matt-wellerMatt Weller became hooked on trading after his Grandma started teaching him whilst he was living with her during his Internship. He decided to changed his college major to Finance and has since worked for Global Forex Trading as a Technical Analyst and currently works for Faraday Investment Research as a Senior Market Analyst.

Matt primarily trades Forex and considers himself a shorter term (swing time frame) price action trader.

In the show Matt shares:

  • His thoughts on negative risk to reward ratios
  • When he uses Marubozu candles
  • His Red Zone Scalp trading strategy
  • Why it’s good to buy when the market is overbought
  • What his trading mentors taught him “indirectly”

Interview

41: Matt Weller shares His Red Zone Scalp Strategy & How He Trades Forex | @MWellerFx
00:00:00 00:00:00

Recommended Books

Interview Links

Broker & Platform

City Index (Activetrader Pro & Metatrader)

Key Insights

General

  • You can be profitable with a negative risk to reward ratio as long as you can win a high percentage of those trades
  • If you’re a newer trader who is aiming for 3:1 reward to risk ratio, it could be discouraging having a lot of losing trades because the probability of winning is low
  • If you’re trading technically it may pay to wait for a major news release to hit to make sure your signals still exist
  • Being passionate about trading will help you become successful
  • Seeing how good trading mentors reacted to winning/losing trades and how they managed to keep their emotions from poisoning their analytics and trading strategies was Matt’s biggest eye opener
  • The best teacher is experience so start trading with a small amount of real money versus a demo account
  • If you’re trend following there are two ways you can do that: 1) You can look for a pull back against the trend to try and enter the trend at a good price, 2) You can look for a breakout to new highs or lows to signal fresh momentum in the market
  • Trading a breakout, look for a clearly defined level of support or resistance in an uptrend (ideally breaking out to multi day/week/month highs) that a lot of traders are going to be watching and if the price breaks by 5 pips (could be more – but the longer you wait the less chance you have of getting in at a good price) then other traders are more likely to buy. Matt will usually have his stop loss below the breakout area and be looking for a good risk to reward ratio up to the next level of resistance.
  • Analysing the candle that’s forming over its duration, e.g. 1 hour, and seeing where the buying and selling is happening can really help you analyse the balance between the buyers and sellers and what that means moving forward
  • Sometimes it’s good to buy when the market is over brought, because you have the overwhelming majority of traders buying – in the short term that’s a sign the momentum could continue higher
  • Be aware of sentiment and positioning – different brokerages can provide public information on this, e.g. 80% of traders are in a buying position
  • Be process oriented rather than results oriented – be happy if you lose but your setup is perfect

Matt’s Trading

  • He uses the daily charts to get a feel for the trend and see how price action is moving over the past 2 months, then zooms into the one hour charts
  • His trades last between 4 hours to 2 days
  • He trades primarily FX but will also swing trade Equities
  • He had 10/12 profitable months last year and was profitable overall
  • He aims for 50% winners with a 1:1 or over risk to reward ratio
  • He looks at 25-30 currency pairs but focuses on the majors
  • He’ll place 2-3 trades per day and have 3-4 trades on at a time
  • He’ll check the news at the start of the day to get a feel for the major themes of the market
  • He’ll trade between 9-11am Eastern time due to the high amounts of liquidity
  • He uses pre-set stops and profit targets to take emotion out of the trade
  • It was a huge advantage working for a broker where he could learned to trade and be paid at the same time
  • He tends to be a trend (with break out) trader who looks for patterns of higher highs for buy trades and lower lows for sell trades; if you can confirm it with a Marubozu candle, that’s evidence of strong momentum
  • He tends to follow Twitter, Forex.com and Forex Factory for fundamental news alerts
  • His favourite technical analysis indicator is the RSI
  • It took Matt 2 years to become consistently profitable

Matt’s Strategy

red-zone-trade

  • The Red Zone Scalp is one of Matt’s new trading strategies, based on an American Football field.
  • The “red zone” being the last 20 yards on the field where teams can score
  • If a currency pair gets within 20 pips of the round 100 pip levels it’s more likely to go there because a lot of institutional traders like to push market there (for different reasons Stop Losses and Options expiration)
  • e.g. if an FX pair goes to 1280 it’s more likely it will go to 1300
  • Then look for a major news release one way or another.
  • If the price is at 1250 and then the news hits and it spikes to 1280 that’s where you look to buy
  • Set a profit target at 1298, just before the 1300 level (so 18 pips of profit potential)
  • Use a 30 pip stop, down at 1250
  • You need to win about 62% of trades with this type of R:R ratio to be successful
  • In Matt’s testing he’s been successful more than 62% of the time
  • Additionally, if you’re coming to the end of the European session and the market is consolidating then that’s where you might want to take a profit early because the momentum has evaporated
  • Look for trades right around early US news releases

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