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 2 main indicators used in this trading setup, and each of these indicators has been explained below in detail.
This indicator is basically a combination of the PviotPoint indicator and the SuperTrend indicator for maximum confirmation of the trend direction. Let us simply look at each of these indicators one by one.
The SuperTrend indicator is mainly used by traders in order to understand the trend of the stock price – it indicates whether the market is currently bullish or bearish on the stock. They work in a way very similar to the Moving Average indicators. Traders normally opt for using 2 or more SuperTrend indicators in conjunction with different periods to increase the reliability of this indicator. The two parameters that can you can tweak are the ATR period and the multipliers. The SuperTrend indicator also provides buy and sell signals.
A pivot point is a point where the trend direction is expected to change, i.e. it might go from a bullish to a bearish trend or vice versa. Pivot points are usually calculated using the average open, high, low, and closing points of a specified number of periods in the past. This could be done on a daily or hourly basis. The idea of the strategy is to indicate a reversal in the trend so that trades can be made accordingly.
The EMA is simply the exponential moving average of the stock’s closing price over a given number of trading sessions. It works in a very similar way to the SMA (Simple Moving Average), except it gives more priority to more recent data as this is considered to be more relevant than old data. The parameter that you have to enter for the EMA is the time period. Usually, traders only go long when the current price is above the EMA, and short when prices go below the EMA.
For this particular trading setup, default settings were used on the PivotPoint SuperTrend indicator alongside a 200EMA.
A long position was initiated whenever the price is above the 200EMA, the Pivot points indicate a bullish trend and the SuperTrend line is green.
A short position was initiated whenever the price is below the 200EMA, the Pivot points indicate a bearish trend and the SuperTrend line is red.
The risk-reward ratio was fixed at 1:2.
Results and Adjustments
After a scalping session over the course of 6 months worth of past data, the overall results were:
Profitability: 101.58% net profit
Number of Trades: 101
% of trades profitable: 43.56%
Profit factor: 1.539
Some additional indicators and settings that could be added in order to increase the win rate and reduce the risk employed are:
- The risk-reward ratio could be adjusted for higher profitability or win rate based on the preferences of the trader.
- The ADX could be added to weed out bad trades that would have occurred just when the trend was about to end.
- Additional Moving Average indicators can be added for greater confirmation of the trend direction.
- The Flat market indicator could be added in order to reduce the number of bad trades made due to false trend indicators.
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.
- BETTER Than SuperTrends? 72% Win Rate Profitable Trend @Trader’s Landing – YouTube
- TradingView Strategy
- Settings Used in the Video
- Exponential Moving Average – Investopedia
- SuperTrend Indicator – Nifty Trading Academy
- Pivot Point Indicator – Investopedia