bar 44 broke out below the bar 36 low by one tick and tested the breakout above bar 27 and the moving average. It could be a signal bar although it had a bear body (signal bars often look bad in trading ranges). Traders really need a good signal bar only when looking to trade countertrend in a strong trend, and signal bars often look weak most of the rest of the time. Aggressive bulls had limit orders in to buy at the low of bar 36, expecting that any break below it would fail within a few ticks. Other bulls would have bought the high 3 above this bar because it would have been a wedge bull flag. This would also have been a five-tick bear trap if the market went above the high of bar 44, forcing trapped bears to buy back their shorts.

Bar 45 triggered the buying, even though it went only one tick above the bar 44 high. The market often lacks momentum in the middle third of the day even though the actual shape of the price action is usually reliable. Other traders would have bought above bar 45 because they saw it as a two-bar reversal. Also, many traders prefer to buy above bull bars because the bull close means that the market has already moved at least a little in their direction.

Bar 49 gave the bulls a one-point scalp, but many bulls kept buying every signal, scalping part and swinging the rest. The strong parabolic surge up to the bar 17 high could have been a spike, and the two-sided trading since then was finding support at the moving average and could have been forming a channel. The swing longs kept buying and were trailing their protective stops below the most recent swing low, which was bar 44.

There were many more similar trades over the remainder of the day, but this illustrates the point that if traders have the ability to focus intensely and read clearly, they can take dozens of scalps all day long. However, extreme scalping would be a losing strategy for most traders, and they should not attempt it, and they should never be using a risk that is greater than their reward. Instead, they should restrict themselves to any of the many other approaches that are far more likely to be successful and easier to execute. This chapter is here simply to illustrate that there is much more happening on every chart than what might appear to be the case, and how traders need to be thinking constantly throughout the day. There were many setups today where a trader could go for a reward that was at least as large as his risk, but he should be thinking about every setup that he sees. This chart illustrates just how many decisions that a trader can make during the day. Most experienced traders would take only a fraction of these trades.