The rules for this system are quite simple. To lay them out for you, we:
2. Look at the EMA 50 to determine trend direction and strength. The more
it is slanting up or down, the stronger the trend is.
3. Wait for the currency to enter the halfway point between the EMA 21 and
the EMA 10. If you are in an uptrend this is your buy signal. In a down
trend it is your sell signal.
4. For a stop use 5 pips (plus the spread).
5. Set a take profit at 10 pips (plus the spread).
6. Continue scalping until the trend stops (50 EMA Turns Sideways)
Let’s look at this on a chart to add some clarity:
In the picture 5 min scalping system in action.
Looking at the above chart, let’s simply walk through the steps. I’ve listed 7 entry points.
Of those seven, only 4 are valid, but we’ll get to that. Let’s walk through the steps we
take to take advantage of the short term trend:
Trend Determination: We have determined we are making higher highs, and
the EMA 50 is pointing up. This tells us we are in an uptrend.
We set a five pip stop and buy.
We set a five pip stop and buy.
We set a five pip stop and buy.
We set a five pip stop and buy.
#5 Signal – Price did not make a higher high – this could indicate the trend is
changing. We don’t take this trade.
#6 Signal – Price did not make a higher high – again we don’t take this trade.
#7 Signal – Price did make a higher high, but the EMA 50 has turned sideways,
we do not take this trade.
Let’s look at this system whole system in reverse to have an example of short trades
with
the 5 minute system. Looking at the chart below we first determine that we are in a
downtrend, and then we have 5 entry signals on this chart.
In this case all of the entry signals are valid. The #3 trade would have stopped out, but
we would have had four profitable trades by scalping 10 pips at a time from this trend.
This system is simple and if used the way we have laid it out it can be extremely
profitable. We aren’t quite done yet though, there are a ways to add to the profitability of
this system.
Letting Profits Run
I do suggest you trade the system as I laid it out in the previous section while you get
used to it. But, as a variant, after you gain some experience you can let your profits run
to earn more from the market.
Using this method we won’t be making multiple trades, instead we just take the first
signal, set our stop to breakeven once we are 10 pips ahead, and then let it run. Using
the same example from the previous section:
With this method we take the first entry signal once we’ve determined that we are in an
uptrend/downtrend. Looking at the chart above the bar hits the midway point between
the EMA 10 and EMA 21. We enter the trade.
We still use our 5pip + spread stop, but this time we don’t set a take profit. Instead we
wait until the trade moves 10 pips in our favor and then set our stop to the breakeven
point. From there just let the trade ride.
To exit the trade, there are two strategies that you can use.
1. Wait until the EMA 50 begins to flatten out as shown in the screenshot on the
previous page. With this method we would have earned 50 pips compared to the
35 we would have earned from our previous example.
2. Wait until the EMA 50 actually turns up – with this particular trade we would
have held if for most of the day and earned 100 pips.
