VWAP Trading Strategy For Scalping 5 minutes (For Beginners) | Become a Profitable Trader

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. 

Indicators Explained 

There are 3 main indicators used in this trading setup, and each of these indicators has been explained below in detail. 

EMA 

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. 

Weekly VWAP

The Weekly Volume-Weighted Average Price indicator is a technical indicator that works in the same way as a normal weighted average indicator, except it takes both the price and the volume of the security into account. Every week, it is reset, and can then be used to get insights into not only the trend but also the value of a particular security. It is calculated by taking the total value of shares that were traded in a particular week and then dividing this value by the number of shares that were traded. 

Average Directional Index

The ADX indicator is often called the ultimate trend indicator, as it helps traders to identify when prices are flowing strongly in one direction. It does this by using a moving average of a given number of bars and therefore helps to reduce the risk associated with trend-based strategies such as scalping. It is a line and gives a value between 0 and 100. The ADX gives the strength of a given trend irrespective of whether the trend is a bullish or bearish one. The higher this value, the stronger the trend. 

Settings

For this particular trading setup, the EMA period was set to 25. A line was added to the ADX indicator at 30, and trades were only made when the ADX was above this line. 

Whenever the VWAP line is below the EMA which in turn is below the current price, a long position can be initiated whenever the price touches the EMA25 level. 

Whenever the VWAP line is above the EMA which in turn is above the current price, a short position can be initiated whenever the price touches the EMA25 level. 

The risk-reward ratio was fixed at 1:1. 

Results and Adjustments 

Initial Results 

After a 15-minute scalping session over the course of 6 months worth of past data, the overall results were: 

Profitability: 155.24% net profit 

Number of Trades: 54

% of trades profitable: 70.37% 

Profit factor: 2.039

Drawdown: 22.09%

Adjustments 

Some additional indicators and settings that could be added in order to increase the win rate and reduce the risk employed are: 

  1. Different levels of leverage could be employed to boost the profitability and/or the win-rate associated with the strategy. 
  2. The take-profit and stop-loss levels could be tweaked to further affect the percentages of trades that were profitable. 
  3. Multiple take-profits or stop-losses could be added to change the profitability or the win rate. 

Conclusion

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 :
Price above the VWAP and the 200 EMA .
Price Pullback to the 50 EMA

♦️ Short :
Price above the VWAP and the 200 EMA .
Price Pullback to the 50 EMA

⚡SL : 1%
💰 Take Profit 1:1

Resources

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