3 steps that need to be done that is determining trend direction with indicator EMA-200, determine momentum entry, then determine exit level according to risk management.
One of the most difficult for the scalper before the entry is to determine the strategy. Trading strategies are complex and some simple, and making plans for entries with specific strategies for the scalper does not have to be complex. This article exemplifies a simple trading strategy with a CCI (Commodity Channel Index) indicator for scalping. Only 3 steps to do is to determine the direction of the trend, determine the momentum of entry with CCI indicator, and determine the exit level in accordance with risk management.
Determining Trend Directions
Scalper usually uses time frames 1 minute to 15 minutes. To determine the direction of trend usually used exponential moving average (ema) indicator. In the following example NZD / USD is used ema period 200. If the price moves above the ema-200 curve line then it is assumed the trend is bullish and trader will wait for momentum chance to buy, otherwise if price move below ema-200 then trader wait for sell opportunity.
From the picture above, the price is still trending strongly indicated by the distance between the closing price with the ema-200 is getting wider. In addition, price movements also form higher higher levels (new high levels higher than previous highs) and higher lows (new lows higher than previous lows) which is a feature of uptrend movements.
Momentum Entry With CCI Indicator
Because trading with a low time frame, then after knowing the direction of trader trend should immediately determine the momentum entry before the momentum is lost and the trend changed. One of the indicators that can help determine the momentum of entry is CCI. Besides being used to know overbought and oversold condition, CCI indicator also shows cycle of price movement or moment of change of trend direction, that is when divergence happened between the direction of price movement and the direction of movement of the indicator.
Because in this example the uptrend price moves, the trader will wait for an oversold condition for the entry, ie when the CCI is below the -100 level as shown in the picture above. On the other hand, for entry sell is done only when the price moves below the ema-200 indicator curve line and the CCI indicator shows the overbought state.
Exit Level In accordance with Risk Management
Risk management is crucial in scalping because traders will usually enter several times a day. Traders can use the previous extreme (high or low) level as a stop loss level, or by specifying a stop loss level on the curve line itself. Risk / reward ratio should not be high, but try bigger than 1: 1.