Simple Scalping Strategy uses
3 Indicators The strategy uses 3 indicators: pivot points, Fibonacci
retracement and the Stochastic Oscillator. The 3 main pivot points
both above and below the pivot are used for this system: S1, S2, S3
and R1, R2, R3. The Fibonacci retracement values used are the 0.618,
the 0.382 and the 0.500 levels. The Stochastic Oscillator is set at
5,3,3. Step 1 – Marking important support and resistance levels The
first step is to mark the important support and resistance levels on
the chart. These levels should include the Fibonacci levels. The
chart below shows an example of this on the EUR/USD 5 Minute chart
that happened few days ago on May 31. The levels I’ve marked on the
chart are the swing high at 1.3046, the swing low at 1.29675 and the
1.30058 level which is a previous support level that may turn into
resistance if price goes back up.
How do you draw Fibonacci levels?
Notice the pair was trending down and then starts to pause and make a
retracement. We can now use our Fibonacci retracement tool to plot
potential turning points that will propel price back to its initial
downward direction. We do this by connecting the swing high with the
swing low of the downward trend we just had on the Euro. These 2
points are marked with a yellow circle on the chart above. By
connecting these points the tool automatically draws the retracement
levels on the chart for us. Entry and Exit with the Stochastic
Oscillator We enter and exit our trades by using the Stochastic 5,3,3
with overbought and oversold levels at the 80 and 20 marks. See the
picture below
We enter a buy trade when the
Oscillator is under 20 and is turning up. We enter a Sell trade when
the indicator is over 80 and is turning down. We exit the trades on
the opposite signals. If we’re in a long position, we exit when the
Stochastic goes over 80. If we’re in a short, we exit when the
indicators prints below 20 indicating an oversold position. Putting
it all together – Looking for confluence of events When entering
our trades we should look for a confluence of events as these will
produce higher quality trades. The EUR/USD 5 Minute chart below
demonstrates one such example.
After a downward rally price has come
back to the 0.618 Fibonacci level. This level is also very close to
the psychologically important resistance at 1.3000 and the previous
swing point that we marked earlier at 1.30058. At the same time the
Stochastic Oscillator is over 80 and is starting to turn lower
indicating a short entry. We could enter on a break of the 1.30058
swing level or wait a little for the important level at 1.300 to
clear. The stoploss would go just above the swing high we just made
just above the 0.618 Fib level at 1.30155. This gives us a total risk
of 13 – 18 Pips on this trade. Once we’re in a short we now look
to the Stochastic 20 level for our exit. Finally close to 3 hours
later we get our exit when the indicator prints below and is starting
to turn up. See the chart below.
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