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The "3-EMA" 1-Minute Forex Scalping Strategy (BEST Trading System For Beginners) - YouTube
Channel: The Secret Mindset
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Even if you're a complete beginner in trading,
you must have come across the term "scalping"
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at some point. The main goal of scalping is
to make a profit through buying or selling
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an asset for a very short period of time,
and closing it for a small profit. However,
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you should be aware that this trading style
will demand a certain amount of time and concentration
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and if you arenāt able to dedicate a few
hours a day to this, then this 1-minute scalping
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strategy might not be the best fit for you.
Now, for this strategy weāll rely on exponential
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moving averages. A single moving average gives
you the general trend of price movement. However,
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a lot of traders typically use two or more
moving averages to gain a better feel for
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main direction and to trigger more precise
entries or exits in the market. Thatās why
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weāll use a trio of moving averages to monitor
the short, medium, and long term trend of
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a market, and will allow us to estimate the
trendās intensity from multiple timeframes.
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So here we have a 1-min chart of EUR JPY,
which displays three exponential moving averages:
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the 50, 100, and 150-period averages. The
50-period EMA gives me the short term trend,
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the 100- and 150-period EMAās give me the
medium and long term trends. Of course, this
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is my preference. I prefer to use longer term
EMAs, to try to eliminate the inevitable market
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noise. Any number of period combinations can
be used, depending on the types of setups
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you are looking for and the timeframes you
are trading. So, feel free to use other moving
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averages, you donāt have to use the exact
setup.
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Looking back at this chart, notice how price
pushed above the three EMAās and traded
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steadily higher, the price staying above the
50-period EMA the entire time. The fact that
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all three EMAās were trending higher at
around forty-five degree angles during the
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advance was very bullish. This is the image
weāll search on our chart, meaning all three
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moving averages in agreement, in line, almost
parallel, with strong trend consensus. Right
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here, the price eventually broke below the
50-period EMA, which signaled short-term weakness,
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but bounced off the 100-period EMA before
resuming the uptrend, thereby confirming the
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medium and long term strength. Until the price
breaks below the 150-period EMA, the bullish
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trend will remain intact.
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After we identified the main direction, we
need to wait for a pullback. So, weāll search
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for a pullback trade, to pinpoint undervalued
and overvalued entries into established trends.
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So our goal is to find opportunities when
price is considered overvalued or undervalued,
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as this presents excellent opportunities to
ābuy low during uptrends, and sell high
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during downtrendā.
The idea of the pull-back trade is to buy
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the market at a discount during an uptrend,
and sell the market at a premium during a
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down trend.
The goal of the pull-back trade is to take
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advantage of situations when price is in an
established trend, either bullish or bearish,
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and all three moving averages are indicating
the same direction. Any pull-back to the first
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or second EMA offers a buying (or selling)
opportunity back in the direction of the established
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trend.
This setup is effective because it forces
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you to buy below value and sell above value,
while keeping you disciplined to the existing
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trend.
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Now, how to enter a trade?
So the first step, the most important one,
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is to identify the current trend of the market.
I know Iām repeating myself, but i want
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this to be crystal clear. All three EMAās
must be trending in agreement in a bullish
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or bearish manner. Ideally, you want to see
all three EMAās trending at a 45-degree
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angle, which identifies a strong trend. However,
any slope ranging from 30- to 60-degrees will
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work just fine. The second step involves waiting
for the market to pull back to test either
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the 50- or 100-period EMA. Price can close
beyond the 50-period EMA, but you generally
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do not want price to close beyond the 100-period
EMA, or to be near the 150 EMA. Once price
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tests either of the moving averages, we need
price confirmation. The entry is triggered
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when price closes back in the direction of
the current trend, beyond the 50-period EMA.
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How to manage the trade. There are many exit
tactics that can be used for the pull-back
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trade. Before you select the type of exit
strategy, you should first remember you are
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scalping. The room for error is extremely
small. Let me repeat that: margin for error
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is very small when you trade with high leverage
while looking for a small profit. With that
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in mind, here is what I do when Iām scalping:
ā¢ I move my stops to breakeven as soon as
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possible. You want to diminish your risk.
You will get stopped out a lot at breakeven,
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but from my experience itās better to have
5 trades in a row with zero profit, than 5
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losing trades. Thatās the ugly face of scalping,
itās very unpredictable and any price swing
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can hit your stop loss. Thatās why I look
to play the breakeven trade when Iām 5-6
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pips in profit. You will be frustrated when
youāll have 5 pips in profit, move your
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stop to breakeven, and then the market will
hit your stop loss and will continue in your
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initial direction. It will happen. But this
will protect you in the long run.
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If you have a bigger risk aversion, here are
other tactics you could use:
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ā¢ a traditional trailing profit stop.
ā¢ a fixed profit target
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ā¢ exit at the next support and resistance
levels, or at a fib extension, if you trade
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with fib numbers.
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This chart illustrates a perfect example of
choosing a currency pair during an established
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trend. Notice that all three EMAās are trending
lower at 45-degree angles, which is important
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because this is a measurement of trend intensity.
Trading in the direction of an established
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trend increases your chances for a profitable
outcome. Now that direction has been established,
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we look for price to break above the 50-day
EMA in order to set the stage for a āsellā
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scenario. Once price dips above the first
EMA, we look for price to close back below
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the 50-period average in order to trigger
a long position, which occurred several times
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in this chart. Also remember that you can
use any period moving average you like to
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manage your trades! You could back test different
settings, and adapt the period of the EMAs
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to fit your style.
Once in the trade, i immediately set my loss
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stop below the low of the pull-back i am trading.
Therefore, your stop loss would be beneath
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the low of the bar that tested the 50 or 100
period EMA.
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Here are other examples of scalping trades
on EUR/JPY, DAX Index and Dow Jones Index,
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my favorite instruments to scalp:
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So, whatās the psychology behind this trading
technique? Well, we try to take advantage
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of novice traders, shorting the market below
50 EMA. Think about it. We are practically
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waiting for the price to close below the 50
EMA. But other traders, when they see the
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price closing below the 50 EMA, they immediately
short the market. They donāt care about
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the general trend, they see the price below
50 EMA and enter short. Thatās why we wait
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for the price to return above the 50 EMA.
We want to have trapped traders below us,
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to fuel our long positions. Where are the
stops of the traders shorting below the 50
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EMA? You guessed it, above the 50 EMA. When
the price returns above the moving average,
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our scalping trade gets an extra boost from
the stop of trapped traders.
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Now, here are some important observations:
Scalping can easily turn to gambling. Excited
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traders on a winning streak will abandon their
own rules in pursuit of fast money. If it
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happens once, it can easily happen again.
Being impulsive is one of the most undesirable
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traits for forex scalping. Thatās why, try
to improve your discipline and self-control
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before attempting scalping.
Second, scalping is one of those trading methods
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that are often performed with bad risk reward
ratio. Trader will often risk 100 pips just
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for the possibility of gaining 1 or 2. Market
provides plenty of opportunity to enter high
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probability setups that can make this reward
sustainable. Unfortunately this trading style
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also means that days and weeks of profit can
be wiped out with relative ease. Few bad trades
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in a row can therefore produce substantial
losses. Thatās why when Iām scalping Iām
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not risking more than 0.5% of my total balance.
Not 5%, 0.5%.so, if you have 5.000 dollars
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in your account, for example, if you scalp,
risk at most 25 dollars per trade.
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My third recommendation, lower you lot sizes.
Small lots help you keep losses down until
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your trading improves and is consistently
proļ¬table. The smaller the forex lot size,
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the lower the risk.
Also, donāt neglect the trading costs. Scalping
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requires frequent trading almost by definition.
Frequent trading also means frequent and substantial
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position entry costs. Small difference in
spread between a great broker and good broker
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may be the difference between a consistently
winning strategy and a consistently losing
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system.
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