This time in the research section of ForTraders.org, we will look at a scalping strategy based on moving averages and a modified stochastic oscillator, applied on the smallest timeframe – M1. The strategy is designed for the European session and currency pairs with low spreads.
The detailed principles of trading according to this strategy are described in the article above; here, we will briefly review the entry and exit signals.
Trading Strategy Rules
For trading, we use five indicators: three exponential moving averages (EMA) with periods of 165, 102, and 63, and two stochastic oscillators with parameters (15, 3, 9) and (30, 6, 18). Note that these stochastics are non-standard and include some additional modifications. You can download the indicator from our website in the article mentioned above.
To open a buy position, EMA(63) must be above EMA(102), which in turn must be above EMA(165). At the same time, the stochastic (30, 6, 18) should enter the oversold zone (below level 10), while the stochastic (15, 3, 9) should already be in the oversold zone and crossing the 20 level from bottom to top.
Enter a buy position immediately after the second stochastic crosses the 20 level.
Stop Loss is set at 5 points plus spread.
Take Profit is 10 points plus spread.
The rules for entering a sell position are the mirror opposite.
Strategy Testing
Testing the expert advisor using the original rules on minute charts of EURUSD, as often happens, was unsuccessful. The balance chart does not suggest a positive outcome for real trading using this scalping strategy. However, not all is lost.
During optimization, we identified parameters that could be successfully used on your own accounts after some testing:
EMA line settings:
ma_up_period = 63;
ma_center_period = 102;
ma_dw_period = 165.
Slow stochastic settings:
stoh_slow_kp = 30;
stoh_slow_dp = 6;
stoh_slow_sl = 18;
stoh_slow_urup = 90.
Fast stochastic settings:
stoh_fast_kp = 15;
stoh_fast_dp = 3;
stoh_fast_sl = 9;
stoh_fast_urup =80.
The success of these parameters is clearly visible on the balance chart shown in Figure 3.
As you can see, over just four months of trading with a fixed lot, profit exceeded 1000%, starting with an initial deposit of only $300, and the strategy did not experience any major drawdowns.
Thus, the scalping trading strategy we selected will certainly be of interest to our readers. With minor improvements in money management and trade monitoring, results could increase significantly. We look forward to your modifications, settings, and ideas for improving the strategy in the expert advisor discussion thread.
Download expert advisor | Download set | Detailed test statement | Discuss expert advisor
Expert Advisor Monitoring
Since the strategy showed good results during testing, we are happy to monitor its performance on a demo account in our advisor laboratory. If the testing proves successful, the next step will be to run the advisor on a real account.
Company: Gamma Markets LTD
Terminal: MetaTrader 4
Deposit: $1000
Account type: demo
Currency pair: EURUSD
Timeframe: M1
Advisor working hours: 24/7
Test start date: 28.03.2013
Test end date: 27.06.2013
