In this piece, the very best indicators for scalping will be discussed.
Scalping is one of the various trading disciplines in the forex market. As with swing trading, there is quite a number of ways to the scalp.
There are various indicators for scalping, but too much-leaving most beginners confused.
We at forex dominant have curated a list of 3 of the best indicators for scalping. Take into consideration that mainly the indicators will be discussed while dabbling a bit into strategies.
Therefore, here are the best indicators for scalping forex, here you go;
- #1. Moving averages.
- #2. Stochastic oscillator.
- #3. MACD Indicator.
- Best Indicator For Scalping #1 – The Moving Average
- Best Indicator For Scalping #2 -Stochastic Oscillator
- Best Indicator For Scalping #3 – MACD Indicator
Best Indicator For Scalping #1 – The Moving Average
The moving average is undoubtedly one of the “go-to” indicators for scalping the forex market. Broadly speaking, there are two types of moving averages; the simple moving average and the exponential moving average.
The simple moving average is set to a certain value called a period. For example, if the moving average is set to a period of 10, an average/ mean of the last ten closes is determined.
This is done over and over as the market progresses, plotting the resulting values will give the moving average of that chart. In today’s market, this calculation is done by your chosen trading software.
These periods can be adjusted to suit every trader’s taste but only moving averages with a small period are suitable for scalping.
Likewise, the exponential moving average is similar to the simple moving average except it is more sensitive to price movements.
It comes in handy for a scalp trader since the aim is to get it on every price change as soon as possible. Regardless, I’d recommend sticking with the simple MA in order to prevent being faked out.
Also, multiple moving averages can be placed on a chart to determine a bias and this could make a decent scalping strategy.
For starters, three moving averages of different periods should be placed on the pair of your choice. Next, ensure the time frame(s) being traded isn’t higher than the 15mins.
Then, long if all three moving averages cross the price and curve upwards. Conversely, a short order is taken when the trio of moving averages curves downwards after crossing the price.
Best Indicator For Scalping #2 -Stochastic Oscillator
The stochastic indicator is a momentum indicator that was developed in the late 1950s by a man named Dr Gorge Lane.
It compares the recent closing prices of a currency pair, to the highest and lowest prices during a specified period.
The changes in prices during this period are used to predict potential reversals. Further, the sensitivity of the stochastic can be adjusted by reducing or increasing the time period.
Also, the stochastic indicator has overbought and oversold regions bounded within a scale of 1-100.
Generally, sells are taken above the 80 mark which is the overbought region. While buys are taken in the oversold region; below 20.
The stochastic indicator is easy to understand so it is “beginner-friendly”. Below is an example of the stochastic in use on a forex chart.
Best Indicator For Scalping #3 – MACD Indicator
Moving average convergence divergence is an indicator that shows the relationship between two moving averages of a currency pair’s price. The result is displayed with the MACD line.
The signal line is a moving average of the MACD line and its period can be adjusted to your liking.
While the histogram indicates the magnitude of bullish or bearish momentum.
The MACD line reacts faster than the signal line. When the MACD line crosses the signal line, it indicates the start of a new trend
Over the years, two methods have been developed to trade with the MACD and they’re explained below.
3.1 MACD Crossovers
The MACD line reacts faster than the signal line. When the MACD line crosses the signal line, they move away from each other. This shows the start of a new trend.
The histogram always reads zero when this cross-over occurs. This is because the difference between the lines when they crossover is zero as well.
When the fast line crosses ABOVE the slow line, indicates the start of an uptrend. The histogram will be above the baseline.
Conversely, if the fast line crosses BELOW the slow line, it is a bearish signal indicating the start of a downtrend. The histograms display below the baseline in this case.
3.2 MACD Divergence
Divergence occurs when the MACD indicator forms highs and lows that diverge from the current highs and lows in the price.
Although divergences are not as accurate as the crossovers. By analyzing past data, it will be noticed that failed divergences cannot be found.
This is because as the price progressed, it no longer appeared as a divergence.
A bullish divergence occurs when the MACD forms two rising lows but the price forms two falling lows.
A bearish divergence occurs when the MACD establishes a series of two falling highs that coincide with two rising highs in the price.
There are various ways to scalp the market, either with indicators tailored for scalping or price action.
In all honesty, beginners should not be scalping. It requires making quick decisions while managing emotions.
This is obviously a lot to handle for someone new to financial markets. Most newbies will panic and make rational decisions in the heat of the moment.
Scalping Explained Briefly
Scalp traders analyse the market in ways peculiar to them. Afterwards, either buy or sell orders are opened and closed in seconds- minutes.
Only a few pips are caught this way. Therefore, to realize true gains, multiple positions are opened with large lot sizes. This is done a bunch of times over the course of a trading day.
Conditions For Scalping
- Currency pair to trade.
- Market session to trade.
- Forex broker.
- Time frames to trade.
Currency Pair To Trade
The most important thing to consider before scalping is finding the right currency pair(s) to trade. To elaborate, the idea behind scalping is to take advantage of small fluctuations in market prices in as little time as possible.
A liquid currency pair is required to fulfil this condition. The EUR/USD and GBP/USD pairs are good picks for scalping. The latter is more volatile which means quicker movements are achieved.
Market Session To Trade
In the forex market, there are three major market sessions namely; the New York session, the London session, and the Asia session.
During the Asian session, market movements stall bringing forth consolidation. Although XXX/JPY pairs are exempted from this action. It opens from 12:00 AM to 9:00 AM UTC.
On other hand, the London and New York sessions are the best to trade. The majority of traders open and close orders during this period so there’s an influx of liquidity.
They open/ close at 7:00 AM-4:00 PM and 1:00 PM-10:00 PM respectively. The period when both of these periods are active is called the overlap and the forex market is most volatile here.
People new to forex tend not to pay attention to the quality of brokers before funding trading accounts. Spread, fees, commission, etc. have to be considered before depositing a penny.
For a forex scalper, low spreads are extremely important since every pip counts. Also, some brokers tend to charge ridiculous fees when a large lot size is used; they should be avoided.
In the grand scheme of things, price action tells a full narrative of the market. However, when high-impact news hit, manipulation tends to occur.
To keep track of this a forex calendar should be used, a good one can be found in the forex factory. Only major news (red folder) should be considered and even then, your overall bias toward the market should not be altered.
Time Frames To Trade
Of course, a full picture of the macrostructure should be gotten. But the aim is to make trading profits in as little time as possible, therefore, only lower time frames are suitable for scalping.
On larger timeframes, each candlestick takes way too long to form defeating the purpose of this trading discipline. Hence, time frames ranging from the 1minute- to 15 min are suitable.
Downside Of Scalping
- Scalping is extremely time-consuming, multiple positions have to be opened throughout the day. This leaves scalp traders glued to charts all day long. Sooner or later, exhaustion kicks in and sloppy mistakes will be made.
- Due to the minimal time difference between the open and close of a trade, stop losses cannot be placed. Additionally, to make significant gains from these little pip counts, large lot sizes have to be used; risk management is not adhered to.
Summary: Best Indicators for scalping
Scalp trading is practised mainly by new traders who come into this industry thinking it’s a “get rich scheme” wanting to make money as quick as possible.
This is normal every successful trader has been through a similar phase. The first challenge as a new trader is protecting your capital and that should be prioritized.
Scalping is the polar opposite of this, it is a very dangerous affair as multiple entries are taken at a go, and risk management is not adhered to.