We will describe a trading setting with the use of 5-minute chart ES E-mini S&P. However, as we’ve mentioned in the first part of our article devoted to scalping forex, these parameters can be changed (accelerated or decelerated) depending on trader’s preferences. The concept that forms the basis of this method is to place two linear regression channels. Let’s call them outer and inner lines.
Inner Lines of Forex scalping
Place a 90-period linear regression channel with a line of 1.5 standard deviation on a 5 minute E-mini S&P chart.
Outer Lines of scalping Forex
Place a 90-period linear regression channel with a line of 2 standard deviation on a 5 minute E-mini S&P chart. A tick-based Stochastic with parameters 8/5/3 is placed on a chart.
Minimal diapason. Make sure that you have a sufficient diapason between the upper inner line and bottom inner line or the trade won’t be able to provide a sufficient profit-risk ratio.
Incline. You should trade in the direction of the incline of the linear regression channel. Even if you find a possibility to use forex scalping against the trend, it will be safer to trade along the trend. Confirmation of an impulse. Use a tick-based Stochastic as a confirmation of an impulse turning to your side. Traders, who prefer scalping forex, buy when tick is low and sell when tick is high. Look for the corresponding Stochastic movement.
Entry to the long side. Buy next to the bottom inner line if the channel is inclined upwards. Wait for the moment when price has touched or moved outside the inner line but has stayed within the limits of the outer line.
Entry to the short side: Sell next to the upper inner line if the channel is inclined downwards. Wait for the moment when price has touched or moved outside the inner line but has stayed within the limits of the outer line.
It is desirable to display a tick-based Stochastic directly on the price chart in the time structure you use to trade. Some forex scalping graphics programs allow to do it directly while others require some additional programming.
As it was mentioned above, the advantage of this scalping forex method is that it is not restricted by 5-minute chart or 90-period linear regression. For example, a more aggressive trader could prefer using 1-minute chart and 50-period linear regression channel.
However, the concept is the same. We seek for opportunities to use the best scalping robot to trade along the trend determined by channel incline. This trend can be determined in any time scale chosen by trader on the basis of his own risk tolerance and the number of trades he’d like to perform.
Accordingly, standard deviations can be widened or narrowed depending on forex scalping trader’s presences. However, you should be careful with widening of deviations or lengthening of periods so much that none of trades would fall under the necessary conditions of trade performance. On the other hand, you also should be careful with narrowing of deviations or shortening of periods so much that there would be too many signals.