Scalping this, scalping that. As new traders, one of the most repeated things you hear is scalping and how it can get you rich. But how does that work exactly? What tools should you use to become a successful scalper? A forex god, if you will? Perhaps you first need a guide on the strategy, or you might acquire a list of the best indicators for scalping.
Because, let’s face it, it’s no secret that scalping is actually worth every bit of hype it gets. However, it might not be as easy as they make it to be. It takes time to finesse, but once you’ve mastered it, you can count on it to bring you a near-constant stream of profits.
Aside from time and dedication, there are some techniques you can use to make your scalping more profitable. Some … secret tricks, if you will. One of these tricks is, of course, preparing a sturdy toolkit for yourself. Which is what this blog is all about.
Stay tuned to find the best forex indicators for scalping!
What Is Scalping, and How Does It Work?
The logic behind scalping is that it’s better to enter lots of short-term trades with smaller profits rather than opening a larger position that offers crazy potential but puts a lot at stake as well.
Scalpers believe that it’s much easier to control and manage these smaller positions that are opened and closed within minutes if not seconds.
Despite this simplicity, scalping requires a lot of time and attention to detail from traders. Being able to find profitable entry and exit points in the span of minutes is no easy job. However, it can be made easier with the use of some helpful tools, such as scalping indicators.
These tools will help traders make more informed trading decisions and find mathematically-proven important points they can take advantage of in the market.
What Are the Best Indicators for Scalping?
The fact of the matter is that most indicators can be used to provide trading signals for scalpers. That’s easy. What’s not is to find indicators that have proven to be more reliable so traders can successfully avoid what we’d like to call analysis paralysis, which happens when there are too many signals that suggest different outcomes.
So, we’ve prepared a list of the 5 best TradingView, MT4, and MT5 indicators for scalping that not only have established their capabilities when used alone, but can also be combined together to give you the bigger picture, which is super important in successful forex trading.
Without further ado, let’s find out what these forex scalping indicators are.
1- Relative Strength Index (RSI)
The Relative Strength Index (RSI) is a momentum oscillator that can provide useful insights for traders, such as the speed with which the market movement is changing.
The most important thing that RSI tells you about the market is whether or not an asset is overbought or oversold. When something is overbought, it means that it’s too expensive, and a potential bearish (downward) reversal might be near.
Conversely, when an asset is oversold, it usually means it’s cheaper than it should be, which points to a potential bullish (upward) trend reversal. Traders try to find price points when the asset is overbought or oversold and take advantage of them in their entries and/or exits.
Back to RSI, the way it works is that it measures a set number of previous candles and provides a value between 0 and 100. If this number is 30 or below, it’s usually believed that the asset is oversold. At the same time, if the RSI values are above 70, suspicions of an overbought market might arise.
For scalpers who deal with more time-sensitive positions, you can adjust your levels to 20 and 80 instead of 30 and 70. Additionally, instead of using the standard 14-candle period of consideration that most people use with RSI, you can change it to 7 candles, giving more weight to newer price movements.
2- Moving Averages (MAs)
The moving average is a technical indicator that traders use to get a feel of the market’s recent movements. As the name suggests, it offers the average value of recent price data that traders can use in their analysis. Because this data changes constantly and the average is updated as the price moves forward, it’s called the moving average (MA).
There are two main types of moving averages that traders, and scalpers especially, can use: Simple Moving Average (SMA) and Exponential Moving Average (EMA). We’ll go over both of them shortly.
Starting with SMA, it is really simple, as the name suggests. It sums up the price data (high, low, open, or close price) of a certain number of candles and divides the sum by the number of candles. Despite this simplicity, SMA has a major role in helping traders find support and resistance levels, as well as entry and exit points.
To calculate SMA, you can use the following formula:
SMA= (A1+A2+A3+ … + An) / n
There is also an Exponential Moving Average, which has a special place on our list of best forex indicators for scalping. The main difference between SMA and EMA is the weight they give to price data.
While SMA gives equal weight to all the data that are used to calculate the indicator’s value, EMA ensures more recent data have more influence. To calculate EMA, there are some steps you need to take.
First, you need to calculate the multiplier, which is what gives newer data that extra weight and influence. To do so, follow the formula below:
Multiplier= 2/(n+1)
In this formula, 2 is called the smoothing or weighting factor, while n is the number of candles you’re using the price data of.
When you have your multiplier, you can put it in the EMA formula below to get the final value of the indicator:
EMA= (Closing Price-EMA (Previous Time Period)) Multiplier + EMA (Previous Time Period)
To get the previous time period’s EMA, you can just calculate the current SMA.
3- Moving Average Convergence Divergence (MACD)
The moving average convergence divergence, or MACD for short, is an oscillator technical indicator that helps traders recognize existing patterns, determine market momentum, and find the best place to enter their positions.
MACD is similar to the moving average, but if it were on ecstasy. It combines different perspectives that different EMAs offer and incorporates them all into a bigger picture you can analyze with more confidence.
So, when we speak of the best indicators for forex scalping, you shouldn’t miss MACD. The indicator consists of three main parts: a MACD line, a signal line, and a histogram. Let’s find out what each of these means.
Starting with the MACD line, it’s designed to find the difference between two EMAs, one “slower” and the other one “faster.” So, basically, there is a 26-period EMA (the faster one) and a 12-period EMA (the slower one). By finding the difference between these two, you can actually find the MACD line.
Next, there is the signal line, which is a simple, 9-period EMA of the MACD line. In other words, it’s a moving average of the difference between two other moving averages. Let that sink in for a moment.
The signal line is designed to smooth out the MACD line and help traders make more informed trading decisions.
Lastly, there’s the histogram, AKA a visual representation of the position of the MACD line and the signal line in relation to one another. It’s basically a horizontal oscillator that shows how near or how far these two lines are from one another.
The histogram has a baseline that divides it into two parts, creating lower and upper halves. We’ll tell you shortly how you can take advantage of this simple yet super practical feature in your day-to-day, and even minute-to-minute, trades.
Now that we’ve got all the components, it’s time we learned how to actually use MACD. Let’s start out simple. When MACD crosses from below the baseline or the signal line to above it, it’s usually considered a bullish signal. If it crosses below them, though, you know what to do.
The further away from the baseline the MACD line crosses over the signal line, the stronger the signal might be. So, for bullish crossovers, the further below the baseline they are, the more powerful they get. As for bearish crossovers, the further above the baseline they occur, the more bearish the signal gets.
There are many other ways to read, interpret, and take advantage of MACD. Whatever you do, just be sure to always consider your risk management principles before entering and exiting trades.
4- Stochastic Oscillators
Stochastic oscillators are definitely among the best indicators for scalping forex, crypto, stocks, and even futures. They are momentum indicators that show the speed with which the market is moving in one direction.
Stochastic oscillators show the closing price of candles in the grand scheme of a larger price range. So, it’s a range-bound indicator with values between 0 and 100. Traders who trade with stochastic oscillators might take the value of two curves into consideration: the %k and the %D.
The %k curve, often referred to as the fast stochastic oscillator, is calculated with the following formula:
%k=(C-L14)/(H14-L14) 100
On top of that, you can get the value of the %D by taking a 3-period moving average of the %k values.
Stochastic oscillators can be used to achieve a variety of purposes, including finding overbought and oversold levels, divergence, and possible entry and exit points.
For example, if the oscillator’s value is above 80, it indicates a possible overbought situation, which might signal a bearish reversal. Conversely, when the oscillator’s value is under 20, it shows the asset is probably oversold. This could indicate a possible trend reversal from downward to upward.
Additionally, you can use stochastic oscillator divergences to make more informed trading decisions. These divergences happen when the asset’s price moves in a certain direction, but fails to reflect in the oscillator’s value.
For example, the price might create a new high in the charts, but it might not be shown in the oscillator’s curve, which creates divergence. This indicates how the momentum might be starting to wear down.
Lastly, the two %k and %D curves can cross over one another, which also provides useful signals into the price action. For example, the %k line crossing above the %D line is usually considered a bullish signal, whereas a crossover where the %k line goes below the %D line is a bearish sign.
Much like any other indicator, it’s important to confirm stochastic oscillator signals before making a trading decision. Make sure your risk management strategy is robust and trade with discipline.
5- Parabolic Stop and Reverse (SAR)
The parabolic stop and reverse indicator, often known as parabolic SAR, was created by the developer of RSI to help traders better find the direction in which the market is moving, figure out if this direction is about to change, and determine the perfect entry and exit points.
On a visual level, the parabolic SAR indicator appears as a series of dots that are placed near candles. Depending on the location of these dots in relation to that of the candlesticks, they might indicate a bullish or bearish trend is forming or will soon begin to form.
So, if the dots are below the candlesticks, it means that there’s a bullish trend going on. Conversely, if the dots are above the candles, it’s a bearish signal. Now, the interesting part starts when the dots change direction.
Say, for example, that the dots that were previously above candlesticks are now drawn below them. This is a signal that the market sentiment is shifting from bearish to bullish, which in itself creates a buy signal.
The same thought process can also be used for dots that start forming above the candles instead of below them.
Bottom Line
It’s no secret that scalping is a fine art that requires a lot of time and dedication. To make the right decisions in the span of a few minutes or even seconds, traders need to assess a big chunk of data and see right through every false signal that’s thrown their way.
For this reason, it’s vital for all scalpers to have a list of the best indicators for scalping to use in combination with other tools, such as candlestick patterns, and get a comprehensive overview of the market before entering or exiting trades. These indicators include RSI, moving average, MACD, stochastic oscillators, and parabolic SAR.
If you haven’t read what we had to say about any of these scalping indicators, you should definitely scroll back up and learn as much as you can. But if you’re done with it and looking for your next best step, you might want to pay our blog and social media a visit.
With tons of helpful educational material and trading signals, we can help you make your trading decisions profitable.
Scalping is one of the most popular day trading strategies that focuses on super short-term trades that last from seconds to minutes. Scalpers would rather make many profitable trades with small gains than a big, hard-to-manage trade with unrealistic promises and massive risks.
Since scalpers should consider many factors to make profitable trading decisions in super short spans of time, using tools such as indicators can help them get a clearer image of the market that shows them where the price action might be headed.
The best indicators for scalping include the Relative Strength Index (RSI), moving averages (simple and exponential), the Moving Average Convergence Divergence (MACD), stochastic oscillators, and the Parabolic Stop and Reverse (SAR).
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