This Simple Scalping Strategy Makes Me Over $10,000/Month

This daily trading pattern has made my trading unbelievably simple. It takes advantage of the first 2 and 1/2 hours of the market open. It helps me to understand one, when to take a trade, two, the level of where to take a trade, and three, and most importantly, where the market is heading next. After having traded this strategy for years and teaching it to hundreds of other traders, I can confidently say that [music] this strategy is changing the way that people trade in a profound way while still being stupidly simple. It's called the break and [music] bounce strategy, and in today's video, I will explain this daily pattern in three simple steps, and then I will take that process and I will trade it in a live market so that you know how to apply it. My name is Carl, and I've been trading for 20 years. This is a trading strategy that I've been using a lot recently, and in today's video, we'll be going over how we can use this strategy on a consistent basis in our trading. So, these three steps are done on three different time frames, one time frame per step. The first step is done on a daily time frame. The second step is done on the 15-minute time frame. And the third step is done on the 5-minute time frame. So, we're not looking at plenty of indicators here. We will actually not use a single indicator. Instead, we will go down time frame by time frame and then make the trade. So, the first step is to open whatever asset you are trading on a daily chart. For this example, I'm going to use Netflix, but it works with any asset. Just make sure it's on the daily chart. This is 2 days ago. So, what we do is take our box drawing tool and we draw a box from the high of the day, so the very top of this week, to the low of the day, so the very bottom of this week, and then we extend it 1 day into the future. And that's step one. So simple, right? The daily candle is the blueprint for this strategy, and [music] it's so important because there is liquidity resting above your previous day high, and there's liquidity resting below the previous day's low. This is the level where the strongest buyer got in yesterday, and this is the level where the strongest seller got in yesterday. What's great is that there's no bias in this strategy. We are simply going to enter the market at these two key levels, and we're going to do it mechanically, meaning that we can't trade this strategy the wrong way. Either we get the signal or we don't get the signal. There's no interpretation or emotions involved with this. We will just >> [music] >> execute according to the rules, the rules that I will go through with you now. So, we don't have to guess if the price is going higher or if it's going lower. We're just going to use the box, and we are going to enter a trade when we get a reaction at the two key levels. It's going to give us a clear picture of where the market wants to head. If we break above, we are likely to head higher. If we break below, we are likely to head lower. And not only do we have a probable direction of the market, we can also use this box to set our targets and our stop [music] losses. And this is why this daily pattern is so powerful and effective. Now, before we go into the second step, let me show you some proof that this strategy is indeed working. So, about 9 months ago, I actually coded a trading algorithm out of this strategy after having traded it manually for years. This is how it has performed since then. It has a win rate of 70%, and it has a profit factor of 1.6. >> [music] >> So, this is real live results of my algorithm, which is trading this strategy in this exact three-step process. I suggest that you start trading this strategy manually so that you understand it, but if you want to start it automatically, I'm actually giving away the code for free. There's a link in the description, and in return, I'm going to ask you to like the video and >> [music] >> to subscribe to the channel. I appreciate it. Okay, so let's go to step two, which is a crucial step, and this step is to identify when we have a breakout from the range that we boxed in in [music] step one. And what we are looking for is either a breakout above the high level or a breakout below the low level. And the reason that this strategy is called the break and bounce is because what usually happens is that if the price breaks out of the level, it will usually retest the breakout level and then bounce on that level back up into the direction of the breakout. So, in this step, we only focus on this one thing, identifying if we have a breakout, and we do this on the 15-minute time frame. So, switch your chart to the 15-minute time frame. Okay, so here's the box that we drew in in step one, but this is with 15-minute candles. So, what you want to see here is a push of the price above the high for a continuation towards the upside, or we want to see a push of the price below the low for a continuation towards the downside. So, the way we decide if there is a breakout or not is if we have a close of the 15-minute candle above the high level, or if we have a close of the 15-minute candle below the low level. So, we don't just settle for the price moving above the level for a minute. We want a full 15-minute candle close above the level, or a 15-minute candle close below the low level. So, we just need to wait. So, let's play this out. This is March 31st, and the day range that we boxed in was March 30th. Okay, we open up at the middle of previous day's range with a gap, and the price starts going up, and it's actually going up above the range in this first opening candle, but remember, this isn't a confirmed breakout. We need to wait for the candle to close. So, the price is going down again, and it closes within the range, meaning that we don't have a confirmed breakout yet. In this next candle, the price keeps going up, and we actually do get a close above the high, which means that we now have a confirmed breakout. And that's all for step two, which also was pretty easy, right? [music] We don't use any indicators. We don't use any fancy complex setups. We're just waiting for that 15-minute candle close above or below the range. Now, let's move on to the third and last step, which is to make the perfect entry for what usually comes after this, which is a retest of this level and a bounce. So, our levels are drawn in. That is step one. We have that 15-minute candle close above our previous day's high. That's step two. And this step we do on the 5-minute time frame. So, we switch the chart to the 5-minute time frame. Now, from here, what we need, which is the most important part of this video, we need one out of two types of candles to appear at this key level. And I say it's the most important part because if none of these candles appear, >> [music] >> then it's not ready to be reversed because that movement could continue back into the range. So, we want one of these two candles to appear at this level. Also, remember we will only take the trade if this happens within the first 2 and 1/2 hours of the market open. If that doesn't happen, the opportunity is lost, and we will not take the trade. So, if you know about reversal candlesticks or have watched any of my previous videos, you already know what the two types of candles are. The two types of candles that I'm going to be looking for are either the hammer or the inverted hammer candle, [music] or the bullish or bearish engulfing candle. And let me explain why these two candles are important and must be used in this trading setup. Let's start with the hammer candle to the long side. This must come after a clear red negative movement. The confirmation comes from within the wick itself, right here. The wick represents that the largest buyer took advantage of this liquidity, and that the institutions bought into that weakness. And I've said this in past videos that you need to think about it this way, that if someone with that amount of buying power is going to step in there and buy this dip, it's not going to go lower in most cases. And that's where the edge is because they're too big, they are too strong, and they have announced their intentions, and most likely the price will go higher from here. Not all the times, but in most cases it will. So, the entry is going to be very simple. You're going to wait for the break of this 5-minute hammer candle here, and the entry would be right here, and the stop loss would be set at the low. The inverted hammer would be something that comes after a clear green positive movement. You would have the wick coming from the top. Again, the confirmation comes from within the wick itself, right here. The entry would be at the break of the candle, and we would set the stop loss slightly above the high. Now, the engulfing candles have the same exact significance, but they look different. They are called engulfing because this large candle here engulfs the previous smaller candle, meaning that the low of the candle is lower than the previous candle's low, and that the high of the candle is higher than the previous candle's high. So, fully engulfing the previous smaller candle. For engulfing candles, though, I like to set the entry already at the high of the previous candle, and not wait until the engulfing candle closes. So, for the bullish engulfing candle, I would set my long entry here at the high of this red candle, and I would place the stop loss slightly below the low of the engulfing candle. And for bearish engulfing candles, we enter the short trade already at the low of the previous [music] green candle and place the stop loss slightly above the high. So, if you didn't follow all of this, don't worry, we're going to go through this step by step now. Let's replay this again. Step one, we go to that daily timeframe and the first [music] thing that we do in the morning is to box in yesterday's range and we extend it until today. Step two, we go to the 15-minute timeframe and we identify that we have a candle close outside that box and step three, we go to the 5-minute timeframe and we wait for a hammer candle or a [music] engulfing candle at that high low level. Okay, so let's see if we get that retest, if we get that reversal candle and if we get that bounce. So, the price actually rapidly retest the level here in the next 5-minute candle. So, we're waiting for the reversal candlestick formation somewhere around this level. In this next candle, price goes up again, no reversal candlesticks yet and the next two candles were green as well. Price goes up again but without any reversal candles. Okay, here we actually get a hammer candlestick but remember, we only enter on hammer candles if it was preceded by a clear negative movement and not when it's looking like this. Okay, the price goes down again for a third retest. Okay, around here, 90 minutes after market open, you should see what I'm seeing. We are once again around this breakout level. We've got a low of this candle that is lower than the previous candle, meaning that if the price goes up from here to the high of the previous candle, we could very well have a bullish engulfing candle. So, the entry would be straightforward. We would enter the long trade at the high of the previous candle here and we would set the stop loss below the low of the candle and I would set a target profit to three times the stop loss. Okay, so our trade is set. Let's see how it plays out. So, the price continues up and we enter the trade. We reach our target profit here already 15 minutes later. In this trade, we entered at 94.51. We put the stop loss at 94.34 and we set the target [music] profit at 95.02. So, this trade had a 17 point stop loss and we made a 51 points win, which is pretty good, right? And this isn't cherry-picked. So, if we look back at previous times that we had this breakout setup, the last time was March 26th and we had this pattern here, too. We had a positive breakout. We reversed down again for a retest and then we bounced up higher. March 23rd, we have this pattern here, too. A positive breakout, a retest, a hammer candle and then bouncing up. Of course, there are losses, too. If we go back to March 9th, we got a bearish engulfing candle here but it's false and the price actually goes back into the range again. So, this strategy doesn't have a 100% win rate but almost every time that the price breaks out like this, it will retest the breakout level and then it will bounce. So, this breakout setup doesn't happen every day. Sometimes we trade within the range for the full day. Sometimes the breakout happens but it's not within the first two and a half hours. Sometimes the breakout happens within the two and a half hours but we don't get a reversal candle and this means that we only get this setup two or three times per month per stock. So, if you want to trade this strategy daily, that means that you need to scan a number of different stocks every morning to find suitable breakout. Now, let me show you how to trade this live. It's already after lunch, so I will be back tomorrow. Okay, so I'm back. It's actually been a few days since you saw me last time. I didn't get the trade setup the next morning but hopefully we will get it today. So, the market opens in 10 minutes and we can start by doing step one, which is to box in yesterday's trading range. So, we take our box drawing tool. We draw a box from the high to the low and we extend it until today. So, that's step one. Again, we are on Netflix. So, the high level is 97.19. The low level is at 94.27. >> [snorts] >> Let's go to the 15-minute timeframe and let's wait for the market open. Okay, here we go. We opened around the middle of yesterday's range and we're going up and then down. >> [music] >> Okay, now finally, here you should see what I see. Uh so, we have a 15-minute candle close here above the range around 75 minutes after the market open. So, that's step two. We have a confirmed breakout and step three is to dial in that perfect trade. So, we go into the 5-minute timeframe and we wait for a hammer or a bullish engulfing candlestick and we wait for it to happen around this level. If this was a negative breakout, we would instead wait for a inverted hammer or a bearish engulfing candlestick and we would wait for [music] it to happen around the low level. So, here look, we have something that might turn into a hammer. The wick exactly touches this level. So, if the candle closes like this, then we will enter immediately at the candle close. Okay, so there it's closed. It's definitely a hammer, so I will enter a long position. I will set the stop loss a bit under this level here. I will set it at 97.15, which means that it's a 39 cents stop loss and I want to set a target profit that is twice that. So, that's 78 cents, which means that the target profit should be set at 98.32. And that's step three. Let's see how it plays out. This is taking longer than usual. We are still in trade. We're still in latent gain but it's been [music] in trade for almost two hours now. By the way, I forgot to say this but if we are still in position by the time the market closes, we [music] want to manually close the trade. Oh, okay. This is taking time. Finally, so we reached our target profit here. The average trade duration is usually like one or two hours, so this is unusually long. Again, I would have closed the trade at the closing if we hadn't reached our target profit here. Anyway, we made some money. We made a good trade. We followed the steps and that's all we need to do. All right, guys. I hope you learned something today. Please make sure to do your own due diligence and your own backtests before running any of these strategies. Historic results are no guarantee for future results and with that being said, I hope you guys enjoyed this video. If you did enjoy it, please [music] give it a thumbs up and subscribe to the channel and I will see you again soon for a brand new strategy. Bye.