200 EMA And Stochastic Indicator Forex Scalping Strategy

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

What about the stochastic indicator?

The purpose of the stochastic indicator is to see if the market is oversold or overbought:

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

That is basically the background of this forex scalping system.

Trading Parameters of the Stochastic Indicator

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 the price is moving above the 200 ema line and the stochastic lines have gone down past the 20 lines and are starting to point up at the close of the candlestick.

1. Ensure the market is in an uptrend by checking to see if the price is traveling above the 200 exponential moving average indicator.
2. They 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 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 4 hour 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 see if the price is traveling below the 200 exponential moving average indicator.
2. Then check the stochastic lines to see if it has gone above the 80 lines 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 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 Stochastic Indicator System

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