Transcription
Today I'm going to show you this incredible scalping strategy that's designed to take advantage of the first one hour of each trading session. It's called the pattern scalp. It's repeatable. It's newbie friendly. And best of all, this thing is simple.
Now, my name is Doug and I've been a professional trader now for more than 26 years. And if there's one thing I learned throughout that time, it's that 90% of all the money a trader will make during their lifetime, they're going to make that money the first one hour of each trading session. And every pro will tell you this. So if you ever want to have a fair shot at becoming a profitable trader and you want to seize the best opportunities every day that the market has to offer, you've got to be able to master the open. But if you want to master the open, you got to have the right trading strategy. Otherwise, you are toast.
So, in today's video, I'm going to show you how to trade the pattern scalp strategy in just three simple steps. I'm going to show you it to you the exact same way it was shown to me back in 2003 and the exact same way I showed it to every member of our live trading community who are using this pattern scalp strategy on a day in and day out basis to manufacture winning trades. Then, once I've shown you this three-step process, I'm going to take this pattern scalp and trade it in live market. That way you can start mastering every market open. So, let's get started with today's video.
All right, so let's begin with step number one of the pattern scalp strategy, which is defining the opening range candle. And here's how we're going to do that. I want you to pull up a chart of whatever you're trading. And I don't care what that is. But just for reference, I'm going to start today's video out with the stock Google. But I want you to take that whatever you're trading and move that whatever to a 15-minute time frame just like I've done right here.
Now once we've selected the 15-minute time frame, which is pretty easy to do, we are going to allow the very first 15-minute candle out of each market open to completely finish and completely close before you and I do any buying or selling whatsoever. This is very important to getting the pattern scalp right. We want everyone else to throw all their money on the table to do all the chasing to get whipsawed back and forth. Then you and I are just going to kind of slide right on in there quietly and we're going to nail these trades. Okay? That's why so many people love the pattern scalp. That's why it's newbie friendly and that's why it's low stress.
Now once this 15-minute candlestick has closed, what we want to do is grab some sort of drawing tool from our software like a line or a box. I prefer boxes. And what I want to do is box in the high price and the low price of that opening 15-minute candle. So we come over here and you'll see for Google this is about $366.91. And we're going to connect that with the low price point of $358.33. It doesn't have to be perfect down to the penny. Just get it close enough. And that's all we need to do for step number one is box in the first 15-minute candle, the highs and lows. That's it.
Now, once that's done, we can move on to step number two, which is far more important, and that is determining whether or not this opening range 15-minute candle that we had boxed in is a manipulation candle or not. Now, most likely it will be, and I'll explain to you why here in just a moment, but if it is, man, we are on to something special.
Now, a lot of you might be asking, what exactly is a manipulation candle? Well, a manipulation candle is any fast, aggressive, moving candle that's going in one direction. Now, the direction itself is irrelevant. It doesn't matter if it's up, it doesn't matter if it's down. It just needs to be fast, aggressive, and moving in one way. Now, I'm sure if you've done any trading at all, you normally see these candlesticks developing when the market opens, right? So, that's what a manipulation candle is. But it's more than just a series of candles. It's an emotional event because when traders from around the world see these fast aggressive candles, their instinct is to chase into either the strength or the weakness and fear they're going to miss out on the next great trading opportunity. And what you're going to learn here today in this video is that's exactly what those candlesticks are designed to do. They're designed to pull in the inexperienced traders, get them to chase the price in these instruments so it can create the liquidity necessary for the larger funds and institutions to get in and out of their positions.
Now, we're going to touch on that topic a little bit more as this video progresses, but here's what you need to know for step number two. The most important thing is normally when you see these candles developing at the open, most likely those candles will be reversed. That's our strategy. That's our edge. We are looking to reverse this opening 15-minute price action.
Now, just in case there's any doubt in your mind whatsoever that you're looking at a manipulation candle or not, I'm going to give you a simple cheat code on how to figure that out in just a few seconds. So, let's go back to our Google chart here. And like I said earlier, in most cases, you'll be able to tell with a naked eye that you're looking at a manipulation candle just based off of its sheer size, its speed, and intensity like Google here. I mean, it's pretty obvious this is aggressive. But let's say it's not so obvious. Or let's say you just love to double-check and you want to know for sure. Well, here's a quick way that you can do that. Take the asset you're trading, which in our case is Google, and I want you to move it to a daily chart time frame, just like I've done here.
Now, we're looking at daily bars here on the screen. From there, go to your indicator menu and search for the indicator called Average True Range and just click on it. And what it'll do is put a line at the bottom of that chart. And if you look over to the right, it will give you a numerical value for that line. In this case, it says $10. That means $10 per share is the average true range of Google. So, what does that mean? Well, range is a valuable tool for day traders. It allows us to get some expected value in a target we're making for a trade and also assess risk. But the easiest way to put that is that if you're trading Google on a day-to-day basis, you can expect either a $10 move to the upside or a $10 move to the downside in any given day. Now, this is just a benchmark. It's not a guarantee. Some days it will extend way beyond that range. Other days it won't come anywhere near it. You can look at it much like home values in a neighborhood. You have some very expensive valued homes and then you have some modest homes and the sum of all those homes in that neighborhood put together comes up with a median value. This is a median value for an asset you trade, but it has a lot of value in helping us make quality decisions while we're making these trades.
So, here's what we want to do with it. I'm going to go back here to the 15-minute chart and I'm just going to write the number 10 up here. If this candlestick, this 15-minute candlestick that we boxed in is more than 20% of that daily ATR, you're looking at a manipulation candle. So, let me break it down for you. If you take the $10 per share of the average true range, you multiply this by 20%, you're going to be left with $2. So, if the size of this Google candle, the 15-minute candle, exceeds $2 in price, that's a manipulation candle. Now, obviously, it is, but let's go back and grab a measuring tool, and we're going to measure the very top of the box to the bottom of the box, the top price to the bottom price, and you'll see it's giving us a value of $8.82 of total price movement. So that is almost 90% of the daily ATR chewed up in one 15-minute candle. So that's extremely excessive. And you'll learn as you use this strategy more and more. The more excessive it gets, the better the reward is. So that's all we need to do in terms of really solidifying whether or not we're looking at a manipulation candle.
Now, once we've determined that we're looking at a manipulation candle, we can now move on to the third and final step, which is where the money's made, and that is on the execution. We're going to dial down the perfect entry. And here's how we're going to do that. We're going to go back to our 15-minute chart, and we're going to bounce that down to an intraday, five-minute time frame. Now, this will give us a series of three candles. And from here, it is very important. We are looking for one of two candles to appear in order for us to take the trade. If we don't see these candles, we cannot take the trade because it's not ready to reverse. These things can definitely overshoot the range and go down the entire day. They can blow through the upper ranges and go up all day. So, it's very important that we see these two candlesticks. And I'll show them to you and I'll explain why they're so valuable in this process. And they are called the hammer and inverted hammer candles that I always call now the John Wicks and the power of tower candles which are known to most of you as the engulfing candles.
Let's talk about the John Wick candles first. So whenever we see this John Wick candle appear and one note on that sometimes you may see this appear on the third five-minute bar which is just at the tail end of the opening 15-minute bar. That's okay. Sometimes you may see this after the 20-minute mark, 30, 40, 50, or after a long period of consolidation. That's fine as well. And I'll show you what I'm talking about here in just a second. But we're actually not entering on the John Wick bar itself. It's becoming the confirmation to us that a big buyer is stepping in. What we're looking to do is enter on the next candle. Important. The next candle that takes out the top of the John Wick. So if I mark the top of this John Wick candle, the next candle that pops through the high of that candle, we enter immediately as it breaks the top of that candle. Then we place our stop underneath of that big buyer and then we'll talk about the targets here in just a second. That's what the entry looks like on a bullish John Wick. Inverse relationship on a bearish John Wick. We're not looking to enter on the first hammer candle, John Wick coming down. We're looking to enter on the next candle that goes through the base of that John Wick. In this case, we would enter as soon as it had broken. Our stop would go towards the high of the day. That's how we enter the John Wick.
Now, let's talk about the power tower here because it has a slightly different entry model to it. So, let's go back here and take a look at this green bold bar. So, let's say this asset just kind of ripped straight up in the air, had this huge green bar, and then it has this engulfing red. The problem with waiting until it completely engulfs the previous green. In most cases, that's too much price. What I like to do is if the red candle comes by and takes out 50% of that previous green candle, I normally enter right there with a stop at the high. Now, I want to use a more aggressive approach like this because it keeps my risk much lower because if you're trading things like futures, if you're trading things like gold, high volatile assets, high beta names, that green candle, like for example on a Google could be $3. So, we don't want to wait for a $3 sell-off, then chase into a $3 sell-off and expect more. And I'll show you what this looks like in real time, so it's a lot easier. Same thing over here, just inverse. If this is extremely red and very strong, then I will wait for 50% of that to be taken out, I will enter at the 50% mark with a stop at the low of the day. Now, this is providing that they are very massively large candles. If they're just two little itty-bitty tiny block candles like this, then I would wait for them to be taken out. Just the small ones don't count. I'm talking about the big strong power of towers. Okay?
So, let's go back to our intraday five-minute Google chart and take a look at the candlestick formation that we have here. And I think most of you can see it right here on the third five-minute candle towards the tail end of the 15 minutes. We see a John Wick appear. Now if the candlestick appears towards the end of the 15-minute candle, like on the third five-minute bar, that's okay. So we see this thing appear that lets us know that a buyer has in fact stepped in. But that's not enough for us to put our money on the table. We must wait until the next candle crosses above that John Wick. Whether it's the next candle, five more candles, 10, it doesn't matter. We will wait until that candle gets taken out. So, if I come over here and I just play the tape through, you're going to see the very next candle pushes right through the top of that John Wick. Now, that would be our entry right there. 360.66. So, I'm just going to do a sample buy right here. It will be a little bit late because it's making me buy at the end of the candle, but that would be the entry. The stop loss would go just right below the John Wick, just like that. And then what we look for typically in a target is to go right back up to the very top of that opening range. And I'm just going to play it through and you're going to see what happens is it bounces all the way back up. But what you need to understand about this trade is the only reason it ever happened in the first place is because there was opening manipulation. Without the opening manipulation, it stands no chance of rallying back up towards the high of the day. This is what makes this trading strategy so special. It's not some hindsight hieroglyphic speculative drawings that you're making on charts. There's real meaning. There's real money and real players that go behind this. And when you're on the side of the big money, well, good things are going to happen for you.
So, that concludes all the steps of the pattern scalp strategy. Again, very straightforward, very simple. Step number one, you box in the high and low of the opening 15-minute candle. Step number two, you determine whether that candle's manipulation or not. And then step number three, you move to a five-minute chart and patiently wait for your John Wick or Power of Tower.
Now, right before we jump into the live trades, I want to give you, let's say, a variation, a special bonus that I've never shared on this channel before. Let's take a look at this AMD chart that I have up here. And I have it already set to the 15-minute time frame. First, the pattern scalp strategy is still valid even if you get back-to-back 15-minute manipulation candles. Again, remember I said earlier, sometimes they'll go up for a long, long time and down for a long, long time. So in this case, even though you got back-to-back manipulation candles, the pattern scalp strategy is still on. But the reason that I wanted to show you this is to really highlight the power of the John Wick candles or the power of tower candles. So if I move this to a five-minute chart, note first that what started this whole sell-off was a John Wick candle at the top. But as it was in this freefall, also note there was no John Wick and no power a tower for almost a half an hour. It just keeps going down and down and down. And this is why you need to wait for that signal. So if I just kind of move it forward here real quick, you'll see that the very next candle or eventually you get a power a tower engulfing candle. And what happens when you get this candle? AMD bounces. Right? That's why we must wait.
So, let's go ahead and do some live trades and see how this pattern scalp works in a live market.
Okay, so we're about 12 to 13 minutes into the day session and we have on the screen what appears to be an opening 15-minute manipulation candle in the asset METU. So, you see up here I got METU selected 15-minute time frame. Now, this METU is an ETF that mirrors the movement of the stock Meta. And we love these things in the squad because instead of trading Meta, which is $600 to $650 per share, you can see this one's only around 26. So, we can really leverage heavy into something like this, but we'll talk about that later. Obviously, what we've learned up to this point, this looks like manipulation. But, let's just go through the steps because there's a couple other things I want to share with you about this trade.
So, if I go to a daily chart right now, which I have selected, take a look at the upper left corner. You'll see it's now the daily chart selected. I already have the ATR on the bottom of the chart. So, if I just kind of lay the cursor there, and you look over to your right, you'll see it says $130. So, it's about a $130 per share is the range if you're trading METU. So, 20% of that to qualify for manipulation would be around what? 20, 26 cents, 27 cents. So when I come back here, I mean this is obviously more than 20%. But if I mark the high of this candle right now, which is around $27.20, and we just look where it's trading, it's at 2620. This is a dollar, right? So we've chewed up a majority of the daily range. And like I mentioned earlier in the video, 20% is the threshold, but the bigger the flush, the better the reversal. So when I'm trading these, I actually look for the ones that are around 70 to 80%, that's where I prefer to be, but the 20% is good enough. But these are the kind I look for every day.
Now, there's something else like another piece of context on why I'm looking at METU more than the others. If I go back and I look at this daily chart, take a look at this. Yesterday, it broke out of a multi-week base of about $26 right here. You can see it just kind of broke out and started to fill in the gap or want to fill in the gap. Now, if you take a look at this current chart, we're very close to that $26. So, this should be very, very good support. So, we're going to look for those John Wicks, power towers, or that big buyer that was there yesterday to come back in and buy it here at this level. So, because this was the breakout from the previous day, this should act as some pretty good support. So, there's there's a decent piece of context. So, let's go ahead and let this thing finish and then we'll come back and see if we can dial down the entry somewhere between 2620s, 26s, or wherever it decides to settle in.
So, now that the first 15 minutes is over, we've switched to a five-minute chart. And you can see up there in the corner, I am already long. This METU at $26.39. Uh happened so quick I wasn't able to get the recording going, but I think if you guys take a quick look, you'll see why we entered there and what we are doing. So let's take a look at this candle right here, the 15-minute print. It's a John Wick candle. You got that nice wick coming off of the bottom right at the sweet spot. And as we discussed earlier, as we got towards that $26 heavy support level, a buyer should show up. Now, in this case, when you see that candle, all we need is for the high to be taken out of the John Wick, which was around 2640. That that that's the entry, and our stop is going to go below. And I mean, take a look at this thing. It's already taking off. And a big reason for that is because when you get down into those high buy-side support areas after these manipulation candles, this is the kind of reaction that you get.
So, let's see if we can I mean, look at that. Look at that. Huh? Look at that. Let's see if we can get it all the way back up to the opening range and that's where we're going to look to sell it or maybe even take a partial position on it. But just look, I mean, just just look how fast they get when they're down here. And I got to tell you something, guys. After 26 years of doing this, it still feels good when you nail a trade like this, right? Right when you hit it right at the sweet spot and it lines up. That never gets old. Even though I've done it thousands of times, it never gets old. I mean, just look at it. But if you kind of go through the chart in your mind based off of what we talked about, look at the first three candles. The manipulation. Oh my goodness, look at that. And the John Wick. All of this is only made possible by that opening manipulation. We may end up having to sell this thing here quick. I would. That's pretty good, huh? That's pretty good. So, let's just let it finish out. But you can see as soon as it crossed, soon as it crossed the top of that John Wick, it was off to the races. So, let's just give it a couple minutes, see where we end up. See if we get to the high of the day and check out on this one pretty early.
All right, guys. So, I skipped forward here. We're about 30 minutes into today's session. I mean, look at it. I love this stuff. I love it. Love it. Love it. When these things work out like this, again, only made possible by the opening market manipulation. The John Wick candle gave us the confirmation that the big buyer was stepping in. But remember, it wasn't just some random big buyer stepping in. That was yesterday's support or or the previous breakout, yesterday's resistance, which became today's support. So, we had a pretty good idea that once you got down into that buyer, they were going to return. And man, did they ever return with a vengeance. And see, it's much easier for us to do it down here because the stop at that point was so low. Now, we're just sitting back letting everybody chase our trade, right? Instead of us chasing people's trade, we're letting people chase our trade. And damn, that's a good feeling. That is a good feeling. So, I'm going to probably sell this as we move towards the $27. But you can see in just a 15-minute span from the time you push the button, 15 minutes later you've moved almost $1. If you had a hundred shares of this, you made a hundred bucks. 15 minutes. 1,000 shares, $1,000 bucks. 10,000 shares, $10,000 bucks. That's the Wall Street raise. You get yourself a process. You get yourself confident. You just have to scale up from there. But in order to do that, you got to have the right strategy.
So guys, I'm going to call this video from here. It's just a matter of managing this position. Who knows, maybe it goes to $28, right? Uh sometimes these things can just plow through the high of the day. We'll see. But I want to thank you for watching today's video. I hope you found the pattern scalp strategy to be of value to you. I hope you feel that you can use this comfortably. And if you have any questions, put them down there in the description box. As always, I want to thank you for watching today's video. It's my pleasure. Take care, trade well, and I'll see you guys the next time. Cheers.