Scalping is a trading style based on frequent transactions within short timeframes, often lasting only a few seconds or minutes. The objective is to capture small fluctuations in price that occur during active market conditions. To manage such rapid decision-making, traders look for tools that can help them catch minor price changes. Technical indicators are among them. They can provide structured signals for entry and exit points. This article outlines the indicators frequently used in scalping and describes how they are applied in intraday trading.
As you may know, scalping is a trading strategy where traders aim to take advantage of small price movements by executing numerous trades within short timeframes, often closing trades within a few minutes. This approach requires swift decision-making and precise timing.
Technical indicators may be important tools in this context, as they provide real-time data and insights into market trends, momentum, and volatility. Using these indicators, traders can identify optimal entry and exit points, potentially enhancing their ability to navigate the rapid pace of the market.
Below, we’ll break down five indicators for scalping. You’ll find these scalping indicators in MT4 and MT5, and TradingView. Also, you can get started in seconds with FXOpen’s TickTrader trading platform.
Moving averages (MAs) are considered by some to be the most popular indicator for scalping, smoothing out price data to help identify trends by calculating the average price over a specific period. In scalping, where quick decisions are crucial, certain types of moving averages can be useful.
Unlike the Simple Moving Average (SMA), which assigns equal weight to all data points, the EMA gives more significance to recent prices, making it more responsive to current market movements. This responsiveness is advantageous for scalpers. For instance, a 9-period EMA reacts swiftly to recent price changes, potentially providing timely signals for entry and exit points.
Developed by Alan Hull, the HMA further reduces lag and enhances smoothness compared to traditional moving averages. It achieves this by weighting recent prices more heavily and using a unique calculation method. The HMA's ability to closely follow price action while minimising lag makes it a valuable indicator for scalpers.
You can find these scalping indicators in TradingView and FXOpen’s TickTrader trading platform.
The Relative Strength Index (RSI) is a well-known scalping indicator that measures the speed and change of price movements, oscillating between 0 and 100. Traditionally, an RSI above 70 indicates overbought conditions, while below 30 suggests oversold conditions.
In scalping, traders often adjust the RSI from its typical length of 14 to shorter periods, such as 7 or 9, to capture rapid price swings occurring over minutes. This adjustment makes the RSI more sensitive to recent price changes, providing timely signals for quick trades.
Bollinger Bands are a technical analysis tool comprising three lines: a simple moving average (SMA) in the middle, with upper and lower bands set at a specified number of standard deviations from the SMA. These bands expand and contract based on market volatility, providing a visual representation of price fluctuations.
In scalping, traders often adjust Bollinger Bands to shorter timeframes, such as 1-minute or 5-minute charts, to capture quick price movements. A common approach involves setting the SMA period to 7-10 and the standard deviation to 1.5-2, potentially enhancing sensitivity to short-term market changes.
The Stochastic Oscillator is a momentum indicator that compares an asset’s closing price to its price range over a specific period, typically 14. It includes the %K line, the current closing price relative to the range, and the %D line, a moving average of %K. The scale runs from 0 to 100, where readings over 80 suggest overbought levels, and those under 20 point to oversold levels.
In scalping, traders may adjust the Stochastic Oscillator to shorter settings, such as 5,3,3, to increase sensitivity to rapid price movements. This adjustment may help in capturing short-term market fluctuations.
The Moving Average Convergence Divergence (MACD) is considered one of the top forex indicators for scalping. It’s a momentum indicator that reflects the relationship between two moving averages. It comprises the MACD line (the difference between the 12-period and 26-period exponential moving averages), the signal line (a 9-period EMA of the MACD line), and a histogram, which illustrates the gap between the two lines.
Scalpers prefer to adjust these settings to 3, 10, and 16, respectively, to make the MACD more responsive to rapid price movements.
Combining multiple indicators can enhance scalping strategies by providing a more comprehensive view of market conditions. Each indicator offers unique insights, and their combined use may help filter out false signals. Here are some pairings:
Scalping with indicators offers valuable insights, but there are some challenges traders should be aware of:
Scalping relies on precise and timely decisions, which is why technical indicators play an important role in this trading style. Tools such as moving averages and oscillators provide structured signals that may support traders in navigating fast market movements. The choice of indicators varies depending on individual trading preferences, market conditions, and timeframes.
If you want to test the above-mentioned indicators or find something new for yourself, you can open an FXOpen account to access over 700 markets and trade with tight spreads from 0.0 pips.
The 1-minute scalp strategy involves making rapid trades on a 1-minute chart. Traders look for small price movements and enter multiple trades within a short period, often using scalp trading indicators like the EMA or RSI for quick signals.
The 5-minute scalping strategy focuses on capturing short-term price movements on a 5-minute chart. Traders typically combine trend and momentum indicators, like the MACD and Bollinger Bands, to make fast, informed decisions.
The choice depends on the trader’s risk tolerance, trading approach, experience, and toolkit. However, according to theory, stocks with high liquidity, tight spreads, and significant daily volume are good for scalping. Popular choices include tech giants like Apple (AAPL) and Tesla (TSLA), as they offer frequent price fluctuations. But at the same time, they bear higher risks.
There is no single popular exponential moving average for scalping. However, traders often use a pair of EMAs, such as a 9- or 5-period and 21- or 15-period, to quickly respond to price changes in scalping. These EMAs may help identify trend direction and momentum.
In scalping, the RSI is often set to shorter periods, like 7 or 9, to catch signals quickly. Traders watch for the RSI to cross key levels (30 or 70) and form a divergence with a price chart to spot potential reversals.
