Trading strategy: Scalping by Stéphane Ceaux-Dutheil

Description

Stéphane Ceaux-Dutheil is a trader, a client of WH Selfinvest since 10 years, and the administrator of the unit trust Reactor7. He is responsible for the website technibourse.com, a trainer and an author of several books about trading. With the strategy, he was a finalist of the 2011 Paris Trading Fair competition.

In his last book "Le Scalping, approche graphique et méthode de performance mentale", Mr Ceaux-Dutheil presents a detailed trading approach that he has developed to operate with surgical precision or "scalp" on the markets with a high probability of success. The term "scalping" refers to a trading style characterised by short interventions on the market (average exposition time of 2 to 10 minutes). Scalping was for a long time only possible for professional traders.

Today, "scalping" is also accessible to individual traders thanks to the approach developed by Mr Ceaux-Dutheil and to professional trading platforms such as the NanoTrader Full.


  
Suitable for : Forex, stocks and market index (CAC, FTSE, DAX …)
Instruments : Spot Forex, Futures and CFDs
Trading type : Scalping
Trading tempo : 15 mn, 30 mn or 60 mn
Using NanoTrader Full : Manual or semi-automated

 

The strategy in detail

To "scalp", Mr Ceaux-Dutheil uses four technical analysis structuring tools: Japanese candles, moving averages (MA), Bollinger Bands and red and blue SCD bands.

These tools are spread on two charts with different timeframes: 5 minutes for the first one, and 12 seconds for the second one, such as shown on the screenshot below:

 

SCD working screen:  5-minute chart on the left, 12-second chart on the right.

The 5-minute chart is used to detect potential trading signals. The signal validation and the potential position opening result from the price analysis in the 12-second chart.

The position opening requires at least three conditions:

1: The detection of a signal in the 5-minute chart.

2: The crossing of the three moving averages in the 12-second chart.

3: A conditional order must be placed to open a position.

1st Condition: detection of a signal on the 5-minute chart

The trade direction is given by the position of prices compared to moving averages in 100 and 130 periods in the 5-minute chart. When prices are above the moving averages, we look for bullish signals. Bearish signals will be sought when prices are below these moving averages.

In the 5-minute chart, the red SCD band, delineated by two exponential moving averages (EMA) 3 and 15, is used as a channel for the prices. In a market with a strong trend, the red SCD band tends to contain the movement and to define a real trend. Signal opportunities occur when the prices hit the 15 EMA to bounce back in the direction of the current trend. More precisely, the candle shadow must hit or cross the 15 EMA. However, the price must not close outside of the red SCD band.

Examples of signals:

   
Bullish signal
Bullish signal
Two bearish signals

It is precisely these bullish or bearish rebounds that will be scalped following a very precise protocol.

The evaluation (5-minute chart) and the signal triggering (12-second chart) happen at the close of the candle.

When a signal occurs in the 5-minute chart, the platform WHS FutureStation Nano warns the trader with three elements:

1: It displays a green (bullish signal) or a red (bearish signal) triangle.

2: It colours the screen in green (bullish signal) or in red (bearish signal) at the level of the candle that triggered the signal.

3: It activates a sound alert. The sound alert is particularly interesting as it frees the trader from constant monitoring.

 

Potential buy signal following a rebound on the 15 EMA in the 5-minute chart.

2nd condition: the crossing of the three moving averages in the 12-second chart

Once a signal is detected in the 5-minute chart (1st condition fulfilled), the trader must focus on the analysis of prices in the 12-second chart. There are 25 candles of 12 seconds for each 5-minute candle. The 12-second chart is a large radiography of the 5-minute chart.

In the 12-second chart, the 25 next candles following the 5-minute chart signal have a green (bullish signal) or a red (bearish signal) background.

The second condition is filled in the 12-second chart when:

- For a bullish signal, the prices cross the 3 moving averages (MA 100, MA 130, MA 160) and close above them;

- For a bearish signal, the prices cross the 3 moving averages and close below them.

In this case, the background is coloured in blue.

Examples for the 2nd condition:

 
Bearish signal - down cross of the three moving averages
Bullish signal - up cross of the three moving averages

3rd condition: Placing a conditional order to open a position

- Manual and semi-automated trading:
Stéphane Ceaux-Dutheil recommends to place a buy limit order (bullish signal) or a sell limit order (bearish signal) to open a position, as soon as the 1st and 2nd conditions are filled. These orders must not be valid for longer than the next 15 candles. The limit order is placed at the level of the crossing of the 3 moving averages (2nd condition). A position will be opened if the prices hit the limit during the 15 next candles. If this does not happen, the limit order has to be cancelled.

On the platform NanoTrader Full, this procedure can be applied manually. A sound alert warns the trader when a potential signal is detected in the 5-minute chart. The trader must then watch out for the 2nd condition to occur. If it occurs, a limit order and a "Time Stop" order set to 15 candles can be placed.

- Fully-automated trading:
It is also possible to activate the Stéphane Ceaux-Dutheil strategy in fully-automated mode. The entry conditions are then slightly modified to take into account that, in fully-automated mode, the platform opens positions by sending market orders.

This position is opened at market price when the following conditions are there:

- 1st condition verified
- 2nd condition verified
- When closing, the prices touch or overtake the crossing threshold of the three moving averages.
- And this has to happen before the 15th candle following the 2nd condition.

The background is then coloured in purple and a position is opened at the market price.

If the 3rd condition is no filled, the 15th candle will be coloured in pale grey. There is no entry.

Examples :

   
Bullish signal - 2nd condition immediately followed by the 3rd condition
Bearish signal - 2nd condition immediately followed by the 3rd condition
Bearish signal - 3rd condition not filled

How to handle a position?

Stéphane Ceaux-Dutheil recommends placing brackets orders, a limit order for the target and a stop order as a protection. These two orders are equidistant from the level of the crossing of the three moving averages (see 2nd condition).

The stop order is placed, for a buy signal, at the level of the lowest price between the low of the 5-minute candle that triggered the signal and the lowest price reached before the crossing of the three moving averages (2nd condition).

Inversely, the stop order is placed, for a short-sell signal, at the level of the highest price between the high of the 5-minute candle that triggered the signal and the highest price reached before the crossing of the three moving averages (2nd condition).

Manual trading:
The trader can simply place the orders manually on the platform.

Semi- and fully-automated trading:
The stop and limit orders will be placed automatically on the chart. The execution of one of these order leads to the automatic cancellation of the other order by the NanoTrader Full platform.

Examples :

 
Bullish trade. The stop level is equal to the lowest price reached during the last 5-minute candle and the current one
Bearish trade. The stop level is equal to the highest price reached during the last 5- minute candle and the current one

Stéphane Ceaux-Dutheil suggests, as a possible alternative, to modify the ratio between the distance to the target and the distance to the stop. This ratio can be adjusted through the variable $K.

By default, $K = 1. This means that the target and the stop are positioned at the same distance from the crossing level.

By putting $K on 2, the distance between the target and the crossing level is twice as long as the one from the stop to the crossing level.

Other settings
Stéphane Ceaux-Dutheil uses some other criteria to filter signals generated by his "scalping" approach.

Examples:

- To determine the quality of a signal, he recommends, among other things, to monitor the thickness of the blue band in the 12-second chart. For a buy signal, the quality of the signal is strengthened if the blue band is thin and slightly below the three moving averages in the 12-second chart, and vice-versa for a sell signal.

- These moving averages must also be as little apart from each other as possible, and as flat as possible during the last 10 to 15 minutes prior to the signal.

Using a "LiveTable" to trace signals on several instruments
A LiveTable is a unique tool, only available on our platform NanoTrader Full. A LiveTable is a table that allows the trader to follow in real time strategies applied to a list of financial instruments, in any timeframe.

In the framework of Mr Ceaux-Dutheil’s scalping strategy, a LiveTable can be used to follow the evolution of the strategy on several different instruments.

When a potential signal is triggered (1st condition) on one of the instruments in the list, a sound alert can be activated to warn the trader that the 1st condition has been filled. The line of the study in which the signal appears is highlighted, which allows the trader to identify the instrument concerned.

The trader can then display the 5-minute- and 12-second charts of this instrument and follow the next steps.

If the signal is confirmed (2nd and 3rd conditions), another sound alert is activated when a position is opened.

If the trader uses the fully-automated mode, the opening of a position is automatic.

To learn how to use a LiveTable using Stéphane Ceaux-Dutheil’s approach, you can read the following instructions.

 

Conclusion

This strategy was inspired by Stéphane Ceaux-Dutheil’s book "Le Scalping, approche graphique et méthode de performance mentale", Gualino. The strategy can be classified among the trend continuation strategies that follow micro-retracements.

The author guides the traders through every single step of the strategy, but they can also handle their positions by leaning on their own experience and on their emotional capacities. Technibourse.com 

Practical implementation

In NanoTrader Full follow these steps:
  • Choose the instrument you wish to trade.

  • Open a chart with the template study "WHS LS Histo Scalper".

  • Semi-automated trading? Simply activate the TradeGuard+AutoOrder or the AutoOrder function.

A note on the Chart Trader: the Chart Trader offers a quick and easy way to place the two OCO stop orders required to open the position. Right click in the buy (green) column whilst holding the Ctrl key on your keyboard. Then right click in the sell (red) column whilst holding the Ctrl key on your keyboard. These orders are now linked. If one is executed the other is automatically cancelled. To activate the Chart Trader in a chart, click the blue Chart Trader icon. The icon then becomes red.

 

This example shows the Chart Trader and the Chart Trader icon. In the video regarding the Histogram Scalper strategy you can see the trader using this functionality.