The most powerful scalping indicator
The money market is highly affected by many factors, so that it becomes very difficult to predict the future movements of prices correctly.
Many traders lose their hard earned money due to unexpected price fluctuations.
Sometimes some shift their trading operations for smaller time periods and use a fast trading strategy to reduce the risks associated with large price fluctuations.
In this article, we will learn about the concept of scalping, the indicators that investors use in this regard, in addition to how to apply these indicators when trading scalping.
Read also: Explanation of technical analysis extensively
What is scalping?
Scalping is a very short day trading strategy that aims to profit from small price changes that happen instantly.
Investors who choose this method are called speculators or scalpers, and their main goal is to make profits from a large amount of small profitable trades rather than relying on a few large and long-term trades.
Each trade takes between 2 seconds and 1 hour and a trader can make anywhere from 10 to several hundred trades in a single day, depending on whether he is trading manually or using an automated trading software.
The use of this strategy attracts a lot of traders because of the ease with which they can exploit small price changes and get quick profits. Small price changes occur frequently and trades last for a short time, making the risk of exposure to negative events less and reducing unwanted movements.
Read also: Stock market indicators and the most prominent trading strategies
How does scalping work?
Although scalping is considered less risky than long-term trading, it only works well when the trader has a solid trading plan and strict discipline, and therefore it is more suitable for experienced traders.
People who want to enter a trade must determine the entry point, the desired profit level, and the acceptable loss level before initiating the trade.
When they do, it becomes very important to stick to that plan.
When the price reaches the target set by the traders, they close the trade and exit regardless of the possibility of the price going up further.
In the event that the acceptable losses are achieved, they make the decision to withdraw from the trade without waiting for the price to recover.
This reduces the risk of exposure to unexpected and unwanted movements in the market, and makes scalping the least risky compared to other strategies in trading.
To plan successful trading operations, speculators must understand the expected market trends in the future, and this is done by using many indicators of technical analysis, studying short-term price charts in the range of 1 to 5 minutes, and understanding the psychology and movements of traders related to the current conditions of the market.
Read also: Explain in detail the MACD indicator
The pros and cons of scalping
Similar to other trading methods, scalping has positive advantages that make it attractive to traders, but it also has several negatives that may make them avoid it.
The advantages of scalping include:
- Less Risk Traders benefit from small price movements that occur in a short period of time. Even when prices move against them, they don’t have enough time to move outside of their predetermined acceptable loss limits, which limits any potential losses.
- potential profitability. If the traders stick to their trading plans and trade a large amount of resources at once, they can make high profits at the end of the day.
- There is no need to care about the fundamentals. Fundamental trading involves observing events, news and economic reports that affect the value of assets, in order to determine the best time to buy or sell them. However, speculators seeking to profit from small price movements do not need to follow the fundamentals, as they do not affect the short time frames.
- It works both ways By using the scalping technique, traders can deal in the rising and falling markets, thereby increasing their chances of making profits from price fluctuations.
- Auto Tradeable Scalping needs accuracy and proper timing, if you are even just a second late it can affect your trading trajectory. But thank God, automated trading software can be used to send trading orders when the price reaches one of the targets and make maximum profit from each trade.
The cons of scalping include:
- It requires a lot of experience and time. Although scalping is easy, it is an advanced trading strategy that requires a deep understanding of the market and how it works. Beginners may find it difficult to stick to an accurate trading plan and follow different trades throughout the day. But it allows experienced traders to benefit from their experience and invest more money to face changing market movements at different times.
- Transfer expenses. People who trade with scalping have to pay a fee or spread for every trade they execute, and this is similar to people who trade with different methods. Since scalpers make much more trades than others, many costs can accumulate and exceed the profits made from these trades.
- Technical problems It is emphasized once again that despite the short duration of the delay, which can only last for a second, it can significantly affect the outcome of the transaction. Although the delay is not always due to the fault of the trader, it can happen due to not having a good internet connection, platform problems, etc. This leads to a slippage in delaying the execution of the deal and eventually turns the prospective deal into a failure, but with software Automation and a VPS server can mitigate this. As for traders who do not have these tools, they should be careful when scalping.
Read also: What is the OBV indicator and how to use it in trading
Eight commonly used indicators
Scalping Indicator Although scalping traders may not need to know the long-term market direction, they must understand where prices are likely to move in order to make sensible decisions.
Pointers come into play Technical Analysis In this case, they are particularly useful, as people who are traders can make use of them to predict the fluctuation of values in the future. Below, we will talk about the eight most popular indicators that are used for scalping.
1. SMA indicator
The Simple Moving Average (SMA) indicator is one of the primary tools that traders use to identify the trend and create a trading plan.
This text includes information on how to calculate the average price of a particular asset, summing up the range of prices recorded over a specified period of time, and then dividing that sum by the number of periods used to determine the range.
This allows the trader to understand if prices are going up or down, and if the current trend is going to change.
2. Exponential Moving Average (EMA)
Exponential moving averages are used by speculators as another indicator based on moving averages, like the SMA, but the EMA focuses on recent prices, allowing more detailed information to speculators.
Traders use this indicator to determine the current trend and to identify potential entry points.
If the market price goes above or below the exponential moving average, this can indicate buying or selling opportunities.
3. MACD indicator
The next point in the list is an indicator that shows divergence and convergence of moving averages. MACD ).
The indicator follows the trend and indicates the relationship between two moving averages.
When two lines overlap, converge, or diverge, this indicates current momentum and enables traders to receive signals to buy or sell.
Please rephrase the following paragraph in Arabic: Traders use this indicator to identify potential entry or exit points, as well as to analyze trend changes.
Read also: Algorithmic trading explained
4. Parabolic SAR indicator
The Parabolic SAR or SAR indicator is a popular indicator used by traders to get details about price action trends, stops, and reversals.
The Parabolic SAR indicator on the charts shows a series of points that are above or below prices.
If you provide pips below the price, the price will move up and vice versa. When the locations of the points are changed, traders should anticipate the possibility of a trend reversal.
This short-term trading metric gives speculators an accurate indication of the strength of a price rally or decline.
Traders use the Stochastic Oscillator as a technical analysis tool, which is an indicator that measures… momentum. This indicator compares the closing price of an asset with a set of its prices over a specific period of time.
Accordingly, he can determine the optimal time to buy or sell in the markets, which may indicate a change in the direction of the market.
The term volume-weighted average price refers to the average price at which particular stocks trade over a given time period. This term is important in trading operations as it is used to determine the fair price of shares in the market.
VWAP is a technical analysis technique used to identify specific support and resistance levels and to determine asset liquidity. It is based on calculating the weighted average price of an asset based on the volume of assets purchased over a specific period of time.
This signal works best for short-term trades, which is why it is mainly used for scalping and other day trading strategies.
It is preferable to follow trading plans that are concerned with trading volume, and this can be done through services that provide aggregated data. The above graphic shows the VWAP indicator on the Trading View website.
Read also: What are Non-Fungible Tokens (NFTs)?
7. Bollinger Bands indicator
The Bollinger Bands Three Lines indicator is a day trading indicator consisting of a moving average and two bars representing standard deviations.
This indicator can help traders to distinguish the top ten levels of buying and selling, and to anticipate possible trends and reversals. It is mainly used by speculators to determine entry points and calculate the range of volatility.
When prices reach the top or bottom of the range, this may indicate a potential for a reversal or continuation of the market trend.
8. Relative Strength Index (RSI)
“The Relative Strength Index (RSI) is an indicator of volatility, characterized by defining the strength of movement in price, by measuring price changes and their speed of occurrence.”
Traders use this signal to identify potential overbought and oversold levels, which can indicate a possible change in trend.
Read also: What is stock market comprehensive definition
Best scalping trading strategies
To improve your scalping skills, you are required to develop an effective trading plan that will give you the ability to extract maximum profits from your upcoming trades.
There are three common techniques used by scalpers all over the world.
Use moving average bars
Scalping strategy involves the use of many exponential moving averages with different time frame, for example players highly prefer to use exponential moving averages 10 EMA, 20 EMA, 50 EMA and 100 EMA.
The exponential moving average is then drawn parallel to the chart in the form of a bar.
This bar can be used to determine trend and momentum. The “rhythmic” bar indicates a strong trend, which means that traders can make a buy or sell trade.
The stop loss should be placed below the last low point in a long trade, or above the previous high point in a short trade.
When the price of the asset touches the 200 EMA again, the position should be closed and take profit.
Bollinger Bands Strategy
This plan is based on the use of the Bollinger Bands indicator, it consists of three lines which are two standard deviations and an SMA between them, as it is known.
If the price exceeds one of the outer bands, this means that there is an expected effect of the trend either by slowing down or continuing during the coming period.
The Stop Loss order must be executed below the last low of the day for the buy trade, and at the previous swing high for the sell trade. Samaritans can enter the trade once the price breaks through one of the outer bands and exit when the price retraces the SMA.
Read also: What is the forex market
MACD and EMA strategy
In this plan, traders determine trend direction and momentum using MACD and EMA indicators (eg 200 EMA). When the MACD line rises above the zero level and the exponential moving average is below the price, this indicates a buying potential.
In the same context, when the MACD line reaches a level below zero, along with the exponential moving average above the price, traders should prepare to take a short position.
When the MACD indicator falls below the warning line, the trade should be withdrawn in this case.
Scalping requires patience, discipline and sufficient time from the trader. And if you want to get started in this practice, you must be able to make quick decisions and understand the use of different indicators.
With the right strategy and the right mindset, you can turn into a successful trader and make big profits from the most traded assets.
Read also: Investing in stock supplies
I hope you like the article explaining technical analysis. Do not hesitate to share and make an encouraging comment, thank you