Breakdown of the Best Forex Scalping Indicators
This article provides a breakdown of some of the best Forex scalping indicators, in order to establish which is the best indicator for scalping in Forex. This article will look at indicators such as: the Ribbon Entry Forex, the Relative Strength & Weakness Exit, and the Forex Scalping of Multiple Charts, looking at how they are applied with strategies.
Being involved in Forex trading (FX), you may have come across Forex scalping. This refers to the method used by Forex traders to make profits on small changes in prices. Small fluctuations in price can seriously affect the scalping trading process. Positions are opened for a very limited time period, and are then subsequently closed. This occurs within a particular day, hour, or even a minute.
As this method can be quite time consuming and tiring, Forex scalping indicators are often utilised to simplify the process. The human factor isn't excluded, as you still have to perform trades, but possessing indicators can help to relieve the burden of watching the market so intensely by yourself. Finding good Forex indicators can be hard, so we have written this article to help you in your search for the best FX indicators for scalping.
Scalping Indicators for Forex
There is a vast number of scalping indicators available, and finding one that actually works is comparable to looking for a needle in a haystack. It can take a long time, but don't let this discourage you, as once you do find the right indicators, you will soon benefit thereafter. We'd like to introduce you to three of what could be considered the best Forex indicators for scalping, and their appliance within particular strategies. These strategies are:
- The Ribbon Entry Forex Strategy
- The Relative Strength & Weakness Exit Strategy
- The Forex Scalping of Multiple Charts Strategy
Forex traders who scalp currencies are eager to profit from small moves in the market. They take advantage of ticker tape, which never stands still during the market day. For several years, this group of traders relied on level 2 bid/ask screens to position purchase and sell signals, reading demand and supply imbalances away from the 'National Best Bid' and 'Offer'.
They would most likely purchase when demand influenced the bid side, or sell when supply influenced the ask side, and would then book benefit or losses minutes later, as soon as certain balanced conditions returned to the original spread. This should be considered when looking for the best Forex indicator for scalping.
As a consequence, this technique performs less reliably in the modern electronic markets, for three specific reasons. First of all, the order book is wiped out constantly after the '2010 flash crash', due to the fact that deep standing orders were on track to completely fail on that day, forcing fund managers to hold them off-market, or accordingly execute them in secondary venues.
The second reason is 'high frequency trading', also referred to as HTF. It now actually controls intraday financial transactions, producing ferociously fluctuating data, which subverts the interpretation of the market depth. The last reason is that the vast majority of trades nowadays occur away from the exchanges in 'dark pools', which do not report in the actual time.
Returning to scalpers and the topic of the best Forex scalping indicator, scalpers can face the challenge of this ultra fast era with three technical indicators designed tuned for Forex scalping, and other strategies based short periods of time. The FX signals applied by these real-time tools are similar to those utilised for longer-term FX market strategies, but are instead used for 2-minute charts. They operate best when strongly range-bound, or strong trending action dominate the intraday tape, but perform poorly during periods of confusion and serious conflict.
Ribbon Entry Forex Strategy
The primary task here is to place the 5-8-13 Simple Moving Average (SMA) combination on the 2-minute chart, in order to determine strong trends, which can be purchased or sold short on counter swings accordingly. You also need to be aware of the warnings of imminent changes in trends, that are inevitable on a typical market day.
This Forex scalping strategy is quite easy to master. The 5-8-13 ribbon will line up, pointing either higher or lower during solid trends that keep the price stuck to either 5 or 8-bar SMAs. Penetrations into the 13 bar SMA signals diminishing momentum, which favours a range or as an alternative - a reversal.
Then, the ribbon flattens out during those range swings, and the price might crisscross this ribbon a number of times. In turn, the scalper then attentively observes a changeover, with the ribbons turning in two ways - higher or lower. After that, they spread out, presenting more space among all lines. Consequently, this diminutive pattern prompts the purchase or sell short signal.
The Relative Strength & Weakness Exit Strategy
One of the most popular questions in Forex scalping is: How does the Forex scalper know the best time to take-profits or cut losses? The usage of 5-3-3 Stochastics and accordingly, a 13-bar, with a 3-SD Bollinger Band, in amalgamation with ribbon signals on 2-minute charts, serves well in markets such as index funds or Dow components.
The greatest ribbon trades come into fruition when Stochastics turn to become higher than the oversold level, or lower than the overbought level. An instantaneous exit is demanded when the Forex scalping indicator crosses, and then rolls against your position after a beneficial thrust.
Furthermore, make sure to time your exit more accurately, by watching band interaction with a certain price. You should take the profit into concrete band penetrations, owing to the fact that they forecast the trend. You can expect either a slow or a reverse, and FX scalping strategies cannot afford to wade through retracements of any type.
Additionally, you have to take a timely exit in the case that a particular price thrust fails to achieve the band, but the Stochastics Forex scalping indicator rolls over, notifying you to get out. As soon as you are comfortable with the workflow and mutual interaction amongst technical elements, feel free to modify the SD higher to 4SD, or even lower to 2SD, to account for daily volatility changes. Even better still, you may superimpose the extra bands bands over your contemporary chart, so that you can obtain a much broader range of diverse signals.
Forex Scalping of Multiple Charts
We have reached the last strategy, which is perhaps one of the best Forex scalping indicators in our list. What you need is the following: you must pull up a 15-minute chart with no indicators, to keep track of background conditions that can affect your daily performance. Then you need to attach three lines, one for the opening print, and two for the high and low of the FX trading range that sets up in the first 45-90 minutes of the session.
Moreover, you should also observe price action at these levels, in view of the fact that they will also set up larger-scale 2-minute purchase or sell signals. You will find that your biggest profits during the trading day come only when scalps line up with both support and resistance levels on the daily chart, within 15-minutes or 60 minutes.
Forex Scalping with MetaTrader 5
You might have noticed that we recommended using each of the Forex scalping strategies above with 2-minutes charts. But if you're familiar with MetaTrader 4 and MetaTrader 5, you'll know that the standard chart time frames available are M1, M5, M15, M30, H1, H4, D1, W1 and MN. So how can you see thins in 2-minute time frames?
The good news is that MetaTrader 5 allows you to set custom time frames on all of your charts, empowering you to set up your trading terminal exactly as you want it to get the most out of your trading. Simply follow these steps to set up MT5 with custom time frames for Forex scalping:
- Right click an active chart
- Select 'Timeframes'
- Select 'Minutes'
- Select '2 Minutes'
Source: Admiral Markets MT5, USDCNH 2M chart. Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
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The best part is that you can download MT5 absolutely free. Simply click the banner below to get the platform - then you can start scalping on 2-minute charts today!
Whether you are new to Forex scalping, or you are an advanced scalper, the information in this article will be useful when searching for the best indicators for Forex scalping. Since scalping requires a lot of your personal time, using scalping indicators can make your trading much more efficient.
Scalpers can't solely trust real-time analysis of the FX market, to receive the purchase and sell signals that indicate that they are obliged to book multiple small profits in the typical trading day. Instead, traders can take advantage of modern technology by using technical indicators, which are custom-tuned to very small time frames - even one minute.
Interested in learning more about scalping? Then take a look at the following related articles:
- Scalping vs. swing trading vs. day trading
- Ultimate Forex scalping guide and 1-minute scalping strategy explained
- Low-spread scalping strategies
And if you're a new trader, you can also trade with a demo trading account, providing you with the ability to test out Forex scalping strategies within a risk-free environment. Just click the banner below to get your FREE demo account!
About Admiral Markets
Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.