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Chapter 6
Strategies
Scalping
Scalping is a trading strategy whose goal is to make a profit from small changes
in price. Those who use this strategy typically place as many as 100 or more
trades in a given day. Scalping takes advantage of a combination of large
position size and small price gains in the shortest market timeframes. The goal is
to either buy or sell a number of shares at either the bid or ask price and then sell
once the price has only moved a few cents.
Scalping is a fast-paced type of trade that nimble traders will excel in. The ideal
margin for this type of trading is 4 to 1 in order to make the most profit in the
shortest amount of time. Typically, scalpers focus on either the 1-minute or 5-
minute candlestick charts. Commonly used indicators include the MACD, RSI
and stochastic. Price chart indicators like pivot points and Bollinger bands are
often used to determine levels of resistance and support. It is recommended that
you have at least $25,000 worth of trading capital in order to utilize this strategy
successfully.
Common mistakes to this strategy include choosing poor execution times, not
setting the correct stop losses, late exits, late entries and overtrading. Scalping
creates a high amount of commissions which means you are going to want to
look for a per-share commission price structure for the best results.
Fade
A fade is an investment strategy based around taking a contrarian approach to
the current trend. This is a high-risk strategy that has the potential for high short-
term gains when it works out in your favor. The reasoning behind this is that
once the initial surge or spike in price has occurred then the resulting
retracement or pullback will be able to generate a profit. To know you are on the
right path when it comes to one of these strategies, you will want to look for a
gap between the price and the trend line, this means the price is heading more in
the direction of the trend and away from the trend line.

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The right time to fade a breakout is when you have reason to believe that the
breakout from either the resistance or support level is false which means it is
unlikely to continue for much longer. You would then want to put this strategy
into play when you have reason to believe that this breakout is going to be
substantial.
Most fade breakout trades tend to fail because the minority who chose to fade
the breakout is frequently compromised by the major players in the market who
want the current trend to continue. Remember, in order to sell something, you
need to have a buyer and if everyone is currently buying above the resistance
level or selling below the support level then the number of buyers for what you
are proposing is going to be relatively slim. There is a reason that this is a high-
risk strategy.