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Moving averages are a great tool for scalping. Strategies based on them are simple and effective. Despite a somewhat primitive approach, the trading signals of the Moving Average indicator are highly accurate.
Let’s consider examples of using the Moving Averages indicator for scalping — strategies, their application in practice, and recommendations for online trading with MT4.
Fast Scalping — Trend Trading Strategy on M5-M15 Timeframes
The trading system is built on the work of only two indicators — exponential averages with periods of 20 and 50. The recommended broker is Exness. The trading strategy has been tested on M5 and M15 timeframes.
There are not many signals for one currency pair during the day. However, the system is multi-currency so you can trade all significant financial assets simultaneously. It is better not to take exotic tools into work since the nature of their movement is impulsive and often unpredictable.
For trading, you should choose areas where moving averages do not intersect and are at a small distance from each other for some time. There is a progressive trend movement in the market at this time. The figure below shows a trend section where you can look for signals to enter trades.
The distance between two Moving Average indicators is the correction area of the currency pair. You can open trades as soon as the price enters this zone, tests it, and exits it. The ideal signal is to pierce the zone with one candle and exit it on the second. This local extremum will act as a place for placing a stop order. A signal candle is a candle that closes above the moving average.
You can open orders by breaking it up (when buying) or down (for selling). It is customary to close positions when profitability exceeds the size of a possible loss twice. When opening an order at this place, you can manually set a take profit or fix profit.
The figure below shows an example of trade using the fast scalping system. The strategy brings good profits if you adhere to reasonable risks and do not open more than five transactions simultaneously with a total volume of 5-10% of the capital.
As a filter to avoid false market entries, you can use an additional exponential moving average with a period of 100. If at the moment, the current price is above the moving average, you can only open deals to buy a pair. If the price fell below the average with a period of 100, it is advisable to enter the market with short positions. This approach assumes a smaller number of signals, but the accuracy of the rest increases significantly.
Related: How Do Forex Market Makers Work?
Trading Strategy “Rainbow”
The following trading system consists of three moving averages with periods of 3, 5 and 8. In the figure below, they are respectively blue, green and orange. The period of the Moving Average indicators corresponds to the Fibonacci numbers.
The trading system is designed for scalping. The strategy involves analyzing the location of moving averages relative to each other and entering the market in the direction of the trend.
To open a short position, the averages must be located in the following order — the slow average with a period of 8 is on top, then the moving average with a period of 5 and below all the moving average with the most minor period of 3.
The currency pair can be sold if the indicator lines are in this position. Stop loss is placed at the last local extremum. You need to close deals when the movements reverse. An example of sell orders is shown in the figure below using the example of the euro-dollar currency pair.
To open positions to buy a financial asset, the opposite conditions must be met. The fastest moving average should be above all others. At the bottom there should be a moving with a period of 8. You can open orders at the moment when the averages diverge, that is, the distance between them increases. This means a phase of active price growth. As soon as the moves have crossed or changed direction to the opposite, all orders opened according to the scalping strategy must be closed.
Scalping Moving Average Crossovers
Moving average crossovers are often used in trading systems for scalping. The strategy described below involves using two Moving Average indicators — exponential averages with a period of 7 (yellow) and 21 (red).
You need to enter the market after their intersection, the formation of a new local extremum, and test the correction zone, which is located between the two moving averages.
The price must stay there for at least three candles, the last of which must leave the correction area towards a new trend. Let’s consider transactions on the trading system in more detail in practice.
Moving averages with periods 7 and 21 crossed up. The pair formed a new local high and dropped into the correction zone. The price tested the area for three candles and left it with the last one. You can enter into purchases after breaking through the local maximum. In the figure, it is marked with a red horizontal line. Stop loss should be placed behind the local minimum. It is better to choose the volume of the order in such a way that you will not lose more than 5% of your capital in case of an unsuccessful outcome of the transaction.
Moving averages are the most straightforward and accessible scalping tool, but their main drawback is that the indicator follows the price and does not predict it. It is recommended to transfer trades to break even when the minimum profit is reached and carefully filter the signals to minimize the delay effect in the trader’s trading practice.
“Calm River” strategy
As you know, any indicators are late to some extent. But, instead of complaining about another market fraud, we will try to exploit this shortcoming.
Since we know that the moving averages are lagging, we can use the indicator as a smoother (less zigzag) representation of the trend, so to speak, a “calm indicator.”
The strategy uses entries on a rebound from moving averages but on condition that the trend persists. To do this, you must distinguish between two price types, “flow.” For example, in this case, we are dealing with a calm current reminiscent of a river bed. Moving averages practically do not intersect and have a clear direction, in this case — down.
So, we need a chart with the M5 timeframe and two exponential moving averages — with a period of 50 and 20.
Both averages should have a clear direction — up or down, and should not often intersect. Visually, it should resemble some kind of river.
