Stochastic Scalping Strategy For MT4
The Stochastic Scalping Strategy For MT4 follows the well known and tried and tested method of trading with the Stochsatics oscillator. The Stocastics oscillator is one of the well known oscillator that measures the momentum in the price charts. It moves within the values of 0 to 100. However, overbought and oversold levels are identified when the Stochastics oscilator moves above the 80 level or below the 20 level respectively.
As you might know, price never moves in a straight line but rather makes multiple corections within the trend. The Stochastics oscillator basically denotes these corrections as it moves in and out of the overbought and oversold levels.
Typically, the stochastics oscillator should be used alongside a moving average indicator. But in the case of the Stochastics scalping forex trading system, there is no such thing. We find this to be a a bit lacking and one simply cannot trade with just one indicator.
In the Stochastics scalping forex trading system, we have two indicators only. The first the Stochastics oscillator which is sits in the second sub window. The other is a custom indicator. We do not have much information about this as it is called the B5VG indicator. This too is basically an oscillator. This indicator moves around the -55 and +55 levels. In some ways this looks similar to a CCI (Commodity channel index) oscillator or even an RSI (relative strength index) indicator.
The basic premise of the Stochastics scalping forex trading system is to make use of both these oscillators in order to trade. There are number of ways you can achieve this. But in this article, we take different approaches of trading. We make use of one method in the long trading example and another method in the short trading example.
As noted earlier, there are no moving averages. This is up to the trader if they want to make use of moving averages. Because the template is light weight, you can add two moving averages to this strategy as a trend filter.
But if you do not want to add any further indicators, this is also fine. It means that you will have to look at the price action to ascertain what the trend is, in the markets that you want to trade.
Stochastics scalping forex trading strategy – Long positions
To take long positions using the stochastics scalping forex trading system, we look take an example of trading with divergence and price action only. As you might know, divergences form on oscillators when the price tends to diverge from the oscillator’s highs or lows. To begin with, start by spotting a bullish divergence.
We want to see price making a lower low while the oscillator makes a higher low. In the above chart you can see this clearly. Note how prices make a lower low. But if you look at both the indicators, you can see that they are making a higher low. This is nothing but a bullish divergence in play.
When you see this divergence being confirmed on price and both the oscillators, it is time to get ready to go long in the markets. This means that wait for price to rise from the low and also look to both the oscillators to be rising higher.
Take a long position in the market with your stop loss set to the recent low that formed. In terms of risk to reward, use a fixed risk to reward ratio of one is to three. However, manage your position in such a way that after price moves twice as much as your risk, you should move your stops to break even.
Sometimes, depending on the strength of the trend, price will continue to move strongly. But we would not know this before hand. Therefore, using moving averages can be a great way to understand the trends and to know if the move is just a correction or indeed a reversal in the markets.
Stochastics scalping forex trading strategy – Short positions
To take short positions using the Stochastics scalping forex trading system, we will follow the method of divergence yet again. However, unlike the example cited for long positions, in this case we only need to see the divergence forming on just one indicator.
It does not matter if the divergence is on the custom indicator or the Stochastics indicator. Start by identifying price making a higher high. Now look to both the indicators to see if there is a lower high forming. This suggests that there is a divergence building up.
When you identify the bearish divergence on at least one indicator you can then take a short position at market. Set your stop loss to the recent high that formed and set your take profit to at least three times the risk.
Close your position partially when price moves two times your risk and exit after the second take profit level is reached.
Is the Stochastics scalping forex trading strategy good for you?
In conclusion, the Stochastics scalping forex trading system is nothing out of the ordinary. In fact you could replace the custom indicator with a CCI or RSI and this trading strategy works just the same.
Having said that, the Stochastics scalping forex trading system is not suited for beginners. This is even more true if you do not understand price action techniques or know how a Stochastics indicator works.
Another thing to point out is the fact that the Stochastics scalping forex trading system, as the name suggests is not just for scalping. You can also use this trading system for swing trading as well. Thus, this trading system works on one hour charts and even longer term higher time frame charts.
On the smaller time frame charts, you need to be very familiar with the price action and your technical analysis. There is a bit of subjectivity involved so this makes the Stochastics scalping forex trading system out of reach as a simple forex trading system.
Download the complete system description and the files here: