200 EMA And Stochastic Indicator Forex Scalping Strategy

by

The 200EMA And Stochastic Indicator Forex Scalping Strategy, as the name says is based on the 200 exponential moving and the stochastic indicator.

The 200 EMA is used to identify the trend:

  • if price is moving below the 200 ema, the trend is down
  • if price is moving above the 200 ema, the trend is up

What about the stochastic indicator?

Well the purpose of the stochastic indicate is to see if the market is oversold or over bought:

  • based on this trading system, if stochastic is above the 80 level, it is deemed as an over bought so expect price to fall.
  • if the stochastic is below the 20 level, it is deemed as over sold, so expect price to rise.

That is basically the background of this forex scalping system.

Trading Parameters

Currency Pairs: Any

Timeframes: Any, preferably 5 minutes and above.

Forex Indicators: 200 ema and stochastic indicator. The settings of the stochastic indicator are the default settings if you are using the MT4 trading platform

Buy Trading Rules

Here’s how the buying rules work: you buy only when the trend is up which is shown when price is moving above the 200 ema line and the stochastic lines have gone down past the 20 line and are starting to point up at the close of the candlestick.

  1. ensure the market is in an uptrend by checking to to see if price is travelling above the 200 exponential moving average indicator.
  2. the check the stochastic lines to see if it has gone below the 20 line and now is turning and pointing up.
  3. once the above two conditions are satisfied, immediately initiate a market a buy market order at the close of the candlestick.
  4. Stop loss would be based on the timeframe you trade so if you are using a daily or a 4hr or timeframe, stop loss should be placed at 10-40 pips
  5. For take profit, aim for a risk:reward of 1:3 or if there is a previous swing high point, use that as your take profit target level.

Sell Trading Rules

  1. ensure the market is in a downtrend by checking to to see if price is travelling below the 200 exponential moving average indicator.
  2. the check the stochastic lines to see if it has gone above the 80 line and now is turning and pointing down.
  3. once the above two conditions are satisfied, immediately initiate a sell market order at the close of the candlestick.
  4. Stop loss would be based on the timeframe you trade so if you are using a daily or a 4hr or timeframe, stop loss should be placed at 10-40 pips above the entry price.
  5. For take profit, aim for a risk:reward of 1:3 or if there is a previous swing low point, use that as your take profit target level.

Disadvantages of the 200 EMA And Stochastic Indicator Forex Scalping Strategy

  • this scalping system will not work well in a  non-trending or sideways market as there will be too many false signals.
  • the stochastic indicator is an oscillator that oscillates between two extreme ends and one big problem you will find is that there will be times the trend will be still strong but the indicator will be giving an opposite signal

Advantages Of The 200 Ema And Stochastic Indicator Forex Scalping System

  • having two indicators, 200 ema for trading with the trend and stochastic indicator to measure the strength of the trend gives the system an added layer of checks before buying on selling.
  • a further layer of check that can be applied would be to use forex reversal candlesticks as a further trade entry confirmation.