Scalping Indicator Guide
Traders use the scalping indicator, a technical analysis indicator, on Metatrader 5 (MT5) to identify short-term trading opportunities in the forex markets. This trading strategy focuses on making a large number of small, quick orders to profit from small price changes. Scalpers aim to enter and exit positions rapidly, often within seconds or minutes, to capture small forex price fluctuations. In this course, we are going to explain scalping and provide detailed information on the scalping indicator that is available for MetaTrader4 (MT4) and TradingView platforms.
Scalping Indicator FAQ
What is Scalping Indicator ?
Scalping Indicator is used by forex traders to trade low spread and enter/exist in a short period of time. To be more precise, the scalpers buys an enormous quantity of an asset and sells it shortly after for a low market spread. This technique generates profit based on the huge traded quantity. The explanation of this technique is that trading a small quantity for such a small spread won’t be usually profitable. The Scalping technique works on any publicly tradable asset whether it is a bond, a stock, a commodity, a currency, a commodity, … However, Scalping works better on FOREX and highly liquid assets.
How does it Work ?
Scalping is as stated earlier a technique that benefits from short-term price movements.
There are usually several steps that traders take to scalp which are as follows:
- Selecting the desired financial asset: The trader usually starts by selecting a forex pair according to their investment criteria. The most common criterion is selecting a volatile and liquid forex pair where spreads could appear in just a few minutes. The reason behind this criterion is that some assets such as some stocks have low volatility and could trade at a fixed price for a whole day.
- Adding the Scalping indicator to the chart: The trader adds the indicator to the instrument’s chart to identify short-term price movements. The indicator works on every timeframe; however, it is usually used for short timeframes.
- Look for entry point: The trader looks for a confirmed uptrend. Once found, he selects an entry point on which he believes that the price will go up and not the contrary.
- Buy and sell as fast as possible: The trader purchases the asset and resells it for a small profit on the same day. The profit may look small for someone who’s purchasing 1 or a few units or the asset. However, for someone who purchased thousands of units of the asset, the profit becomes important even if the spread between the ask and bid is narrow.
How to trade using the Scalping Indicator ?
Trading using the Scalping indicator requires a lot of effort and rapidity in execution. The trader starts by selecting the desired asset. The chosen asset must be liquid and volatile so that a spread between bid and ask could form in a short period.
Once done, the trader looks for signs of an uptrend and sometimes may wait for confirmation. The scalping indicator comes in handy at this point where it displays 2 moving averages that are used to follow the trend. One of the moving averages is a short-term one whereas the other is a long-term one.
The trader should look for golden crosses within the chart and take precautions against death cross appearances. Once the previous steps are done and the asset’s current trend is confirmed to be an uptrend. The trader proceeds to purchase at the current bid price and keeps the asset for a short time before selling it at the current ask price.
These steps are repeated tens of times on each trading day. However, the trader should always set a stop-loss order to minimize his losses in case he makes a mistake in trend detection.
Pros and Cons of this indicator
As with every technique, there are advantages and disadvantages associated with it. Some of the advantages of scalping are:- Fast profit: Scalping aims to generate profit from the small spread in a very short time.
- Tens of daily opportunities: highly liquid and volatile assets offer a lot of opportunities for scalping.
- Less Risk: Selling and buying the asset in a short period helps traders evade market risk and any potential threat.
- Selling and Purchasing costs: Brokers take a percentage fee on every transaction. If the trader doesn’t trade in high quantities, the spread may not be able to cover the costs.
- Emotional pressure: Buying and selling an asset could be hard for the trader if he doesn’t set exit points. Greedy traders may lose a lot of money if they let their emotions take control while scalping.
- Market corrections: The price may fall a little bit during an uptrend which is called market correct. Scalpers may suffer losses if they exit their position once they detect a market correction.
Download the Scalping Indicator for MT4
The scalping indicator for MT4 is available for the MetaTrader 4 platform. It is a highly flexible indicator as it helps traders not just detect the current trend but also when they should enter and exit the market.
The following picture displays the Euro vs. USD chart in a 4-hour timeframe. The scalping indicator was added to the chart. The indicator displays on the chart directly 2 moving averages, one for LT and another for ST. And it has detected a golden cross that indicated the start of an uptrend. On the bottom window, the indicator displays a line chart and with it a sharp line that is used for scalping purposes. The area that is filled with blue color indicates the possibility of scalping and the wider the space gets the higher the spread. As for the part colored in orange, it indicates a downtrend and there is a possibility of entering a short-position.
Download the Scalping Indicator for MT5
The Scalping indicator for MT5 offers the same functionalities as the one available for the older version of the MetaTrader platform. Meaning that it offers the same customizability in terms of colors, and input parameters. The picture below shows the Euro vs. USA chart in a 1-hour timeframe. The indicator displayed 2 moving averages. In turn, we detected 2 Golden crosses which are considered opportunities for trading. Furthermore, these Golden crosses are an indication of an uptrend, which indicates the possibility of scalping during the trend. Please note that the golden cross forms when the Short MA (in white) goes above the Long MA (in orange). The goal of displaying the same asset chart with 2 different timeframes is to prove that the indicator works in every time frame. However, it is more efficient in a 1-hour timeframe or less as scalping is a short-term technique.
Download the Scalping Indicator for Tradingview
The Scaling indicator for Tradingview Platform offers some of the same functionalities offered in the MetaTrader versions. However, the Scalping indicator tradingview displays the results in a different form. The Moving averages are displayed as always so traders may detect the current trend. But the difference is in the scalping period The scalping indicator tradingview states an entry point from which scalping is possible and profitable. The following chart displays the Apple stock price chart on a 1 day, minute-by-minute interval.The indicator has displayed the 2 MA from which a golden cross was detected. And then, the indicator shows an entry point and labels it as “LONG”. Starting from that point, scalping is possible at any time. However, traders should take precautions from market corrections as the apple stock is extremely volatile.
Conclusion
- Traders use scalping to profit from small spreads by using high quantities.
- Scalping occurs usually during an uptrend or downtrend which is generally detected by moving averages.
- The uptrend occurred when the short MA crosses above the long MA which gives traders indication of Scalping opportunities
- Scalping is short-term focused; however, the indicator works on every time frame.
- Scalping indicator is available for MetaTrader4 (MT4), MetaTrader5 (MT5) and Tradingview.
