In this post, I will discuss a simple forex scalping system that works well on the M5 and M15 timeframes for me. I prefer to use this forex scalping system on the M15 timeframe more. Now before you continue reading this post, you should have a clear idea on how to find divergences. You can use the Stochastic as well as the RSI and the MACD oscillators to find divergences. Divergences are powerful reversal signals and need some expertise to identify as the probability of misidentifying a divergence signal is large for new traders. You need to know this fact: identifying a divergence pattern properly needs experience.
If you are not sure, you should download these two PDF FREE that show how to trade with candlestick and divergence patterns in combination with moving averages. On shorter timeframes like M5 and M15 you won’t find candlestick patterns to be of as much use as they are on the higher timeframes like H4 and D1. However, one candlestick pattern which is known as the pinbar is very important. Professional traders use this pattern a lot in making decisions. This pattern has a very small body and a very long shadow either on the upside or the downside. It is also called the hanging man or a hammer as well as the morning star and the evening star. This one candlestick pattern is very important in telling you about the price reversal. Generally it is known as the pinbar. However, this pinbar pattern is also known as the Lucky Spike. This is a very important pattern and I use it a lot in my trading as do most other professional traders. You should get thoroughly familiar with this lucky spike or the pinbar pattern. This candlestick pattern is explained in detail in one of these 2 PDFs. So I would suggest you go through these 2 FREE PDFs on Candlestick Patterns and Divergence Patterns before you continue reading if you haven’t done so already.
This forex scalping system just uses two indicators Stochastic and the MACD. MACD is the main indicator that is used to make the entry and the exit decisions while the Stochastic is used to identify the overbought and oversold condition as well as to identify the divergences. Below is the screenshot of this scalping system in action on M5 timeframe.
These are the entry and exit rules for this system. When the MACD signal line crosses the histogram line as shown above by the up arrow, you will make an entry according to the direction of the trend. In the above screenshot the signal line crosses above the histogram line which is an indication of a downtrend so we will enter into a short trade. We will stay in the trade as long as the signal line is above the histogram line. When the signal line again crosses the MACD histogram line and goes below, we will get out. In the above screenshot, we got in around 1.3220 and got out around 1.3185 making a total of 35 pips in around 2 hours.
M15 Is The Best Timeframe For Scalping
But as said above, I use this scalping system on M15 timeframe more as the potential of making pips is double that as compared to the M5 timeframe plus you have more time to make the entry and the exit decisions which makes trading less tiring and more relaxed on M15 as compared to M5. Below is the screenshot of this forex scalper system in action on the M15 timeframe.
As you can see in the above screenshot, a clear bearish divergence pattern is appearing on EUR/USD M15 timeframe. So we wait for the signal line to cross above the MACD histogram line which it does pretty soon. So I got in around 1.3250 and stayed in the trade as long as the signal line was above the MACD histogram line. When the signal line crossed the histogram line and went below it, I closed the trade around 1.3180 making a total of 70 pips in around 4 hours. Below is another screenshot of this scalping system in action trading EUR/USD on M15 timeframe!
As you can see in the above screenshot the up red arrow when the MACD signal line crossed and went below the histogram is an indication of a potential long trade. You should also observe the bullish divergence appearing on the Stochastic, so I went long just as I closed the short trade around 1.3185. Around 1.3223, I closed the trade as the MACD signal line had crossed the histogram line and was now above it meaning a downtrend. So I made 38 pips from this long trade that lasted about a couple of hours. On M15 timeframe you will get almost 3-5 signals with this system daily so you can easily make something like 50-100 pips per day with this system. Just make sure you don’t overtrade, pick one or two trades daily with this system and you can easily make more than 1000 pips in a month. The best time to trade with this system are of course the London and the NY Market Sessions. Below is another screenshot of this system in action making more than 100 pips this time!
A Word About False Divergence Signals
As you can see in the above screenshot, this time MACD is showing a bullish divergence pattern. So you wait for the signal line to go below the MACD which it does after 4-5 hours. The problem with divergences is that you can get in too early to find the price going in the same direction to your horror. This happens to many new traders. There can be triple divergence before the price reverses itself. I use MACD to confirm the divergence pattern as explained above. Divergence indicates price about to reverse. I wait for the MACD signal line to tell me when this is confirmed and then enter into a trade accordingly. In the above trade, I got in around 1.3190 and got out around 1.3290 making around 100 pips. Please feel free to ask any questions below!