Scalping Strategy Using Linear Regression

Greg Veytsman

Within-day Scalping market can vary quite a different traders. It may be 10 - 20 deals with several points during the day, 3 - 4 deals with a dozen points or something mean? By educating traders, I always emphasize that the rule - regardless of what system or method of a trader wants to use, it must be compatible with its risk tolerance. Simply put, this means that if a trader does not have the patience to allow the transaction to promote the movement of a few tens or even hundreds of items, which will take a whole day and not just one, and it should not use methods with the corresponding approach.

On the other hand, if a trader seeks to avoid over-trading and focus on better deals, it does not make sense to use a strategy of rapid skalpirovaniya to trade many times a day with a small profit.

Therefore, knowing yourself as a trader, and understanding their tolerance of risk, both in money (ie, how far can be set to stop) and psychologically (ie, how long you are willing to stick to the deal before accepting the loss) is critical in the choice of trading method or system.

There are methods of intra-day skalpirovaniya, which are based on a trader's risk tolerance and the number of transactions, it would make for one trading day. Commercial installation and time settings can be changed to adapt them to a particular style and preferences of the trader. The proposed method uses the 2 main trading tool, which can be intuitively easy to follow, as well as using graphics software.

Tools

Linear regression

Using a statistical technique called the method of least squares, linear regression builds a line that best corresponds to a series of data points, where the data points deviate less. Regression of trying to predict future prices by using the continuation of this line. Can then be constructed regression channel, by placing the bands above and below the center line, using the standard deviation. Fortunately, today's traders should not be experts in statistical analysis to perform this procedure, because most graphics programs can automatically build a line of linear regression channels. For the purposes of this article, we will use the channel of linear regression as the primary indicator of trend.

Channel linear regression (slope of the channel shows the direction of the trend)

Teak

Teak is a market indicator that shows the latest price and, thus, reflects the interaction of supply and demand in the market. For the purposes of this article, we will use the drill as our main indicator of market sentiment.

Example teak graphics (meaning the price can quickly move between extrema)

Stochastics

Then, we use Stochastics as an indicator of momentum. However, we replace in the calculation of the price of the drill. While teak is a very valuable dimension to the sale of instant purchase, surveillance bare znycheny can be a challenge, and even build it for 1 -, 5-minute schedule can sometimes make it difficult to read, because the values are rapidly gyrate between the extrema. Using Stochastics through teak gives us a good picture of market sentiment, as the momentum is increasing or decreasing. We will use Stochastics on the basis of teak, to confirm that the momentum is moving in our favor when we enter the market.

Retail Installation

We'll trade the installation, using a 5-minute schedule ES E-mini S & P. However, as noted above, these parameters can be modified (accelerated or slowed), depending on the preferences of the trader. The concept behind this method is to install 2 channel linear regression, we call them external and internal bands.

Local bands
At 5-minute schedule of E-mini S & P installed 90-channel periodny regression line of 1.5 standard deviations.

Current band
At 5-minute schedule of E-mini S & P installed 90-channel periodny regression line of 2.00 standard deviations.

The graph is set Stochastics on the basis of teak settings 8/5/3.

Terms of Trade
Minimum range: Make sure you have a fairly decent range between the upper and lower inner stripe inner stripe, otherwise, the transaction will not be able to give you a sufficient return to risk ratio.

Tilt: bidding in the direction of the channel slope of regression. Even though you can see the opportunities to trade against the trend, a safer trade is in the direction of the trend.

Renewed momentum: Use Stochastics on the basis of teak as a confirmation of the momentum turns in your direction. Traders performing Scalping, buy when the tick is low and sell when the drill high. Look for the appropriate movement Stochastics.

Enter a long way: Buy a lower inner lane when tilted upward channel. See, when the price touches or move outside the inner band, but keeps within the boundaries of foreign bands.

Entrance to the short side: Sell at the top inner lane when tilted downward channel. See, when the price touches or move outside the inner band, but keeps within the boundaries of foreign bands.

Ideally, it would be displayed Stochastics on the basis of teak directly to the price schedule in a temporary structure in which you sell. Some graphics programs allow to do it directly, while others require little additional programming.

5-minute schedule ES (arrow shows the entrance to the longest side)

Varieties
As mentioned above, the advantage of this technique is that it is not limited to 5-minute schedule or the 90-periodnoy linear regression. For example, a more aggressive trader might prefer to use 1-minute schedule and 50-channel periodny linear regression.

However, the concept remains the same. We are looking for an opportunity to trade in the direction of the trend determined by the channel bend. This trend can be determined at any time scale, which a trader chooses, based on their risk tolerance and the number of transactions that it intends to enter into.

1-minute schedule for ES, 50-channel regression periodny (trade executed in the direction of slope)

Similarly, the standard deviation can be expanded or reduced, depending on the preferences of the trader. However, we must be careful to reject the expansion or lengthening of the periods so badly that no transaction will not be subject to the conditions necessary to carry out a transaction or, alternatively, the excessive narrowing of departures or reduction of periods prior to such an extent that would be too many signals.

Forex Magazine
based on www.esignaluniversity.com