Among the different trading strategies, scalping is one of the most common options used. With scalping, traders execute several trades throughout the day, making a profit from brief fluctuations. As the position is only held for a short amount of time, the potential for significant loss is reduced.
The catch is that you need to use brokers with suitable trading conditions for scalping if you want to be successful. The indicators that you use also play a great part, which is why you need to know how to add them to your strategy. Here are the most popular options to use as a trader.
1. Volume-Weighted Average Price
The volume-weighted average price (VWAP) is not only one of the best indicators used for scalping, but it was also designed with scalping in mind. This indicator takes the asset volume over a specific timeframe and divides it by the number of times it was bought. This gives you the average price, helping you compare a specific stock to its benchmark.
2. Simple Moving Average
The simple moving average (SMA) is also one of the most popular indicators used by traders, proving particularly effective in scalping strategies. This indicator can show you the average price of a trade over a specific timeframe, telling you how it fluctuated. Traders use it to understand whether their investments went up or down, using the information they gathered to identify a trend.
3. Exponential Moving Average
The exponential moving average (EMA) is quite similar to the SMA, the main difference being that it reacts much faster. When used for scalping, there are several strategies for it to be used. For instance, you may use it to buy an asset when it crosses into the moving average. The EMA may also be a good indicator to determine whether there will be a reversal or not.
4. Bollinger Bands
Bollinger bands are one more indicator commonly used for scalping, which combines moving averages with standard deviations. The middle line of the indicator is the moving average, whereas the lower and upper lines represent the deviation. These may be used to buy and hold a position for an asset for as long as it stays between the middle and the upper line. The higher it goes, the likelier it will be for your investment to turn profitable.
5. Stochastic Oscillator
If you follow a scalping strategy, the stochastic oscillator is one more indicator that you may find beneficial. This unit tells you which levels are being overbought, and which ones are oversold. When used for scalping together with RSI, you can buy assets when they go into oversold and sell them when they reach the overbought stage.
The Bottom Line
For you to have a successful scalping strategy, you need to use all the right indicators. Some are more effective than others, which is why you may want to add as many as possible to your strategy. Remember that patience is a virtue, but as long as you read the data right, you should be able to create a path to success.
