It is almost impossible for anyone involved in currency trading to have not heard of scalping indicators. But, if you are new to trading, scalping is a trading style that focuses on creating profits on very small price changes. Positions are entered and exited within a short time duration, which can be within minutes. This post is going to assume you already have an understanding of scalping and will focus on some of the indicators you could use to form a simple and successful scalping strategy.
If you want to learn more about the basics of scalping the Forex market, check out “The Quick Guide to Forex Scalping” for a better understanding of how it works.
Finding the best indicator for scalping can be difficult, but based on our years of experience, these two indicators will give you a head start to scalping successfully. So now let’s take a deeper look at two of the best scalping indicators.
- Moving Averages
- Parabolic SAR
Oh and if you hate reading, check out the video below where we cover these indicators in detail.
Video: Using Moving Averages and Parabolic SAR for Scalping
Simple Moving Average Scalping Indicator
The Simple Moving Average is first on the list of scalping indicator that can be used to create a very simple strategy. The simple moving average shows the average price over a specific time period allowing you to know if the price is going up or down, thus identifying a trend. So for example, if you wanted to plot the 7 period on a 10-minute chart, you would add all the closing prices of the last 70 minutes and divide that number by 7. If you want to learn how to calculate simple moving averages and other types of moving averages check out this post.
The chart below shows the combination of the 5-7-13 simple moving average periods on a 1-minute chart. The lines of the 5-7-13 moving averages will stack up, pointing either above or below. Trends have prices stuck to either 5 or 7-bar simple moving averages. Diminishing strength is depicted when price penetrates the 13-bar moving average, an indication of a range bound market or a reversal signal.
The smaller space between the lines when the ribbons are somewhat above price bars represents a sell signal, while more space among the lines when the ribbons are aligned somewhat below price bars is a signal to buy.
While simple moving averages are excellent for entry techniques there main downside is they lag behind the price since they average the price of previous time periods. That’s why you want to combine a simple moving average with our next indicator, the Parabolic SAR.
Parabolic SAR Scalping Indicator
The Parabolic SAR (the SAR stands for “Stop and Reverse”), is useful in showing the trend of a price action. In an uptrend the parabolic SAR will chart points below the price, inversely it will start charting points above the price to signal the start of a retracement.
When parabolic SAR only charts one or two points above the price it is signaling that the recent price action is only a pullback and to leave your trades open. However, if it charts three or morepoints above the price it is signaling a deeper retracement coming or even a reversal.
While some traders use it for planning their entries it should only be used as a trailing stop.
Scalping indicators, while very helpful in identifying entry and exit points for your trades, can never replace the human factor in trading. You still have to carry out your trading duties and be aware of other events that may influence the market. However, the best indicators are designed to help traders make sense of price movements and simplify a trading strategy. Whether you’re a novice or seasoned trader, scalping requires a lot of your personal time, but using the right indicators can make trading a whole lot easier.