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Saturday, June 19, 2021

Simple Scalper Strategy

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Introduction

We have different forms of trading – day trading, scalping, swing trading, and also positional trading. In this article, we will talk about scalping. Some people prefer scalping because it has the potential to make money within a short period. Scalping Is a trading technique that allows us to take in profiting by taking a trade and closing it once it gives profit. Scalping seems easy by its definition, but it’s not, as we require a strict strategy, because one significant loss can cost us all the profits we have made.
In scalping we must use a strategy or a system that works and have the potential to give profit.

But yes, as we know, there is nothing 100% in the trading, its a game of probability. So, in this article, we will go through a strategy that works and can be called a “simple scalper.”

Trading strategy using Simple Scalper 

The simple scalper is a strategy that has the potential to give us profit if we use it correctly with some knowledge of price action. For making this strategy work, we will need 3 indicators working together.

First, we will be looking into all the indicators and how they will give us the signal to buy/sell. Later we will combine all signals from the indicator to enter the market.

Note: we will not enter the market is anyone of these criteria is not fulfilled.

Indicators used in Simple scalper: 

1.Bollinger band (BB)

2.Relative strength index (RSI)

3. Stochastic oscillator (STOCH)

Adding Bollinger band in Simpler scalper

As we are much aware of Bollinger Bands, it is one of the famous indicators that measures the volatility of the market. The bands expand, and contracts as the price action of an asset become volatile and give us dynamic support and resistance.

Now we will see the setting of the Bollinger band. 

Over here, we will be using the standard configuration of the 20-period simple moving average. i.e (20,2). 

In this indicator, we have to wait for the Bollinger Pierce. Bollinger pierce is nothing but when the candle breaks through the upper or the lower band.

The Bollinger Pierce will give us an indication of a short reversal in the market that will help us with scaling. 

In the above GBP/CAD 15min chart, we can see a candle piercing the upper band and then getting a rejection from a resistance level.

Adding Relative strength index (RSI) in Simple scalper


The Relative strength index is a momentum indicator that is used in technical analysis that measures the price change to gauge overbought or oversold. The RSI here will give us an indication of a buy or sell signals by crossing the upper or lower band.

We will change the setting of the RSI period from 14 to 9, the upper band to 75, and the lower band to 25.

When the average price crosses the upper band(75) from upwards and goes down, this will be the indication of a sell, and when the price crosses the lower band from downwards and goes up, it indicates a buy.

In the above GBP/CAD 15min chart we can see price crossing the upper band(75) from upwards and goes down.


Adding Stochastic to Simple scalper

Stochastic is also a momentum indicatorthat generates overbought and oversold signals. The Stochastic over here will work the same as the RSI. We will wait for the price to cross the overbought or the oversold line for a signal to buy or sell.

To use the Stochastic, we will need to change the K value from 14(default) to 5, D, and smooth value to 1. By doing this, the price line will look like a single line just as the RSI price line.

Below is the GBP/CAD 15min chart we can see price crossing the overbought line from upwards and going down.

 

Combining all the Indicator for Scalping signal

Now, as we have seen the uses of the indicators and what exertely we are looking for in it. We will see how our simple scalper work and how we can make it work for us.


Below is the GBP/CAD 15min chart with all the indicators working together.

After seeing the chart, it is evident what we are looking for and how it all works, but let’s take a better understanding. The first indicator is the Bollinger band, and we can see a candle piercing the upper band that can be a possible signal for a sell.

Coming to the second and third indicators, we can see the price crossing the overbought line and moving downwards, and this can be a possible signal for a sell.

Now have to take a Buy or a Sell trade only when all the indicator gives the same signal. Even if a single indicator is not in favor, we will not take that trade.

So, in this case, all the indicators are giving a signal of a sell.

GBP/CAD 15min chart all the indicators are giving a signal for a Buy

Trading with the simple scalper


In trading, with the simple scalper, we will see when to enter and exit the trade. As we already know in scalping we take the trade and close it once we see a profit. With the simple scalper, we will try keeping tight Stop loss to minimize our risk.

In the below chart, we see a candle getting rejection after piercing the Bollinger band. Here we will not take the entry as soon as we see the signals from the indicator; instead, we will wait for the next candle to cross the previous candle that pierced the upper Bollinger band. By this combination of price action, we will be more confident about the trade. Our stop loss will be 1 or 2 pips above the candle that pierced the band.

Conclusion

The Simple scalper gives a good signal of Buy/sell when combined with some price action skills. As we see, most of the indicators used in the strategy is based on support and resistance. Using the simple scalper strategy near a support and resistance zone gives more accurate signals. We must keep in mind that if we are trading alone with the simple scalper strategy, then we must not enter the trade until and unless all the indicators give the same signal weather to buy or sell.

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