Forex Trading Advisers

Short-term advisers: scalpers and pipsers.

I combined them into one group, because, as a rule, the essence of their work is approximately the same. The difference lies in the value of stop-loss and takes profit, which is also not significant.

For those who suddenly don’t know, scalping is not only “short-term deals”. The essence of scalping is precisely in “cutting off the impulse” (which follows from the English scalp), i.e. attempt to enter the moment of impulse generation and exit at the first sign of attenuation. In this case, the pulse itself can be at least on D1 and occupy 1000 points. But on the part of advisers, it is precisely those who make short-term transactions on small time frames that are called scalpers.

As part of the advisers, it is precisely those who make short-term transactions on small time frames that are called scalpers.

Thus, the essence of “short-term” advisers can be described as follows: your trades will have a fairly small stop loss, a fairly small take profit, and there will be many of these trades.
Let’s go straight through the advantages and disadvantages of this approach.

Benefits:

  1. As a rule, a clear transaction conclusion algorithm is either their indicators, or price levels, or Price Action patterns (in simple terms, these are candles of a certain kind, which seem to indicate a clear prevalence of bull / bearish moods in the current moment). I’ll clarify that “trading in channels” and “trading in flat”, which are often used to conclude transactions by these advisers, also refers to “trading from levels”.
  2. You can start with a super-small deposit. To open and hold transactions, you’ll need quite a bit of money in your account.
  3. With a non-greedy approach – minimal losses. You can put such an adviser on a small deposit and even in a bad scenario, it will be very difficult to quickly merge it, even if all transactions in a row are unprofitable (and this is extremely unlikely, as well as 100% of profitable transactions). The exception is if you are nevertheless greedy, and try to trade such an adviser during the period of important news. Why this is not good – see the “flaws” section.
  4. With a greedy approach – you can enter in very large volumes even on a small deposit, and here’s why:

Deposit – $ 20
Stop Loss – 2 p.
Take Profit – 4 p.

By entering lot 0.1 (which is an extremely large volume for such an amount) and receiving a stop we will lose (drum roll) $ 2, and in case of taking profit, we will earn as much as $ 4, which is 10 and 20% of the deposit, respectively. In one deal. Cool, yeah? But do not rush to imagine yourself on a yacht, until we understand the shortcomings.

Disadvantages:
They are fewer, but they are significant.

  1. Extremely high dependence on the spread. If your stop is 2 p, and take profit is 4 p, then in order to fix the profit you need a price movement (4p + spread) and to get a stop loss you just need 2p movement or even a short-term spread for this 2p.

We add here the probability of the spread widening (if you are not working on a fixed spread account), and the sad eyes of the trader become even sadder.

  1. Strong influence of slippage and requotes. Here we are talking about trading at a time when there is a high probability of increasing price volatility, for example, the release of important economic news, the opening of the European session, the opening of the American session. (picture)

A little bit about why slippage happens at all. Imagine the market not in the form of a graph, but in the form of a certain number of sellers and a certain number of buyers who want, respectively, to buy and sell goods at the prices they need.

For example, if you see a spread of 1.10-1.11 (the numbers are arbitrary) – this means that of all available sellers, the best price for you (as for the buyer) is offered by one who wants to sell at 1.11, and the rest want to sell the same product more expensive. Everything is like in a regular food market. According to the same scheme, the best buyer for you will be at a price of 1.10, and the rest want to buy goods from you at a lower price. Well, here is the analogy with how you advertise for the sale of a little thing: all sorts of people call you, and you choose the one who is the least bargained with you =)

In the figure, red rectangles show the applications of sellers, and green – buyers. The numbers show the volume of applications: for example, according to 1.11, 500 million euros are offered for sale, and for 1.09 – 800 million euros for purchase. The addition “high popularity among traders” indicates that trading volumes are large, which means that the risk of slippage and requotes is minimal.

At the time of the news release or the opening of the European and American sessions, one of two things happens:

Option No. 1 – applications move away from the current price, forming a kind of “vacuum” of liquidity.

And if earlier you could buy a product at 1.11, now you can’t buy it cheaper than 1.13 – at this price, there is at least something to sell.
The inscription “low popularity among traders” indicates that trading volumes are small, and at some prices, there are no applications for purchase and sale. On such an instrument or during such a period it is better to refrain from trading.

Option number 2 – a large volume comes to the market and sweeps away all participants in one direction. The result, in principle, is the same as above – before that you could buy at 1.11, and now you can only at 1.13 because all the sellers at more interesting prices were bought by this large buyer, and now there are zeros.
Perhaps someone will ask: “But why? There was no vacuum of liquidity, after all.” That’s right, but according to the rules of financial markets, orders with a large volume are used as the execution priority. In simple words, if you and some fund simultaneously send an application to the exchange, then at the best prices they will execute it first, and you will get the prices that come after. Alas, ah =) But there is no need to panic because we are traders because we can choose the best trading time for us, because not required to be constantly in the market.

According to the rules of financial markets, orders with a higher volume are used as the execution priority.

Further. Why do these things affect the work of the adviser? The fact is that the EA sets small stop loss and small take profit. Stop-loss by type of execution is a market order (market order). If you set a stop loss at a value of 1.11 before the opening of the session, then at the opening of a session a fund with your large volume climbs before you at the same price, then your stop loss will work not at 1.11, but at the price when this fund finishes your purchase. In the figure above, your stop loss would be executed at 1.13 – you would buy after a large participant from the nearest available seller.

Consequently, the entire risk management calculated by you (for example, if out of 10 transactions you get 5 losing trades with a stop loss of 2 peaches and 5 profitable trades with a take profit of 3 points each), it instantly covers up and becomes inapplicable to reality. Because in one transaction with such slippage, your stop loss will not be 2 p (as you expected and what your calculations were based on), but all 5-10, for example.

Ok, to summarize the pippers and scalpers. It will be useful to repeat that entrusting our funds to a trading robot, it is imperative for us to minimize risks. To do this when using the “pipers” and “scalpers”, we need:

  1. “Calm time” for trading. Ideal for this:
  • Asian and pacific sessions. Carefully look at the spread of the instrument on which you plan to trade this time. The spread should not be higher than in the daytime, otherwise, it will influence your financial result too much (and if it exceeds the stop loss, then trading will be completely meaningless)
  • “Lunchtime of the European session.” This is approximately 12.00-14.00 Moscow time. Still liquid time (read – “small spread”), but at the same time, as a rule, calm, “flat” movements.
  1. Liquid financial instruments. Here, too, we are talking about the spread. If it is exaggerated, there is no point in trading with a piper or scalper from stop loss in the amount of 2 p on a currency pair where the spread is 10 p, for example.

Such pairs from the category of “majors” as EUR / USD, USD / JPY are perfect for this. You can trade on the other “majors”, but there the spread is at least a little, but higher, keep in mind.

  1. The most important: study the algorithm according to which the piper/scalper makes deals. This is necessary at least in order to subsequently when you have enough experience, study the appropriateness of the stop loss and take profit values ​​and, if necessary, adjust it according to your understanding of the market and/or current market conditions. For example, the spread can increase, but volatility can also become greater. In this case, it would be advisable to increase the stop loss, say from 2 p to 4 p, and take profit from 4 p to 8 p, without violating the essence of the trading system embedded in the adviser.

One of the most popular advisors in this category is the ” stenob .” By the way, it can be used on higher timeframes.

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