Scalping is a fast pace strategy to enter and exit the market in relatively rapid succession. You can employ this strategy in tandem with Exponential Moving Average.

Scalpers open many positions dozens of times in a single session. They do not carry their trades overnight or even on to another trading session. Their goal is to achieve profit from a small change in price. Unlike other methods that close a trade after gaining hundreds or even thousands of pips in a single position, scalpers always close a trade with only around 15-25 pips.

That number does seem small, but imagine if it is done many times a day; that would surely add up to a quite rewarding number. If the average value of a pip is $10, then a profit of 10 pips would be $100. Do that ten times a day then you can earn $1000 at the end of the day. Although realistically speaking, you might need to do a little bit more than that to reach that number since there could be some losses during your trading session.

This strategy is used in a small time frame, around 1 to 15 minutes. That small time frame pretty much explains how fast this strategy is executed. Any traders who wish to employ this technique must be highly disciplined and decisive. One of the useful tools for scalping is the Moving Average indicator. And so, we will specifically look at Exponential Moving Average as a scalping tool in this article.

 

Utilizing Exponential Moving Average for Scalping

Compared to the Simple Moving Average (SMA), the oldest and widely used indicator within financial markets, Exponential Moving Average (EMA) places greater weight on the most recent price so this indicator will react faster to a change in trend or price. Unlike the SMA that might become less effective if there is a rapid change in price and therefore more suitable for a long term trader, Exponential Moving Average comes in as a more responsive indicator to accommodate short term trading needs.

This is an example of how to use a scalping strategy using an EMA indicator, you are free to modify the plan below to your preference.

 

The EMA Setup

Prepare 2 EMA indicators, with a value of:

  • 5 EMA and 15 EMA, or
  • 7 EMA and 14 EMA

 

The Buy Setup

  • The first EMA must cross the second EMA from below.
  • After the two lines cross, wait until the bullish candle closes
  • Open buy after the two conditions above is fulfilled
  • Set stop loss about 10-20 pips
  • Set take profit about 15-50 pips

EMA Buy Setup

 

The Sell Setup

  • The first EMA must cross the second EMA from above
  • After the two lines cross, wait until the bearish candle closes
  • Open sell after the two conditions above is fulfilled
  • Set stop loss level about 10-20 pips
  • Set take profit level about 15-50 pips

Sell Setup

The value of EMA varies from trader to trader, some set it 7 and 14, others 5 and 15. 12 and 26 or 8 and 13 exist as well. Do an experiment on a demo account first to find which one is suitable for you. As a recommendation, you may also try some well-known EMA setups like the 20 EMA and 60 EMA crossover and simple EMA 60 trading strategies.

 

Important Notice for Scalpers

Despite its advantages, EMA is not a perfect indicator. Many traders look for other confirmators to get better signals from trading with EMA. Other than that, a scalper also needs to specifically pay attention to trading spreads. Scalping should only be used on an account with low spreads. If EUR/USD bid price is 1.19610 and the asking price is 1.19620, then the spread of that pair is 1 pip, about 10 percent of a scalper's profit target if they intend to gain only 10 pips each trade.

If you aim for a few hundred or a thousand pips, one pip may seem minuscule. But that one pip can be a huge part of your trade if you aim for about 10-30 pips.

Also, in order to gain profit from any strategy, your position needs to move at least 2 pips before you close it. Any less than that and you will end up with more losses than profits. To optimize your strategy, it is better to trade in a broker with low spreads and good execution. The 5-digit cent account brokers are some good examples that may be worth your consideration.