Scalping remains one of the most popular trading strategies, but what are the best Forex indicators for scalping? Find out by reading on.
Top Forex Brokers
How Scalping Works
Scalping is a strategy where traders remain in a trade for seconds to capture one to five pips in profits. It is similar to high-frequency trading, which is slowly displacing scalping.
The best Forex brokers for scalping will provide traders with the indicators and signals they need to benefit from small price movements by placing a high volume of short-term trades. Traders using Forex indicators for scalping face significant risk and can incur many losing trades. To scalp successfully, they require algorithmic Forex trading software, as well as a broker with ultra-low trading fees and fast order execution.
Why Do Scalpers Use Indicators?
Scalpers use indicators as they provide the most up-to-date price action data. The best Forex indicators for scalping have proven their reliability over time, but the best indicators for Forex scalping always depend on individual preferences. Another reason scalpers use indicators is that they are mathematical-based and free of personal opinions.
Top Scalping Indicators
The best Forex indicators for scalping depend on scalpers and their strategy, but some have stood the test of time and outperformed most competing indicators.
The best trading indicators for scalping include the following:
- Bollinger Bands - A favorite technical indicator to gauge market volatility, entry points, and exit levels
- RSI - A time-tested momentum oscillator showing the speed and magnitude of price movements with overbought and oversold levels, which scalpers use for entry and exit levels based on breakouts and breakdowns
- Simple Moving Average (SMA) - A lagging indicator popular among scalpers who use two SMAs to generate buy and signals via crossovers
- Exponential Moving Average (EMA) - The EMA is a moving average that puts more weight on recent price action as compared to the SMA, which treats all data points equally
- Parabolic SAR - A popular technical indicator scalpers use to identify potential stop-loss levels and reversals, applied to charts via dots, with dots below the price suggesting an uptrend and dots below the price a downtrend
- Moving Average Convergence Divergence (MACD) - Another time-tested and favorite technical indicator creating signals based on EMA crossovers and histogram movements
- Stochastic Oscillator - A momentum indicator oscillating between 0 and 100, comparing the closing price to a price range over a specific time frame, creating overbought and oversold signals
- Volume-Weighted Average Price (VWAP) - A novel technical indicator that considers the average price within a defined period plus its trading volume volume
- Fibonacci Retracement - One of the most used technical indicators to determine support and resistance levels
Popular Scalping Strategies
Profitable traders combine the best Forex indicators for scalping with strategies featuring a high probability of generating profits. After traders decide which indicators for Forex scalping to use, they must pick a suitable trading strategy.
Here are three popular scalping strategies:
1. Moving Average Ribbon Entry Strategy
Scalpers use three simple moving averages (SMA), the 5-period, 8-period, and 13-period SMA on the 2-minute chart. Alternatively, they can use the 1-minute or 5-minute charts, depending on their preferences.
Scalpers buy if the 5-8 SMAs move higher with price action glued to either of the SMAs. A crossover with the 13-SMA signals a potential trend reversal, and scalpers sell with price action following the 5-8 SMAs lower.
2. Relative Strength/Weakness Exit Strategy
This strategy uses the Stochastics technical indicator with a 5-3-3 setting with a 3-standard deviation (SD) Bollinger Band. Scalpers buy when Stochastics moves out from extreme oversold territory above 25 and sell when this technical indicator breaks down from extreme overbought conditions below 75.
Scalpers can adjust the Bollinger Band standard deviation to 2 SD or 4 SD and apply all three Bollinger Bands to the chart for greater precision with entry and exit levels.
3. Multiple Chart Scalping
Since this scalping strategy requires multiple charts, scalpers should have a multi-screen trading set-up or use various charts on one large screen. Scalpers should start with the M15 chart free of indicators. Scalpers will focus on price action during the first 45 to 90 minutes, ideally during the unofficial start of the London trading session, which is the start of equity trading.
Scalpers will place three lines on the chart: the opening price at the start of the period, the high, and the low. They will then look for buy and sell signals on the M1 to M5 charts close to the high and low of the M15 chart.
Bottom Line
Scalping is an ultra-short-term trading strategy that requires automated trading solutions that execute trading signals provided by the best Forex indicators for scalping. Manual scalping is inefficient and places traders at a distinct competitive disadvantage.
