Forex Trader Mentor
18th November 2004
Hi and welcome to this newsletter aimed at forex traders. Whether you are thinking about trading, are trading on your own account or trading professionally, I hope that I have something for you.
To scalp or not to scalp
When you sign up for a demo of a trading platform, you expect that is what you’re going to get when you go ‘live, right? Perhaps. It seems that if you are too sharp, you might get your trades turned down. Especially if you see some mis-pricing in a volatile market and attempt to ‘job’ or ‘scalp’. Scalping, a term that comes from the futures market, involves trading on an incredibly short term basis, taking advantages of pricing anomalies. For example, a price may be shown as 03-06, 04-07, 02-05 and then suddenly 10-13. You may want to sell at 10 because you are pretty sure that the price will get back ‘in line’ after a couple of seconds. This often happens in the ‘cable’, the GBP/USD pair.
I have been informed that if you follow this strategy, you may get the trades turned down, or at least the ‘wrong’ one. Why? The banks who provide the liquidity don’t like losing! Well, tough luck! Mr. Banker -you are either a market maker or you are not. (see e-mail for additional text)
Some platforms put in a delay for trading while they are so kind to show you a confirmation of your trade, and this surely must be ‘time out’ enough? The brokers love your turnover and that is what a scalper generates, so why the grudge? Recommendation: Find a platform that isn’t loading the dice.
OCO – what the hell’s that?
OCO stands for Order Cancels Order. It is normally used in a strategy which is a stop loss and a profit take order in one. Suppose you bought EUR/USD at 1.3050 and decided to set a stop at 1.3030. This would mean that if the market went against you, you would get stopped out at 30 (or just below, depending on market conditions). Suppose you wanted to run the position overnight. It would be ideal to set an order where you could take your profit, say at 1.3090. But what would happen if you set both orders and both were executed? You would end up with a new position with no stop loss. Not a good idea.
With an OCO, you can set a stop-loss tht CANCELS the profit take on execution, or vice-versa. This now means that when your order is executed to one side or the other, the other order is cancelled.
Be careful though. If you set the order in the ‘wrong’ direction (for example, you are long, but set the orders to buy), you risk that one of the orders gets executed at the current market price IMMEDIATELY and you have double the position and no stop!