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Best Indicators for Scalping

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Written by Timothy Sykes
Updated 9/17/2023 16 min read

The indicators used for scalping are the backbone of any good trading plan. They’re the way traders get data out of the charts they’re analyzing before they trade.

And yet … very few traders find a way to be successful.

Let’s take a look at some numbers …

A 2019 study called “Day Trading for a Living?” looked at the success rates of Brazilian traders over a 2-year window, and found that 97% of traders with more than 300 days of active trading lost money.

Only 1.1% earned more than the Brazilian minimum wage — that’s only $16 per day!

But we still hear crazy stories about people that make millions. There must be a way to do it.

And there is …

I’ve made $7.4 million in my 20+ years of trading, so I guess I’m part of the successful 1%.

Not only that, I’ve helped over 30 traders on their journey to $1 million in trading profits.

You can bet your rear end there’s a way to profit in this industry.

Today I’ll be your guide.

A profitable scalping strategy starts with a solid foundation. Let’s get to it …

Table of Contents

What Are Indicators?

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In trading, whether it’s stocks or forex, indicators are your guiding tools. They are data-driven calculations that traders use to predict future price movements.

Trend lines, moving averages, and the MACD — all of these are indicators. There are a TON of others.

They analyze things like price patterns, momentum, and volume to map market direction.

Indicators are not just limited to day trading or swing trading. They are equally crucial in scalping, where the focus is on making multiple trades within a day to gain small profits.

For instance, understanding the day trading indicators can provide a foundation for scalping strategies. These indicators can help predict short-term price movements, which is essential for scalping.

What Is Scalping?

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Next, scalping.

No, we’re not talking about taking a tiny knife to the forex market.

In trading lingo, scalping is a technique. It’s fast, furious, and all about making multiple trades in a day. Traders known as scalpers aim to gain small profits on large volumes of trades.

Scalping is a fast-paced trading strategy that requires a deep understanding of market volatility. The Average True Range (ATR) is one such indicator that measures market volatility. It can be a valuable tool for scalpers as it can help identify when the market is most likely to experience significant price changes.

How Does Scalping Work?

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Scalping works in the blink of an eye.

Scalpers identify opportunities from minute price changes. The focus is on speed and quantity.

You’re not waiting for the big fish. You’re catching lots of small ones. Scalping relies heavily on short-term price movements and requires a disciplined exit strategy.

That’s why the right trading platform is so essential.

I already mentioned the necessary indicators and a mandatory level of speed. Free chart software rarely offers integrated indicators and up-to-date data, let alone both at the same time.

That’s why I use StocksToTrade. I even played a role in its development so that it better suits small account traders.

You don’t need to go all in right away. Try StocksToTrade’s 14-day trial today — only $7.

Traits of a Successful Scalper: Disciplined, Combative, Decision Making

Traits of a successful scalper? Discipline is at the top.

It’s about sticking to your trading plan, setting stop-loss levels, and knowing when to exit.

Here’s how I know when to get out  …

Then, it’s about combativeness. Not literally, of course, but a willingness to dive into the fray of the markets.

Lastly, rapid decision-making is key. Hesitate, and the opportunity may be lost.

How Is Scalping Different from Day Trading?

So, how’s scalping different from day trading? Both involve making trades within a day, but the approach and goals differ.

Day trading might involve fewer trades, with a focus on larger price changes. Scalpers, on the other hand, are all about volume. They aim to profit from small price movements in highly liquid markets.

I prefer day trading, and it’s what I teach to my students.

The more trades I make, the more opportunities I have to screw up. That’s why I only focus on the best plays and trust the process.

This is where all my millionaire students started.

Advantages and Disadvantages of Scalping

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Like any trading strategy, scalping isn’t all rainbows and profits. It comes with its share of advantages and drawbacks.

Key Advantages of Scalping

Scalping offers the advantage of limited exposure to market risk since positions are held for a very short time.

It’s also less reliant on large market moves. Even the smallest price changes can result in profits given the volume of trades.

Potential Disadvantages of Scalping

On the flip side, scalping demands concentration and constant attention to price action.

It also requires a significant amount of trading capital or assets due to the sheer volume of transactions.

Plus, it can be emotionally taxing given its fast-paced and high-volume nature.

Have you ever noticed the disclaimer on a brokerage website? Trading is inherently risky. That’s why we’re covering the basics here and now.

How to Build a Profitable Forex Scalping Strategy

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Building a profitable forex scalping strategy isn’t an overnight process. It’s about knowing the markets, understanding indicators, and maintaining discipline.

Which Time Frame Is Best for Scalping?

Short time frames are best suited for scalping. Think minutes, not hours or days.

The 1-minute and 5-minute time frames are popular among scalpers. But remember, the shorter the time frame, the quicker the price movements and the more you’ll need to stay glued to the screen.

Understanding Scalping Indicators

So, you’ve got your scalping strategy. Now, what are the best indicators to drive your trades?

What are Scalping Indicators?

Scalping indicators are tools that scalpers use to identify trading opportunities.

They’re based on a variety of factors like price action, volume, and momentum. They offer buy or sell signals based on the asset’s price movements within a given timeframe.

While there are several indicators useful for scalping, it’s crucial to understand how each one works and how they can be used together.

For example, the momentum indicator can be used to identify the speed of price movement, which is particularly useful in scalping.

The exponential moving average helps traders determine short-term trends by analyzing only the most recent data.

By understanding these indicators, you can make more informed decisions and improve your scalping strategy.

Every trader I know uses indicators. Even if they aren’t scalpers. And to steer you in the right direction, I included a video on my top market indicator …

It’s a great place to start.

Top 5 Best Indicators for Scalping

There are several indicators scalpers use, but some stand out for their effectiveness.

These include Bollinger Bands, the Stochastic Oscillator, Fibonacci levels, Moving Averages, and the MACD. Each one provides different insights into market trends and price actions.

Can Scalping Indicators Be Used Together?

Absolutely. Scalping indicators can be used in combination for more robust signals.

For instance, a Moving Average crossover along with a Stochastic Oscillator in the oversold or overbought region could signal an entry or exit point.

What is the Best Forex Scalping Indicator?

Choosing the “best” indicator isn’t as straightforward as it seems. It depends on your trading style, risk tolerance, and understanding of the indicator.

That said, many scalpers find the Stochastic Oscillator and Bollinger Bands particularly useful due to their focus on short-term price movements.

Key Takeaways

trade like a coward - sykes
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Remember, in the trading world, there’s no one-size-fits-all.

The best scalping strategy is the one you develop yourself, one that suits your risk profile, and one that you can stick to with discipline. Use indicators wisely and remember – small gains can add up.

Frequently Asked Questions

Is Scalping Legal?

Yes, scalping is legal. However, not all brokers favor it due to the high volume of transactions. So, make sure your broker is scalping-friendly.

Can Scalping Indicators Be Automated?

Sure, they can. Many scalpers use automated systems for quick execution. But keep in mind, no system is foolproof.

How Does Scalping Impact Market Volatility?

Scalping doesn’t typically cause significant market volatility. It’s more a response to volatility. Remember, scalpers benefit from frequent small price changes, not massive shifts.

What Are the Key Indicators for Scalping in the Stock Market?

Key indicators for scalping in the stock market can include …

  • Price action trends
  • Closing prices
  • Momentum indicators

Traders also often use moving averages (both simple and exponential), as well as specific technical indicators like Williams %R, RSI, ATR, and Ichimoku.

Identifying support and resistance levels, understanding bullish and bearish reversals, and using tools like the Parabolic SAR can also be helpful.

What Should I Look for in a Trading Platform for Scalping?

When looking for a trading platform for scalping, consider factors like liquidity, leverage, and margin requirements.

It’s also important to consider the range of instruments available for trading. Using a demo account can be a good way to familiarize yourself with the platform’s features before you start trading with real money.

For example, StocksToTrade’s platform offers a real-time trading simulator. I know professional traders that use it when they test a new strategy.

How Should I Research and Analyze Securities for Scalping?

Researching and analyzing securities for scalping involves several steps.

Start by gathering information about the securities you’re interested in, then use this information to perform a detailed analysis.

Read articles, consult reliable sources, and use tools available on your trading platform. It’s also important to understand trading fundamentals, look for buy signals, and consider the advice of experienced traders.

How Are Currency and Value Involved in Scalping Strategies?

Scalping strategies in forex trading often involve major currency pairs such as USD and GBP due to their high liquidity. It’s also referred to as a forex pair.

The aim of scalping is to make small profits from the price changes in these currencies, measured in ‘pips’. These small returns, when compounded over several trades, can turn into significant investments.

How Can Beginners Start With Scalping Strategies?

For beginners interested in scalping, gaining knowledge and advice on this trading method is crucial.

Lots of people want to make careers out of the stock market …

There are several steps to follow in building a successful day trading strategy, which can be learned through experience, online resources, and advice from seasoned traders.

It’s also important to understand the reasoning behind your trading decisions and the order in which you place your trades.

If you truly want to turn this into a career, it’s essential to build a good foundation. Don’t skip the beginning steps.

What Tools and Resources Can Assist in Scalping?

Numerous tools and resources can assist in scalping. A reliable trading platform with a wide array of tradable instruments is essential (StocksToTrade).

Researching your trades is critical, and for this, informative articles and trusted sources of information are invaluable.

Access to these resources is typically available on the trading platform’s site. On StocksToTrade it’s called Breaking News. I get an alert every time there’s a potential runner with hot news.

What Are Some Crucial Indicators in Scalping Strategies?

Several indicators are critical in scalping strategies.

Support and resistance levels provide insight into potential price reversals. Crossovers and candlesticks help visualize price action, and momentum indicators like the Williams %R and the Relative Strength Index (RSI) provide information on overbought or oversold conditions.

The Average True Range (ATR) gauges market volatility, and the Ichimoku cloud can provide a comprehensive overview of the market.

Lastly, understanding bearish and bullish trends is crucial for identifying potential reversals in the market.

What Operational Aspects Should Be Considered in Scalping?

In scalping, choosing the right trading platform that offers a wide array of tradable instruments is essential.

Utilizing leverage can amplify profits but also increases risk.

It’s also recommended to practice with a demo account before starting live trading. Being familiar with the default settings of your platform and understanding how to place orders are also crucial operational aspects of scalping.

What Additional Factors Play a Role in Scalping?

Besides technical indicators, several other factors play a role in scalping.

The strength of market movements and events can significantly influence trading decisions. Understanding supply and demand dynamics can also be beneficial.

Keeping track of the charges imposed by your trading platform and the service it offers to its clients is another important aspect.

Moreover, it’s essential to remember that scalping requires a significant time commitment, as trades often occur within short timescales, and each trade’s profit margin is typically small, measured in pips in forex trading, for example.

What Are Some Basic Concepts To Understand in Scalping?

Scalping is a fast-paced trading style that relies on making numerous trades within a day. As a result, it’s crucial to understand some key concepts.

The simple moving average (SMA) is often used to identify trends, while understanding potential losses and risks is essential for managing your trades.

The spread, or the difference between the buy and sell price, can significantly impact your profitability.

Additionally, recognizing signal lines can assist in deciding when to enter or exit a trade, with exit points being particularly important to limit losses.

What Personal Considerations Should One Keep in Mind for Scalping?

Scalping is a very active trading style that requires a lot of attention and time commitment. Therefore, it may not be suitable for every person, and it’s important to consider if it aligns with your lifestyle and trading goals.

Keep in mind that the majority of day traders don’t become profitable right away, and it can require substantial learning and experience.

Additionally, consider if a career in day trading is something you’d like to pursue, as it can involve additional responsibilities such as keeping track of numerous trades and constantly monitoring market conditions.

What Are Some Key Factors To Understand in Scalping?

In scalping, it’s vital to understand various types of trading strategies and how to apply them based on market conditions.

Being aware of potential issues and concerns, such as rapid market fluctuations or system latency, can help prepare for unexpected events. Understanding how standard deviations can be used to measure price volatility can also be useful.

Finally, understanding the relationship between different market indicators can assist in making more informed trading decisions.

What Are Some Miscellaneous Concepts in Scalping?

There are several additional concepts to keep in mind for scalping.

Understanding how values fluctuate in response to market conditions can assist in recognizing profitable opportunities. Being familiar with different time periods used in technical analysis can help in identifying trends.

It’s also important to remember that in scalping, every little matter can have a significant impact on your trades. Recognizing the logos or names of reliable trading platforms can help in choosing a platform that suits your needs.

Lastly, keep in mind that scalping can also be applied to trading indices, not just individual stocks.

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”