We have tried out different indicators and their combinations, but mostly within the 1H timeframes or 30 M. Could we forget about scalpers?
Besides, we have seen all these three indicators in action and we can understand the origins of the traders’ preferences towards them.
Do they perform the same smoothly while scalping?
Keep reading and learn the results.
Bollinger Bands is a great tool to examine the volatility of the currency pairs. This indicator consists of 3 bands, which form the oversold, overbought levels and a middle band as a base. In short, it can be read as following: when the price reaches the upper band, we should be ready to sell and on the contrary when the price touches the lower band, we should be ready to buy.
Remember we have talked how differently you can read the Bollinger Bands indicator and how it can be itself a quite complicated system. If you haven’t read, please check it here.
While trading this strategy, we perceive the price piercing the Upper/Lower Bands as a sign of the future trend reversal. However, we totally lose sight of the price behavior between the bands and therefore we can lose some perspective entry points. Again – it is still a matter of the further adjustment and backtesting.
We use additionally RSI, and Stochastic Oscillator to find the enter moments.
RSI shows the strength of the trend and the possibility of the trend reversals as well as overbought and oversold periods.
Stochastic Oscillator consists of two averages ‘locked’ between 0 and 100 levels, providing signals while reaching the Overbought (over 80 line) and Oversold (below 20 line) levels. *
Let’s check the scalping strategy based on the combo of the 3 great indicators that proved to be resultative: Bollinger Bands, RSI and Stochastic.
* In the section called “Further Adjustments” you can find our advice how can the setting of the strategy modified further. Feel free to try different modifications and compare the results. Check this part in order to try all the settings and the way they can influence the outcome of the strategy.
Currency pair: major currency pairs.
Indicators: Bollinger Bands (20, 2. SMA) and RSI (14), Stochastic Oscillator (5, 3, 3).
Time Frame: 5 min.
When do you start the long order (buy)?
When do you start the short order (sell)?
|Market||Training set||Forward testing|
|Bull||40 pips||5 pips|
|Bear||24 pips||8,97 pips|
|Flat||30 pips||-90 pips|
|Market||Training set||Forward testing|
|Bull||01/03/2011-10/03/2011||09/06/2010 – 11/06/2010|
|Flat||01/09/2016 – 22/09/2016||04/05/2015 – 12/05/2015|
*How long it took us to enter the 50 trades for the Training Set and 20 trades for the Forward Testing.
A Reminder: in order to save your valuable time and efforts, we have introduced the system of backtesting when you perform only 50 trades through 3 different types of market (Bullish, Bearish and Flat markets) and then again 20 trades through the given types of market, but during other periods. Then with simple math calculations, we can make conclusions about effectiveness or irrelevance of the chosen strategy.
The full version of the theory of our backtesting experiments and how did we came up with the idea of such backtesting you can read here.
As you can see the strategy showed positive and sustainable results within all the markets.
However, the size of the profits is quite moderate, we should bear in mind that it is scalping strategy and besides with the recommendations in the “Further Adjustment” section you can also backtest different variations of the strategy and aim for bigger profits.
And the last important thing:
it would be great if you perceived our backtesting experiment as the sign that you shouldn’t believe blindly anything found on the Internet especially if you bet your real money on it. Try any information, test it, prove it and then use it within the real-time trading.
What else you can try to adjust:
As you can see, backtesting is quite simple activity in case if you have the right backtesting tools.
The testing of this strategy was arranged in Forex Tester with the historical data that comes along with the program.
To check this (or any other) strategy’s performance you can download Forex Tester for free. In addition, you will receive 22 years of free historical data (easily downloadable straight from the software).
Are you into scalping or daytrading? What do you think about these 3 indicators’ combination? Have you ever tried it? Any tangible results to share?