To the average investor, scalping might sound a bit like gambling; but it isn’t by any means. Scalping severely reduces a type of risk that’s inherent in any investment: the risk of being in the market. When a trader has a position open, he is exposed to market risk. At any time, the price could move drastically against the trader as a result of the occurrence of an unforeseen market-moving event. The more leverage the day trader uses, the greater the move (or risk). Really talented scalpers, on the other hand, are in the market for a very short period of time - reducing their “holding risk.”

For the reasons stated above, I have become a greater fan of scalping over the years. That’s why I’m constantly trying to introduce talented scalpers into our talent (”Trade our Money”) program. The Day Trading Robot found on this site is also exclusively a scalping program.

Forex scalping involves the trading of currencies with the objective of obtaining small, quick profits from the market.

It is possible to scalp on an ECN-type platform that gives a day trader the ability to play market maker; i.e., allowing him to buy at the BID and sell at the ASK or make the spread. Even though one of our platforms of preference has this capability, I’m not too much of a fan of this style of trading. Since currency prices are erratic, by the time a trader’s BID is hit, the ASK or offer might have moved in the wrong direction against him (or vice versa). I prefer scalping when the price is also likely to go up immediately after buying or down immediately after selling. A scalper that employs this method will also try to exit the market quickly (characteristic of a scalp), but will try to make more than the spread (whenever possible) from the move in price. This type of forex scalping is frequently used by experienced traders during very volatile market environments, like after certain important news or economic releases.

A day like today comes around once or twice a year. There were plenty of scalping opportunities today as the US Dollar got progressively hammered due to a widespread fear of a continually weakening US economy.

Did we take full advantage of this “textbook” trading day in the forex market? Not quite…

Today’s results were positive and pretty good to the casual observer - but the trader was only able to get around three trades executed due to more problems. What problems?

While long on a winning 35-lot EUR/USD trade he entered at 8:31 AM London Time, the trader tried to buy another 35 lots during the up move. Result?

“Trade Context Busy” message!

After that time, the trader was locked out of the market for hours and wasn’t able to day trade until the market was practically dead. Need I say more?

Click here to see today’s log (in a new window).

FXLQ did not know why the “Trade Context Busy” message came up. We don’t know either. It is being “looked into.”

FXLQ did confirm today that the “off quotes” messages we have been getting come up when the system “times out” and the “requote” message when the prices move outside of the maximum deviation number (which is supposed to be 2 pips). They also said that their programmers are looking into the “timeout” or “off quotes” situation (”off quotes” rejections are our biggest problem right now).

Why is the system “timing out” you ask? Who knows; but one thing is clear - we are all losing out on a great opportunity as a result of these problems because,

• We are trading less than 20% of the times we should be trading.
• Our trade size is around a third of what it should be based on the client assets we have.
• We have restricted additional funding from existing clients.
• We have basically stopped opening new accounts months ago.

As a result, I continue to explore alternatives to day trade our money (now more aggressively than ever). Today I contacted a new programmer to come up with a customized order-entry solution for our trader. The previous programmer was taking too long. I’ll let everyone know when this new solution is ready.

The trading day began with a failed attempt to buy 35 lots of GBP/USD at 1.9057 at 10:49:48 GMT - a relative quiet period for the pound as the chart during that time showed. Why the “off quotes” rejection? I don’t know. Someday, someone from the other side might be able to explain it to us. See the log covering November 21/22 (in a new window)

A 12:00:10 attempt to open a 35-lot position on USDCAD by selling into weakness was also unsuccessful - only this time it took the rejection 10 seconds to materialize! See the log snapshot below:

12:00:10 ‘1002′: instant order sell 35.00 USDCAD at 1.1431 sl: 0.0000 tp: 0.0000
12:00:10 ‘1002′: request was accepted by server
12:00:10 ‘1002′: request in process
12:00:20 ‘1002′: order sell 35.00 USDCAD opening at 1.1431 sl: 0.0000 tp: 0.0000 failed [Off quotes]

While waiting for the rejection, the Dollar-Cad proceeded its descent to 1.1420 before dropping even further. Don’t you love when that happens? Overall, the day was positive - even though the only losing scalping trade could have been cut in half if the trader wouldn’t have been rejected a few times while trying to get out before the stop was hit. See the log and notice the “off quotes” starting at 13:38:11 while the trader was trying to sell the 35 lots of EURUSD. You can’t win them all, right?

There is also one “requote” message on today’s log. See below:

14:44:54 ‘1002′: instant order buy 35.00 EURUSD at 1.2923 sl: 0.0000 tp: 0.0000 (order placed at 14:44:54 when price was 1.2923)
14:44:54 ‘1002′: request was accepted by server
14:44:54 ‘1002′: requote 1.2924 / 1.2924 for open buy 35.00 EURUSD at 1.2923 sl: 0.0000 tp: 0.0000 (order requoted at 1.2924 - less than the 2-pip deviation setting away. Why?)

It’s a mystery why the above “requote” took place on MT4. The trader should have been filled at 1.2924! Why wasn’t he? Was there less than 35 lots at the other end? This is one reason why we haven’t increased from the 35-lot level.

Tomorrow and Friday are likely to be very quiet due to the Thanksgiving Holiday (tomorrow) in the States. Probably not a good time to day trade. Tomorrow [Thursday] FXLQ will shut down their servers from 8:00 AM EST to 8:00 PM EST - so we couldn’t trade even if we wanted to.

Happy Thanksgiving to you all!

Today was a very good day to day trade the forex market. The FXLQ server we are on went down for around half an hour early this morning - close to 5 AM EST. I notified FXLQ and it was quickly restored. Don’t know why it happened.

I spoke to Brian from FXLQ this morning regarding the execution delays and rejection delays that we have been experiencing - lasting over a minute sometimes. He told me that last night FXLQ’s programmers “upgraded the server to reprioritize the order processing so the PAMM allocation is on the top of the list of actions to perform.” Whatever that means, it sure sounds good! My guess is that it won’t eliminate all of the issues we are experiencing, but it might definitely improve things.

When I looked at today’s day trading log, things have definitely improved - even though all of the problems haven’t been eliminated. It seems that when we do get an execution, it is reported relatively fast.

I think that the initial requotes today (see log below) around 09:30 AM UK time are justified because the price seemed to be moving past the 2-pip maximum deviation setting rather quickly on MT4 after the Eur Retail Sales numbers were released. This leads me to believe that the “requote” message is the one that should be coming up when the price moves past the maximum deviation setting (I still don’t have a firm confirmation from FXLQ on this). At the same time, the first rejected EURUSD order below at 13:30:13 London time generated an “off quotes” message - Why? Why wasn’t a “requote” message generated instead? Who knows. I guess we’ll find out as we move forward.

So I summarize problem #1: Why do we get “requotes” sometimes and “off quotes” some other times? What EXACT condition or conditions result in the generation of each message? The “Unsolved Mysteries” show comes to mind as I think about this.

Problem #2 is also evident from the “off quotes” example above: it still takes 10 seconds or more for “off quotes” messages to come up. Why? Why aren’t the messages instant like “requotes?” All rejections of entry orders took 10 to 15 seconds to come back with the “off quotes” message. This is not acceptable.

Problem #3: Execution delays when closing some positions. It took 4 seconds to close one trade and 10 seconds to close another one. This is an eternity in a fast market and unacceptable for scalping.

Click here for the trade log (in a new window).

Most scalps positive on 35-lot day trades of EURUSD. Still experiencing same type of execution problems. For example, the trader experienced many trade rejections in a row with the “off quotes” message - especially when trying to close out a position, even though the price had not moved by more than 2-pips [the maximum deviation setting] by the time the order reached its destination. Click here to see the actual trade log (in a new window).

Another problem is that the stop orders take from a few seconds to over 10 seconds to get activated after a position is opened. Until FXLQ solves the problem with the trade delays and constant (”off quotes”) rejections when getting out of a position, it is not a wise idea to increase the size of the trades too much.

Trader today tried scalping 35-lot clips of EURUSD instead of GBPUSD. Even though the euro moves less than the pound, so the potential profit per trade is less, maybe the increased liquidity of the EURUSD might reduce the frequency of the “off quotes” rejections. I can only hope! Just received the trade log from Nigel (the day trader). Because of his good performance today, I though that the executions were better than before. Boy was I wrong!

Feedback from trader: Quote, “A real fight today….not just to get a fill, but when I have a position to get out!” Thank you Lord for giving our trader a lot of balls, I mean courage!

When I asked him if the executions on the EURUSD were better than the executions on the pound, he said, “The fills on the EUR/USD are no faster or better than on the GBP/USD - as you’ve seen in the log. Worse maybe! The reason I switched to Euro is because the spread on the £ [pound] has widened out to around 3 pips with FXLQ…even on a fast mkt - although of course it is variable. On the EUR/USD the spread is usually just 1 pip… esp on a fast mkt. So although the volatility is greater with the £ (which I like, since it tends to move further in either direction) its only 1 pip to break even point on the Eur instead of 3 with the £… and the 3 pip spread on the £ means my stop is also that much nearer! So its all about risk/reward and how long it takes to get executions! So I may stay with the Euro for now until/unless the spread narrows with FXLQ to 1 pip on the £.”

When you look through my comments on the trade log link below, you will see that delays in reporting trade rejections are still common; so are delays in the activation of stops and a great number of trades rejected with the “off quotes” message even though the price has not moved beyond the 2-pip deviation setting. We are also getting “requotes” and sometimes it takes many attempts to get out of a position even though the price is not going anywhere. These problems must be corrected by FXLQ.

By the way, the “frozen trade” from Friday 11/3/06 was reversed today by FXLQ.

Click here to see the trading log for this incident (in a new window).

So a gain turns into a loss while trying to exit.

After two straight positive 25-lot transactions, one transaction wiped out all gains. See the section from the MT4 trade log that shows the losing transactions and the delay in exiting the trade.

The example above is self explanatory. When the trader tried to exit at a 3-pip profit, it took 25 seconds for the system to reject his order. He got out of his trade later at a 6-pip loss. The stop also took 24 seconds to activate.

Discussion with Trader:

I discussed with the trader why we were getting so many trade rejections and the “off quotes” message. Not that many people understand the messages generated by MT4. MT4 is designed by Metaquotes, a Russian company that is very unfriendly when it comes to support. They are also very difficult to understand due to the language barrier. Despite these setbacks, it is still one of the most popular platforms to trade forex! Anyway, I thought about valid reasons why the “off quotes” message comes up on MT4. Here they are:

1) Because of MT4’s Deviation Setting

When a “Buy” or “Sell” order is submitted via MT4, the order is cancelled if the price has moved beyond the maximum “deviation” setting by the time the order gets to its destination. The maximum deviation setting allowed is set by the broker, but can be reduced by the trader. We have a 2-pip deviation setting currently in place. That means that if the trader is trying to buy GBPUSD at 1.9050 while the price is moving quickly up and the price jumps up to 1.9053 by the time the order gets to where it’s going, the order should be rejected and the “off quotes” message displayed in the trader’s log. This is a safety feature that’s in place for the trader’s protection and is especially useful when scalping. Since we are trading during active market times, it is obvious that some orders will naturally be rejected because of this - But this does not explain all of the “off quotes” rejections that we’re experiencing. It also does not explain the delays we experience sometimes in the execution or rejection of a trade.

2) Because of a liquidity shortage

All real financial markets have liquidity limits, even forex. That means that if you want to buy 25 lots of EURUSD at 1.2800 when someone only wants to sell 15, you can request to either get a “partial fill” for 15 lots at 1.2800 or none at all. Since MT4 does not accept partial fills, the former is not an option. In the example above, the order would be cancelled. This feature is called “Fill or Kill;” that is, fill my entire order or none at all. MT4 is a fill or kill system. This can obviously happen in the fx market, but since we have been trading a maximum of 25 lots at a time, I don’t know if this has been a factor or not in our “off quotes” rejection experience. This is impossible for me to know because MT4 does not display the size available at each price level (or “market depth”). So far, I have been relying on what FXLQ has told me: that 100-lot executions should not be a problem in general. This also has nothing to do with the reporting delay issue that we have been also experiencing.

3) Because of a dealer’s failure to respond or rejection

This reason was brought to my attention by Andrei Savitski from MetaQuotes (the company that makes MT4) on 8/18/2006 in an email answering my questions regarding the problems we were having back them with FXLQ’s first MT4 solution. This should only be the case when there’s a dealing desk behind the price feed that has the ability to manually control trade executions to some degree. This should not be the case here (as has been assured to me over and over by FXLQ), as the orders are supposed to go “straight through” (or STP) the market and execute automatically without manual intervention.

4) Unknown Technical Issue

Technology! We can’t live with it, but we can’t live without it. The MT4 system that FXLQ has made available to us is state-of-the-art. No other firm that I’m aware of has made so much progress in this field. Unfortunately, when “new frontiers” are explored in the technology world, there are always glitches and problems of all types that arise - sometimes these problems are not apparent right away and people take a long time to notice and then solve them. The reason why we are experiencing delays and so many “off quotes” rejections on MT4 might be a result of “unknown technical issues.” These issues should be corrected as we move forward with our DTT robot program.

NOTE: When I spoke to Robert Gray on Saturday (11/11/06), he mentioned that an unknown technical issue might be the cause of these problems. See my comments on 11/11/06.