Stochastic scalping strategies


Long-term strategies are often used in the market, when a trader opens only 1-2 deals per month and withdraws hundreds of points at once. But there is another approach – to open orders every day, with 10-20 trades and even more. The profit for a separate position will be small (only 10-20 points, sometimes 30), but due to the summation, the total profit is quite tangible. This approach to trading is called scalping. Various indicators are used to work on the strategy, including Stochastic. It is about him that will be discussed in this material.

How to trade scalping stochastics – basic signals

Stochastic is one of the oscillators that shows critical moments in the market when the trend can change to the opposite. Thanks to this, the trader gets the opportunity to open a deal at a favorable price and get the maximum number of points. We recommend that you study several interesting stochastic modifications that we wrote about earlier.

Tool description

Stochastic can be found in any trading program, for example, in the MT4 terminal. To find it, go to the “Oscillators” subsection, as shown in the diagram.

How to trade scalping Stochastic

As a result, the Stochastic indicator will appear on the chart (under the main window).

It represents 2 lines, which are called so:

  1. The main (in the settings it is indicated by% K) is colored blue.
  2. Signal (denoted by% D in the settings) – colored red.

How to trade scalping by stochastic - 3

They move side by side, and periodically intersect. These moments are the signal for entry:

  1. Above the line 80 – the overbought area, a downtrend is emerging, so you can open a SELL order.
  2. Below line 20 is an oversold area, an uptrend is emerging, so you can open a BUY order.

When analyzing signals, it is important to wait for the moment when the lines will not just enter the area above 80 or below 20, but also leave it. Therefore, a specific entry point is the moment when the stochastic crosses this mark and then goes:

  • down (when selling);
  • up (upon purchase).

Thus, the trader should not rush – he must wait until all the conditions of the deal are met and only then open the required order. Otherwise, the number of ineffective trades will increase – accordingly, the loss will also be greater.

Oscillator Stochastic settings for scalping

The standard stochastic settings are periods 5, 3 and 3. In this case, there are quite a lot of signals, although their accuracy is low. To change the parameters, right-click on any part of the line and go to the “Properties” subsection. Here you can set any Stochastic option by adapting the indicator to your strategy.

Attention! If you pay attention to the charts presented, you can see that along with correct readings, Stochastic also gives false signals. To reduce their number, it is necessary to use filtration methods – you can learn more about them here.

Stochastic scalping strategy

Stochastic scalping strategy

There are quite a few scalping strategies based on the Stochastic indicator. All of them are based on general principles – a trader opens several deals and closes them even when a small profit is reached (for example, 15 points). Below we will consider one of the simplest and at the same time profitable trading systems.

We also recommend that you study several stable forex trading systems, examples of which we gave earlier.

Step 1. Determining the trend

Any strategy begins with determining the direction of the trend, i.e. the main direction of the price, and this case is no exception. To do this, add the “Moving Average” indicator with the following parameters.

You need to navigate by this indicator like this:

  1. The trend is downtrend if the line is directed downwards and the candles are below the moving one.
  2. An uptrend if the line is directed up and the candles are above the moving one.

Important! If the line is almost horizontal and the candles are next to it, this indicates the presence of a flat in the market. At this moment, the price moves in a narrow corridor, there is no pronounced direction. Therefore, you should not open deals – it is better to wait for a more opportune moment.

Stochastic scalping strategy - signals

Step 2. Appearance of correction

Now you need to wait for a correction or rollback to appear – this is a movement against the direction of the main trend. Usually it does not last long, but it is on the correction that it is quite possible to make money. For example, this figure shows how the downtrend originated.

At some point, the price moves in the opposite direction (up) – this is a rollback (the area is highlighted in green). As soon as it is over, a particularly favorable moment will form for entering the market. In this case, you need to open a SELL deal.

To clearly determine the moment of the end of the correction, you will need to use the stochastic or its modifications. It allows you to clearly see the moment of opening a deal:

  • if the lines entered the area above the 80 mark on a downtrend, open a SELL order;
  • if the lines entered the zone below the 20 mark on an uptrend, you need to open a BUY order.

Stochastic scalping strategy - correction

Step 3. Opening a deal

Thus, the trader is not interested in those moments when the stochastic is between the lines 20 and 80. You only need to look for those points when it rises above 80, and then goes down. Or the moment when the line dropped below 20 and then went up. A deal is opened as a SELL or BUY market order.

Step 4. How to place a stop loss

As an additional confirmation, an algorithm such as fractals can be applied to the screen.

Stochastic scalping strategy - fractals

It will show arrows that indicate price extremes – i.e. moments when the price deviated as much as possible from its average “normal” values.

A fractal is needed not so much for entry as for placing a stop-loss. It is placed exactly on one of these arrows – you need to determine the nearest extremum and activate a protective stop.

Important! The order should be opened only after at least 2 candles have completely formed after the nearest fractal. It is worth waiting for the optimal moment and entering the market.

Stochastic scalping strategy - fractals2

Step 5. How to set take profit

The profit can be taken at the moment when the price passes the distance, which is 2-3 times more than the stop. Trades are closed independently or using a trailing-stop. In the figure, profit was fixed on the yellow line. And as a result, it amounted to almost 300 points, which is a lot. Thus, sometimes, even in scalping strategies, you can get tangible profit, moreover, by closing only one deal.

Stochastic scalping strategy - take profit

How To Increase Your Profits: 7 Proven Tips

Scalping strategies are quite effective, but only if they are used in a trending market. There are other tips to watch out for:

  1. Work during volatile sessions. You can determine the time yourself or using custom algorithms. As practice shows, it is better to trade in the first half of the day (from 9:00 to 13:00 Moscow time).
  2. Do not open trades half an hour before and after the release of important economic news. Prices can change sharply and it is impossible to predict this movement.
  3. Do not bet an amount at a time that exceeds 3% of the current deposit.
  4. Filter Stochastic signals using other indicators.
  5. Always set both stop-loss and take-profit.
  6. If the trade is long term, it is imperative to inflict strong price resistance and support levels.
  7. Finally, the chart should be studied not only for a small timeframe (for example, M5 or M15), but also for a larger interval (M30, H1 and others). The readings of the higher frames should always be considered as priority.

A stochastic-based scalping strategy works quite efficiently if the described rules are followed. Together with Stochastic, you can use not only the moving average, but other indicators as well. Moreover, at the first stage, it is better to test the strategy on a demo account. This allows you to make sure that it works without risking your own money.

We also recommend that you familiarize yourself with the features of stochastic filtering and methods of filtering out false signals.

Watch an additional video on the topic of publication – Basement indicator for scalping – 4Stochastic Oscillator

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