image of NQ futures scalping trade journal

NQ Pre-Market Scalp on 2 min chart Oct 3, 2018

In this article we’ll show how to scalp futures in the pre-market on a wave 5 setup using the “Day Trading Add-On Suite for ThinkorSwim” and the “Elliott Wave Indicator Suite for TOS” .

The first part of the chart setup would be to isolate the wave count of the Elliott Wave Indicator to the morning lows on the emini Nasdaq Future NQ – when you do this on your chart you will see that there was a 5 wave move just after the contract open, followed by an ABC correction and we are now in a second 5 wave potential move that we have zoomed in on in the pre-market.  Now since we are trading on a 2 minute chart we will change the W5T MTF Dot Cloud rows (the indicator at the bottom of the screen) to something closer to 2 minutes; in this case I’ve set the rows to 5min, 10min, 30min, 1hour, and 1 day (bottom row anchor trend). In the W5T MTF Dot Cloud indicator the top row always defaults to the chart timeframe – in this case it is 2 minutes. Note that the daily trend is green (bottom row of dots on the W5T MTF Dot Cloud indicator) indicating we’ll be looking for long trades.

The Pre-Market Price Action (Click on the chart image to enlarge in another window) 

image of NQ scalp trade on chart pre market 

At point 1 we note that there is an impulse move of NQ out of a long consolidation period on this 2 minute chart.  Then at point 2 we see a short consolidation period or a “bull flag” denoted by sideways movement.  Point 3 shows a breakout of the consolidation to a new wave 3 high but note that in point 4 this is showing a negative divergence. The price is making a new high, but, the 5/35 oscillator is making a lower high – this is negative divergence and a potential clue that this move is running out of momentum.  Note that the wave 3 high candle is also a doji suggesting some indecision on the part of traders to take this higher. This is actually what we want for a wave 5 potential trade and we start looking for a pullback to take a potentially long Wave 5 trade.  Following this further we see a Wave 4 developing.

 

Trade Setup and Management (Click on the chart image to enlarge in another window) 

image of NQ chart with trigger for scalp

Ok, so now we have a potential Wave 5 trade forming.  In my trading plan I never carry a pre-market trade through to the close, thus all I am looking for is to scalp a few points into the target zone if I can get a good setup.  At point 5 I can see the Wave 4 support into the amber zone plus a crowning of the 5/35 Oscillator in the 90 to 140% zone (between the magenta lines).  Also, the W5T Dot Cloud indicator has pulled below the 2min cloud (red dots at the top row) and into the cloud on the 5min time-frame (cyan dots).  Now all we need is a valid setup with a reward/risk ratio of 1.4:1 or better.  I chose an entry a tick above the pre market impulse high (7682.75), a stop at a tick below the wave 4 low (7677.5) and a target in the Wave 5 target zone as painted by the “Elliott Wave Indicator Suite for TOS”  , I chose (7690).  My entry will be above the 6/4 moving average and above the 2 minute W5T Cloud (the pink band on the price chart).  Note also that the pink W5T cloud is on an upward trajectory – a further supporting indication of a bullish bias for this trade.  The reward to risk is 1.38 : 1…slightly below my ideal but close enough to take the trade given the bullish bias if the trade triggers.

So here is an important point on my trading plan.  I don’t carry trades into the 9:30AM EST open.  I am planning a quick scalp.  Thus, how I execute the trade is to put a resting buy limit OCO (one cancels other) bracket order in with my trigger long entry AND once it triggers I have an OCO order on and let it go. (Note that you can find how to do this type of bracket order in TOS by searching through the TOS learning center.)  I do all my trades using a bracket order but in this case it is very important as 2 minute time-frames move quickly and I won’t likely be able to manage it on the fly fast enough.

As time marched forward we had that resting order there and it rapidly triggered.  We got a green arrow on the false breakout stochastic and we got a square symbol on the W5T MTF Dot Cloud indicator showing all of our time-frames are green and in alignment with the daily time-frame.  The trade was VERY quick and we were able to scalp almost 30 ticks on this trade in less than 5 minutes.

Other Trade Setup Options

I would also point out that there are other options to entries and stops to scalping trades.  A more conservative entry could be a tick above the high of the candle that is 3 periods behind the Wave 4 low (entry 7684) with a stop just below the 2 minute pink cloud (about 7679.75) with a similar target.  That is a slightly better reward to risk ratio just over 1.4:1 with about 24 ticks to the target.  The point is that there is no one exact setup that is perfect here…you’re scalping at a decent reward to risk ratio.  You typically only have a few minutes to see the trade and set it up so don’t get yourself into analysis by paralysis mode. See the setup, select a rational entry, do a quick calculation of reward to risk and put the trade on if it fits your trading plan parameters. The pre-market is also thin low volume trading so you don’t trade with big size here.  A contract here and a contract there all adds up over time.

One last point I’ll add here is that you want to be aware of news events in the pre-market.  I don’t setup these trades when major news events are known to be coming – many of which happen at 8:30AM EST, or when some of the bigger market moving companies are reporting earnings in the pre-market.  I use the www.forexfactory.com calendar as a guiding website for pre-market events and stay away from pre-market trading on any major event days.

Summary

This journal entry shows how the “Elliott Wave Indicator Suite for TOS” and the “Day Trading Add-On Suite for ThinkorSwim” can be used together on a pre-market Wave 5 futures scalping trade on a 2 minute time-frame.  By using these tools to help paint the picture of pre-market price action and take advantage of a higher probability long setup we were able to start the day positively.

 

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