The concept is simple. You simply use more relaxed exit rules and add more trades for each successive wave. Done properly the worst that can happen is that the most recently added trade will lose a few pips, but all the previously added trades will have varying profits.
You need a nice micro trend to scalp along first of all. This technique can only work on a nice trend. You enter into your first scalp in the normal way. Once the market has moved up enough for you to replace your stop order securing at least a 5-pip profit, and assuming that it was a large enough wave to not stop you out then you could employ the compounded gains technique.
So now you have a trade with your stop placed to secure at least a 5 pip profit. At the next scalpable entry point you simply place another scalp trade. For this second trade you either leave your stop set for 10 pips loss, or you change it to match the stop of the first trade (if the first trade's stop is farther than 10 then leave it at 10, but if it is closer than 10 then set it for the same price). At this point you employ the trailing stop method you've learned in "Forex Sailing", trailing your stop set at the price of the base of the waves.
You are allowed to add other trade to your series of trades ONLY IF the last trade you've entered into has already had it's stop order increased to at least a breakeven point or preferably securing a profit. If the last trade you've entered into hasn't met that criteria (of your stop being equal to or greater than your entered price) then you are simply not allowed to enter into another trade yet. You keep on trailing your stops of all trades to the base of each wave as taught in "Forex Surfing". Thus all your trades have the same stop price, except for perhaps the newest trade added to your series.
Basically you keep following the set of rules described above like a loop, repeated over and over and over until eventually you get stopped out, and when you get stopped out you'll be stopped out on all the open trades, so it'll be like a house of cards all tumbling down instantly. The only loss that can happen is from the last entered trade (unless you stupidly traded this through a huge FA like "Non-Farm Payroll" on the "First-Fridays-of-the-month" when your stop might not be honored), but generally the profits of all the other trades will leave you with a handsome profit overall.
Think about it. Here is a hypothetical situation. Let's say you entered a trade at 1.1000, at 1.1010, at 1.1015, at 1.1027, at 1.1040, at 1.1048, and at 1.1058, all using the above rules. Let's say you finally got stopped out at 1.1050. You made 7 trades, 6 of which were profitable, but 1 was a loss. So the profits of that series of trades would be 50+40+35+23+10+2=160 minus 8 (for the loss) = 152 pips total profit on just a 50+ pip trend (the trend must have been a bit larger than 50 pips for you to catch the 50 pip range). So I ask you, is it worth using a compound gains approach when you're scalping???
How is this "riskier"? Well, as a scalper you normally try to exit at the end of each nano trend to maximize the pips gained during that nano trend, but since you are using trailing stops your exit strategy has thus changed. The risk is that you might make fewer pips if the first trade or two doesn't work out, but once you've succeeded in stringing along a series of trades your profit potential glows exponentially. Trading is all about risk/reward, and the rewards of compounding your gains, done properly, far outweighs the risks. So go ahead and try it.
Here is an exercise for you to do. Please actually do it (this "homework" is to help you). Go to your charts and find the biggest micro trend you can see on one-minute charts. See what your profits would have been had you done it to that micro trend. Every day for the next week repeat this exercise using the most recent chart data. You'll be impressed with some of the gains you could have made on a few of those micro trends you've simulated compounding against.
Source: Rapid Forex
