Traders employ a variety of strategies in order to be able to consistently beat the markets and profit – however, there are few methods of trading as effective as scalping. Scalping refers to a form of trading that relies on making a series of small profitable trades, focussing on quantity rather than quality in order to boost profits. The primary focus of such strategies is to utilise trading volumes rather than performing a lot of complex technical analysis. There are several such trading strategies, and one of them has been discussed in this article. Read on to find out more.
There are 3 main indicators used in this trading setup, and each of these indicators has been explained below in detail.
The AlphaTrend indicator is used to identify trends, and it does this by solving a few problems:
- To reduce the stop losses in order to minimise the losses made during sideways markets.
- To have more accurate BUY/SELL signals during trending market conditions.
- To have significant support and resistance levels.
- To bring together indicators from different categories that are compatible with each other and make a meaningful combination regarding momentum, trend, volatility , volume and trailing stop loss.
Mean Deviation Detector
The mean deviation detector indicator uses the historical price trends and volatility levels of a particular security to identify when there is an unusual move in the price. This can then be used to take positions because sooner or later the price action is expected to come back into line with its historic average. Since different securities have different historical volatilities, this indicator uses only their past prices to give you a better picture of the deviation from the average path of the security.
Hurst Cycle Channel Clone
This indicator is used to create two channels: a red channel showing the trend of the security in the short term, and a green channel showing the trend of the security in the medium run. Crossovers between these two levels can then be used to take positions based on the price movements in the security.
For this particular trading setup, the default settings were used on the indicators:
A long was initiated whenever the current price was above the AlphaTrend and the MDD was above a 0 baseline. Additionally, the red channel should be above the green channel for this.
A short was initiated whenever the current price was below the AlphaTrend and the MDD was below a 0 baseline. Additionally, the green channel should be above the red channel for this.
The risk-reward ratio was fixed at 1:2.
Results and Adjustments
After a 15-minute scalping session over the course of 6 months worth of past data, the overall results were:
Profitability: 340.42% net profit
Number of Trades: 305
% of trades profitable: 66.56%
Profit factor: 1.442
Some additional indicators and settings that could be added in order to increase the win rate and reduce the risk employed are:
- Different levels of leverage could be employed to boost the profitability and/or the win-rate associated with the strategy.
- The take-profit and stop-loss levels could be tweaked to further affect the percentages of trades that were profitable.
- Multiple take-profits or stop-losses could be added to change the profitability or the win rate.
- The ADX could be added to weed out bad trades that would have been made whenever the market was flat or the trend was about to reverse.
Scalping has been proven to be one of the most profitable trading strategies out there, however, even when you’re scalping, you need to ensure that you have a high win rate so that the strategy is fruitful and profitable. Using the strategy discussed above, you will be able to profit in both bull and bear markets consistently. You can even tweak the settings to suit your level of risk and trading style, finding the right balance between the win rate and the net profit.
LONG Signal from
AlphaTrend price is above.
MDD is above 0
Hurst Cycle Channel Clone mid band crosses over top band
SHORT Signal from
AlphaTrend price is below.
MDD is below 0
Hurst Cycle Channel Clone mid band crosses below bottom band
- AlphaTrend Indicator – TradingView
- Mean Deviation Detector – TradingView
- Hurst Cycle Channel Clone – TradingView