Scalping is a popular day trading strategy involving the purchase and sale of financial assets within short period. In most cases, speculators keep their trades Less than five minutes.
Their goal is to identify the trading opportunity, do the trade, and then Get out with a small profit. In this article, we will take a look at the best scalping pointers to use.
How does scalping work?
Scalping is a short term trading strategy where the trader buys and sells assets such as stocks and commodities within a short period.
For example, they can make a buy trade, make a small profit, exit, and then find another trade. As such, speculators can open more than 20 trades per day and make a small profit on each one.
Scalping works by people who use very short term charts. Most speculators use charts with a duration of less than 5 minutes. Then they identify chart patterns and open trades based on them.
For example, the chart shows a 1-minute chart of the NASDAQ 100. As the chart is trending, one can place a long trade and ride it until the reversal occurs.
Successful speculators use different trading strategies in the market. For example, there are those who focus on it Follow trend While others aim to get to know setbacks. Trend tracking involves identifying a pre-existing trend and then following it.
Other speculators use price action strategyThey focus on patterns like triangles, rectangles, head and shoulders, ups and downs wedgesup and down media And the logos.
Most of these strategies Used to identify intrusions. For example, a rising wedge usually makes a bearish breakout while a head and shoulders breakout will usually lead to a bearish breakout.
Related “ Best ways to identify and trade breakout patterns
Most scalpers use very narrow multi-timeframe analysis. This is where they are beginning they on analysis a Short term chart like 5 minutes One And the and then Go to one minute chart.
This is different from what other day traders do, who start from the hourly to 30 minute chart and then to the 15 minute chart.
Best indicators for scalping
Volume Weighted Average Price (VWAP) is one of the best speculative indicators. In fact, because of how it was created, the VWAP indicator It is only used for scalping.
The index is calculated by taking the volume of the asset in a certain period and then dividing its volume by the total shares purchased.
He. She It looks like one line. As seen below, the scalper had bought the NASDAQ when it crossed the VWAP and then held it for a while.
Exponential Moving Average (EMA)
An exponential moving average is a type of moving average It gives more weight to the most recent data. It is a popular scalping indicator because reacts faster From the simple moving average (SMA). There are several strategies to use when scalping.
For example, you can make a purchase transaction When the asset crosses the moving average. Alternatively, you can use it Follow the trendwhere you buy as long as it is above the moving average.
Additionally, you can use the moving average crossover to determine when there is a reversal. Here is a good example of this reversal strategy.
Other types of moving averages such as simple moving average (SMA), homogeneous moving averageThe Volume Moving Average (VWMA) is used in the same way to follow the trend.
Bollinger Bands is another speculative indicator It was developed by combining moving averages and standard deviation. The middle line of the indicator is the moving average while the upper and lower lines are standard deviations.
Bollinger bands are used in scalping in several ways. For example, some merchants Buy and hold the asset as long as it is trending up and between the upper and middle lines from gangs.
Others sell as long as it lies between the lower and middle lines of the strips. A good example of this is shown below.
The random oscillator It is a popular tool Used to determine overbought and oversold levels. It is calculated by comparing the closing price of an asset with its high and low range in a given period. she has Close similarity with the RSI (RSI) only because it has two lines.
The Stochastic Oscillator can be used for scalping in a number of ways. For example, it can be used to identify overbought and oversold levels. As such, one can buy when an asset moves to the oversold level and short when it moves to the overbought point.
secondly, one can use random oscillator To find the differences. Divergence is the period when the asset is rising while the stochastic is declining. but, In most casesThe Random oscillator Not the best for speculation.
Relative Strength Index (RSI)
The RSI is another popular oscillator It is mostly used to determine the overbought and oversold levels in the market. He. She Measures the speed and change of price movements.
The RSI usually swings between 70 and 30. A movement below 30 is a sign that an asset is oversold while a move above 70 is a sign of overbought. Like a random oscillator, It can be used to trade differences.
but, It’s not good scalping.
for one, and Assets can continue to rise When the RSI moves into the overbought zone. a The divergence pattern can also take a lot to trigger a breakout. Below is a good example of the RSI used to track a trend.
Parabolic SAR . Indicator
The parabola and reversal indicator is a trend indicator marked by a series of points above and below the price.
A buy trade appears when the price is higher than the price. On the other hand, a sell trade occurs when the price is above the equivalent pips.
Summary: Best indicator for scalping
In our opinion, we believe that VWAP and Exponential Moving Averages are the best scalping indicators. Both are easy to use and have an easy way to identify signals.
However, we recommend that you spend a lot of time doing a lot of working tests (and then backtesting).