Scalping with short timeframes like 1-minute charts can be a rewarding trading strategy if done properly. It allows traders to capitalize on frequent, small price fluctuations throughout the day. The MACD (Moving Average Convergence Divergence) indicator is a versatile tool that can help identify potential entry and exit signals for 1-minute scalping.
In this article, we will discuss how traders can utilize the MACD on 1-minute charts for effective scalping. We’ll cover the optimal settings to use for this strategy and provide examples of buy and sell signals. The MACD is well-suited for spotting momentum shifts and divergences that often present scalping opportunities. When combined with tight stops and targets, it can help scalpers enter trades with defined risk levels.
What is The MACD Indicator?
Before we get into the strategy let’s briefly explain what the MACD Indicator is. The difference between the 26-period and 12-period EMAs of securities is computed by the MACD. To generate buy and sell signals, the signal line—a slower nine-day EMA—is overlaid. When shorter EMAs cross over longer ones, readings above zero denote an uptrend, while readings below zero denote a downtrend.
This oscillator is watched carefully by traders for informative formations. Studies reveal that while slower-moving assets do better with larger intervals between EMA windows, faster-moving assets prefer shorter periods.
What Settings Are Used in The 1 Minute Scalping Strategy?
Having the right settings is key when using this strategy. First, our chart should be set to 1 minute. Secondly, we should add our MACD indicator and make sure that period 1 is set to 12, and period 2 is set to 26. The color and thickness of the MACD can be changed to your preference. This strategy should work for most markets, in this article we will be using the EUR/USD.
What to Look For With The MACD Indicator
The MACD indicator has two forms, one when it is above the zero mark and one when it is below. When it is above we call it a “high”, and when below it is called a “Low”. The importance of knowing these is so we can determine our support and resistance levels.
When we have a high we add a line to the highest point on the candle chart during that high. This line will now be our resistance level. On Allpips lines can be added with the add drawing tool on top. If you want an easier chart to read you can change the color of the line so it’s easily differentiated from the support line.
Next, our support line will be added the same way. When there is a low we add a line at the lowest point on the candle chart during that low. Keep in mind when we add these lines we check the most recent highs and lows, if there is a new high/low we change it if not it stays as it is. Also, the lines can be easily dragged to their new location. The picture below illustrates how the highs and lows change.
How to Place Your Trades?
Since you know how to add the support and resistance lines, adding your trade will be simple. With this strategy, we can either go long or short on our trades. If the price touches our resistance line we will go short and sell. To determine when you should close your trade, we have to add a line exactly in the middle between our support and resistance levels. When we are going short our trade closes if we reach this line. The stop loss should be set above the resistance line at the same length we set our sell position. The picture below can help you better understand.
The next scenario we have is if the price touches the support line. We set our trade just like in the first scenario when we went short but reversed. We go long and but, and set our trade to close when it reaches the middle line we set earlier. The stop loss should be set to the same length in the opposite direction, under the support line.
Real Examples of 1-Minute Scalping With MACD
In this example, we will be trading EUR/USD. This trading chart is on the 25th of Jan this year. As stated above, we have applied all the settings needed and added the MACD indicator. The picture below is what we are starting with.
Now let’s start adding our lines. First, we can see the MACD indicator below zero. During the whole time it is under zero we find the lowest point in the candle chart. On the lowest point, we add a line from the drawings option, and this is now our support line.
Next, we take a look at when the MACD changes above zero. We do the same step as above, but this time we put a line on the highest point in the candle charts. This is our resistance line. Finally, we add a line directly between the support and resistance levels. This line can also be added later when you place a trade.
Now we wait for the price to touch either line. In our example, the price first touches the support line at 1.08921. We now open a trade to buy and sell if the price reaches our middle line (1.08955). Also, add a stop loss of the same length under the support line (1.08887).
If you take a look at the pictures above, you can see that we also touch the resistance line and the same scenario happens, we open a short position and close when we reach our middle line. Also, take note that in this example no new highs or lows happened. If there was we would have changed the positions of our lines correspondly.
When Should You Avoid This Strategy?
Although this strategy has a high success rate and is easy to use, it shouldn’t always be implemented when trading. Using it just once or twice a day with leverage should be enough. Scalping is all about gaining small profits and letting them accumulate over time, it’s not about hitting the jackpot.
A bad time to use this strategy is when the market is in a trend, whether it is an uptrend or a downtrend. In trends other strategies can be used to trade, since 1-minute scalping will not work and cause you losses. The problem with trends is that they can’t always be predicted before they start. You can however observe if a heavy trend is happening. That is why you should get into a vicious cycle of trying to reaccumulate your losses by reusing this strategy during a trend. The optimal market condition is when it is a sideway movement.
Conclusion | 1-Minute Scalping With The MACD Indicator
In conclusion, 1-minute scalping with the MACD indicator can be a lucrative trading strategy when implemented properly. By focusing on short-term momentum shifts and following a well-defined process of identifying signals, setting entry and exit orders, and managing risk, scalpers have a framework for capitalizing on frequent intraday fluctuations.
The strategy outlined provides clear buy and sell setups based on MACD divergences from price and reactions to identified support and resistance levels. With practice, traders can gain experience placing numerous small trades throughout the day.
Of course, no approach can guarantee profits and 1-minute scalping requires discipline to stick to the rules during periods of losing trades. Emotional aspects of trading also necessitate managing excitement over wins and frustration with losses. Traders should start with paper trading, limiting strategy usage, and growth in position sizes until becoming consistently profitable over many months.
Overall, the potential rewards of 1-minute scalping make it appealing to both part-time and professional traders. When grounded by a strong risk management structure paired with technical analysis through MACD, it presents a viable avenue for profiting from intraday volatility.
