Hello everyone,
I would like to propose a backtest of a scalping strategy that I’ve been studying. This strategy uses a combination of moving averages and the Average Directional Index (ADX) to identify strong trends and potential trade entries.
Scalping Strategy Overview:
Indicators Used:
- Simple Moving Average (SMA) – A basic lagging indicator.
- Exponential Moving Average (EMA) – More responsive to recent price changes.
- Jurik Moving Average (JMA) – A leading indicator that reacts faster than both SMA and EMA.
Why Three Moving Averages?
- SMA is lagging, EMA is more reactive, and JMA leads them all. This combination helps in filtering out noise and identifying trends more accurately.
Trend Identification Logic:
- Buy Signal: If JMA > EMA > SMA, the market is in an uptrend.
- Sell Signal: If JMA < EMA < SMA, the market is in a downtrend.
Additional Confirmation:
- ADX Indicator: We only consider trades when the ADX is above 25, which indicates a strong trend.
Entry Conditions:
For a Buy Trade:
- Trend Check: Ensure JMA > EMA > SMA.
- ADX Confirmation: ADX value must be above 25.
- Entry Point: Enter the trade after a pullback when the price bounces upward.
For a Sell Trade:
- Trend Check: Ensure JMA < EMA < SMA.
- ADX Confirmation: ADX value must be above 25.
- Entry Point: Enter the trade after a retracement when the price drops downward.
Risk Management: Stop-Loss and Take Profit
- Stop-Loss:
- Place your stop-loss at the high of the entry candle for a sell trade or the low of the entry candle for a buy trade.
- Take Profit:
- Aim for a 1:1.5 risk-to-reward ratio initially.
- Book 70% of your profit at this level.
- For the remaining position, aim for a 1:2 risk-to-reward ratio and exit the trade completely at this point.
I believe this strategy could be effective for fast-paced intraday trades, especially in volatile markets. Backtesting this could give us valuable insights into its success rate and areas of improvement.
Looking forward to hearing your thoughts!