A Simple Scalping Strategy
Article Summary: Creating a Forex trading strategy does not have to be a difficult process. Today we will review a simple scalping strategy using the Stochastics indicator.
Traders who are looking to peruse Scalping opportunities in the Forex market will benefit from having a completed trading strategy at their disposal. The number of variables that can be added to a strategy are limitless, and it is often good to have a simple strategy on standby. Today we are going to review a simple stochastic strategy that can be used for scalping trending Forex currency pairs.
So let’s get started!
Find the Trend
The first step to trading any successful trend based strategy is to locate the trend! The 200 period MVA (Simple Moving Average) is one of the markets most used tools for this purpose. Traders can add this indicator to any graph and identify whether price is above or below the average. If price is above the MVA traders can assume the trend is up and look to buy. Below we can see a 5minute AUDJPY chart accompanied with the 200 periodscal MVA.
Given the information above, traders should look to buy the AUDJPY as long as it remains trending higher. If the trend continues, expectations are that price will remain above the 200 period MVA and new highs will be created.
Learn Forex –AUDJPY with 200 MVA
Once a trend is spotted using the 200 period MVA, and a trading bias has been established, traders will begin looking for a technical trigger to enter into the market. Oscillators are common choices, and SSD (slow stochastics) can be added to your graph for this exact purpose. Below we can see the AUDJPY 5 minute graph, this time with SSD added. Since we have identified the AUDJPY in an uptrend traders will look to buy when SSD signals momentum returning back in the direction of the trend. This occurs when the Green %k line crossover the Red %D line below an oversold level of 20.
Below you will find several examples of past SSD crossovers from today’s trading on the AUDJPY. Note how only buy positions are to be taken on bullish crossovers as the uptrend continues. At no point should traders consider selling as the uptrend continues.
Learn Forex –AUDJPY & SSD
As with any active market strategy, scalping Forex trends carries risk. It is important to know upfront that trends eventually do end. Scalpers can use a swing low or even the 200 period MVA as places to set stop orders. In the event that price breaks and begins creating lower lows, traders will wish to exit any existing long positions and look for other opportunities.
Trading strategies are influenced by events in the global markets. Check out page 2 of our Introduction to Forex News Trading guide which provides insights on trading based on the events influencing markets.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.