This scalping strategy blends the power of the Stochastic Oscillator and the 200 Exponential Moving Average (EMA) to capture short-term trading opportunities.
By combining trend identification and momentum analysis, this strategy aims to maximize potential gains in quick market movements.
Time frame: This strategy is typically applied on short time frames, such as the 1-minute or 5-minute charts.
Stochastic Oscillator (5, 3, 3): Used to identify potential overbought and oversold conditions.
200 Exponential Moving Average (EMA): Used to identify the general trend direction.
The image below illustrates what the Forex Scalping Strategy using Stochastic and the 200 EMA looks like when attached to the Metatrader 4 chart.
First, determine the trend direction using the 200 EMA. If the price is above the 200 EMA, consider only long (buy) trades. If the price is below the 200 EMA, consider only short (sell) trades.
For long trades, look for buy signals when the fast line (%K) of the Stochastic crosses above the slow line (%D) while being in oversold territory (below 20). For short trades, wait for the %K line to cross below %D while being in overbought territory (above 80).
Aim for a small profit target, such as 5-10 pips, based on the volatility of the currency pair.
Once the trade is in profit, use a trailing stop that follows the price movement to lock in gains as the trade progresses.
Close the trade if it hasn’t reached the profit target within a set time frame to avoid prolonged exposure to market fluctuations.
Keep the position size small to manage risk effectively, especially due to the short-term nature of scalping.
Place a tight stop loss to limit potential losses. Consider setting the stop loss a few pips away from your entry point.
Use additional indicators or price action patterns to confirm the Stochastic and EMA signals before entering a trade.
Avoid News Releases
Stay away from trading during major news releases or periods of low liquidity.
Use a demo account to practice and fine-tune the strategy before using real money.
This strategy is just a starting point, and you might need to adjust it to fit your trading style, risk tolerance, and the specific currency pairs you’re trading.
Always prioritize risk management and be prepared for the fast-paced nature of scalping.