scalping with stochastic and 200 EMS indicators

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Here’s a really easy scalping strategy that uses 200 Exponential moving avarage and stochastic oscillator. I am going to explain how it works, where to place your stop loss and also give you some options on how to close your trades for profit.

Before I explain how this scalping strategy works, let me quickly explain the purpose of these two indicators we are going to use.

About 200 EMA 

The 200 EMA is used to identify the trend: If price is moving below the 200 EMA, the trend is down.If price is moving above the 200 EMA, the trend is up.

About Stochastic oscillator

The Stochastic oscillator is quite powerful, efficient and well known tool to have in your trading toolbox if your prefer to trade with trading indicators. This indicator is primary used to identify oversold and overbought market conditions:

It moves back and forth between 2 points, scaling from 0 and 100. When the stochastic lines are above the 80 line are said to be overbought and the price is expected to fall.

When the lines are below 20 line are deemed as an oversold and the market price is expected to rise. When the stochastic lines are above 80 are said to be overbought and the price is most likely to go up.

Trading setup

Currency Pairs: Major

Timeframe: Preferably 15 minutes timeframe.

Forex Indicators: 200 EMA and stochastic indicator. The settings of the stochastic indicator are the default settings if you are using the MT4 trading platform.

Trading Rules

For starters, applied these 2 trading indicators ( 200 ema and stochastic) on your chart so that it looks like this one below, of cause you can set your SMA lines with your own colours, so you can easily tell apart.

Buy Rules

Initiate a buy order if the following gets displayed:

  1. Ensure that the trend is up which is shown when the 200 EMA is moving below the price.
  2. the stochastic lines have gone down past the 20 line and are starting to point up at the close of the candlestick..
  3. When these 2 conditions happen, Open a BUY position immediately. Set a protective stop loss 5-15 pips below your entry level

For take profit target you can use any of these 3 options;

1.  Your the previous swing high

2. You can let your profit run by trailing your stop loss ’till your stop loss is hit. If you don’t know how to let your profit run make sure you read this post here

3.  You can also aim a risk:reward of 1:2 or more

Sell Trading Rules

The rules for a sell trade are exactly the same, only in the opposite direction.

Enter a sell order if the following holds true:

  1. Make sure the market is in a downtrend by checking to see if price is travelling below the 200 exponential moving average indicator.
  2. Wait for the stochastic lines to be overbought or to be above the 80 line
  3. Once the above two conditions are satisfied, immediately initiate a sell trade.Set a protective stop loss 5-15 pips below your entry level.

For take profit target you can use any of these 3 options;

1.  Your the previous swing high

2. You can let your profit run by trailing your stop loss ’till your stop loss is hit. If you don’t know how to let your profit run make sure you read this post here

3.  You can also aim for a risk:reward of 1:2 or more

Closing comment

This scalping strategy will perform well during trending period and not during non-trending  market Since  is based on 200 EMA and EMS is a lagging indicator. If you don’t know the difference between a lagging indicator and a leading indicator, please read this article here

While you can use this Forex scalping strategy with any currency pair, it is advisable to use it with major currency pairs because they have the lowest available spreads. In addition, this approach might be most effective during high volatility trading sessions, which are usually New York closing and London opening times.

If you have any questions at all leave me a comment below and I’ll be glad to answer your questions. Otherwise, good luck and don’t forget to share with your friends.

Cheers,

Leonard

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