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 Chandelier Exit is a volatility-based indicator that can be used to identify the stop-loss and optimal exit points on trades, regardless of whether you are taking a long or a short position. The indicator makes use of the volatility and the Average True Range to construct 2 lines: the chandelier exit long and the chandelier exit short. Long positions should be exited when the price crosses above the chandelier exit long, and short positions should be closed once the price goes below the chandelier exit short line.
The RSI is a momentum indicator that is used to analyse the stock and identify if it is overbought or oversold at any point in time. It does this by monitoring the magnitude of recent price changes. The RSI is presented as a number between 0 and 100, wherein a number below 20 represents an oversold stock (ripe for a long position) and a number above 80 represents an overbought stock (ripe for a short).
Heikin Ashi Candles
These candles are an alternative to using standard candlesticks on charts. They’re called the average bar candles, and they make it easier to spot trends and analyse patterns in the candlestick data. Charts created using Heikin Ashi candles usually look smoother than those created with normal candlesticks, because Heikin Ashi candles take the average of the movement and can easily be used to spot trends and identify when trends are reversing.
For this particular trading setup, the following settings were used on the indicators:
- Chandelier Exit: ATR Period = 1, ATR Multiplier = 1.85
- RSI: Two RSI indicators were used with different lengths as follows:
- RSI 1: Length = 25
- RSI 2: Length = 100
A long position was initiated whenever RSI 1 was above RSI 2 and the Heikin Ashi candle was green. The trade was closed whenever the price went above the chandelier long exit.
A short position was initiated whenever RSI 1 was below RSI 2 and the Heikin Ashi candle was red. The trade was closed whenever the price went below the chandelier short exit.
The risk-reward ratio was set as 1:2.
Results and Adjustments
The overall results after testing the strategy were:
Profitability: 989.01% net profit
Number of Trades: 596
% of trades profitable: 40.77%
Profit factor: 1.048
Some additional indicators and settings that could be added in order to increase the win rate and reduce the risk employed are:
- Increasing the ATR period and the ATR multiplier on the chandelier exit would reduce the drawdown and increase the net profits.
- Adding a 200EMA would improve the trend direction and help us better identify trends.
- The ADX indicator could be added to weed out bad trades that would’ve been made when the trend was about to end.
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.
- MAGIC Buy Sell indicator TradingView: Heiken-Ashi RSI trading strategy SCALPING trading Bitcoin – YouTube
- The TradingView Strategy
- Settings used in the Video
- Relative Strength Index – Investopedia
- Heikin Ashi Candlestick – Investopedia
- Chandelier Exit – Corporate Finance Institute