Traders are usually divided when it comes to scalping. Some traders hate the idea of scalping the markets for small moves here and there. Some say it is very difficult and is potentially the hardest way to trade. On the other hand, some traders make their millions by scalping the market. Some have mastered the art of scalping so well, they could multiply their capital a hundred, even a thousand-fold.
There are many factors why some traders do well in scalping, while others don’t. It could be a matter of a fit in temperament. Is the trader willing to wait long hours waiting for the right scalp trades? Or, it could also be about picking the right markets with the right conditions for a good scalping trade. It could also be about having the right tools that fit the timeframe you are trading.
This strategy is one that works well on a trending market condition, potentially a very good condition for scalping the market, and it also makes use of indicators that fit well on the lower timeframes.
The Buzzer Trading Indicator
The Buzzer indicator is a custom trading which is based on a modified moving average. It changes colors as the indicator changes trend direction. Lime lines are drawn for a rising buzzer line while red lines are drawn for a dropping buzzer line. These changes in color are in itself a signal. However, the buzzer indicator also conveniently automatically alerts a trader if a market has a signal based on this indicator.
Although it is not discussed what the exact mathematical formula is behind this indicator, it is one of those indicators wherein judging by how the signals worked in the past, are pretty decent. It somehow works very well on the short-term trend.
The Trail CD Indicator
The Trail CD indicator is an oscillating indicator which prints histogram bars. It is a bounded indicator, however the range of the bars could be specified by the trader. For this particular strategy, we would be using a range of 0.0005, which is the default setting of this indicator. This indicator with this setting, seem to work well on many major markets on the 1 minute, 5 minute and 15 minute timeframe.
Trading Strategy Concept
The two indicators discussed above work very well together as complementary indicators, particularly on the 5-minute timeframe. For this reason, the strategy will be hinged around the confluence of the two indicators. However, there will still be a general trend direction filter which we will use, to align our trade setups with a bigger picture trend.
As for the medium-term trend, we will be using the 50-period Exponential Moving Average (EMA). This is a commonly used moving average that is used to determine the mid-term trend. The direction of the trend will be judged based on the location of price in relation to the moving average and the direction of the slope of the 50 EMA.
Then, for the actual entries, we will be looking for a confluence of the two indicators discussed above. However, the actual entry will be based on the Buzzer indicator, while the Trail CD indicator will be used mainly as a confirmation for the short-term trend. The Trail CD indicator’s short-term trend direction will be based on whether the histograms are positive or negative. Positive histograms indicate a bullish short-term trend while negative histograms indicate a bearish short-term trend. The entries will be based on the color change of the Buzzer indicator, which agrees with the Trail CD indicator.
Lastly, the stop loss will be based on fractals. Fractals are actually short-term lows and highs of price action. For this reason, it could serve well as a basis for supports and resistances.
Indicators:
- Buzzer
- 50 EMA (gold)
- Fractals
- TrailCD
Timeframe: 5-minute chart
Currency Pair: major pairs and some minor pairs with volume
Trading Session: Tokyo, London and New York sessions preferably with high trade volume
Buy (Long) Trade Setup
Entry
- Price should be above the 50 EMA
- The 50 EMA should be sloping up
- The Trail CD indicator should be printing positive histogram bars
- Enter a buy order as soon as the buzzer indicator changes to a lime color
Stop Loss
- Set the stop loss on the fractal below the entry candle
Exit
- Close the trade as soon as the buzzer indicator changes to color red
- Close the trade as soon as the Trail CD indicator prints a negative histogram
Sell (Short) Trade Setup
Entry
- Price should be below the 50 EMA
- The 50 EMA should be sloping down
- The Trail CD indicator should be printing negative histogram bars
- Enter a sell order as soon as the buzzer indicator changes to a red color
Stop Loss
- Set the stop loss on the fractal above the entry candle
Exit
- Close the trade as soon as the buzzer indicator changes to color lime
- Close the trade as soon as the Trail CD indicator prints a positive histogram
Conclusion
This strategy is a scalping strategy that works well on a trending market. The key to this strategy is picking the right market condition. For this reason, it would also be good if a trader could visually assess if the market is trending or not. One way to determine this is by looking at the slope of the 50 EMA. A steep slope would usually mean a stronger trend.
However, although strong trends usually work well, not all trending conditions are good. There are some conditions when the market is already overextended and is due for a reversal. You may assess this by looking at how price is making new lows and highs. If the thrusts of the trend is getting shorter and shorter, it is a sign that the market’s trend is already slowing down.
Use this strategy on the right market condition and on a currency pair with enough volume and a thin spread and this strategy could generate some good scalping setups for you.
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