A Profitable Moving Averages Scalping Strategy For Trading Forex & Stocks

Scalping is a type of short-term trading that can offer some of the most profitable strategies if done correctly. One of the advantages of scalping is that the strategies involved are not complicated or time-consuming. They can be applied by beginners and experts alike.

What Is Scalping?

Scalping is a type of day trading in which positions are only kept open for minutes or even seconds. Scalping is all about accumulating a lot of small gains across a lot of trades to build a profitable account. Because of the need to get in and out of the trades quickly, liquidity is important to the scalper. If you can’t easily liquidate your position, you could be stuck in a trade going the wrong way. Due to the small margin for error that scalpers have, they cannot tolerate much loss at all.

Scalping places high demands on traders to keep constant attention on the market to catch these rapidly developing and rapidly evaporating opportunities. Some traders find scalping tedious, while others appreciate the fact that they can always find something to trade as opposed to waiting around for a trade to develop as is common in longer-term strategies.

A Profitable Moving Averages Scalping Strategy

A profitable stock or fx scalping strategy can be implemented using a 5-period exponential moving average (EMA) and a 15-period EMA. When there is a crossover in the two signals, it generates buy and sell signals. Since the 5-period EMA represents the average of the price over the short time period, when price is on the move, it will reflect the more recent changes compared to the 15-period EMA. 

Thus, when the 5-period EMA crosses the 15-period EMA, it represents a change in the average price of the last 5 periods as compared to the last 15 periods. This tells us average price is on the move. The following strategy works best in trending markets and on 5-, 15- and 30-minute charts. As is usual with Moving Averages trading strategies, the main goal is also to avoid ranging markets.

Buy Order Setup

  • When the EMA5 crosses above the EMA15, it is a buy signal.
  • Once the crossover is clear, wait for the close of a bullish candle.
  • At the close of the bullish candle, open a buy order.
  • Set the stop loss below the most recent support level, or about 10% below the open of the trade.
  • Close the trade when a candle closes below the EMA5.


Sell Order Setup

  • When the EMA5 crosses below the EMA15, it is a sell signal.
  • Once the crossover is clearly defined, wait for the close of a bearish candle.
  • At the close of the bearish candle, open a sell order.
  • Set the stop loss above the most recent resistance level, or 10-15 pips above the open of the trade.
  • Close the trade when a candle closes above the EMA5.

In the example below, the EMA5 crosses the EMA15 around 2:15 PM. We then put in a buy at the close of the candle above the EMA5. We sell at 3:00 PM, when the candle closes below the EMA5. This results in 36 cents per share of profit minus any fees.

Conclusion

Scalping can be a profitable strategy, but it has to fit your personality type and trading style. Constant attention must be paid to the market to be able to identify these extremely short-term opportunities. 

Scalping holds great appeal for those who do not enjoy sitting around waiting for a longer-term trade to develop. Using a simple trading strategy composed of a 5-period EMA and a 15-period EMA in a trending market, you can easily profit from scalping the stock market.