Trading strategy: Trading Range Index Scalper
Description
The Trading Range Index Scalper strategy is a scalping strategy based on trading range break-outs after 10h00 for European market indices and after 16h20 for U.S. market indices. The trading range is calculated on the basis of the highest and lowest market prices achieved during the first hours of the morning or the afternoon. The strategy focuses on major market indices. The direction of the trade is determined by a combination of three trend indicators. Typical for a scalping strategy, the target is only a few pips.
| Suitable for | : Market indices (DAX, CAC, AEX ...) |
| Instruments | : Futures and CFD |
| Trading type | : Day trading |
| Trading tempo | : 1-3 signals per day |
| Using NanoTrader Full | : Manual or (semi-)automated |
The strategy in detail
The Trading Range Index Scalper strategy draws a trading range in the afternoon based on the highest and lowest prices achieved between 8h00 and 10h00.
Traders who want another trading range, can, as usual, change the parameters in the designer dialog window. 759 indicates 8h00 and 959 indicates 10h00. For U.S. indices the values 1359 (14h00) and 1629 (16h20) can be entered.
The parameter TradesPerDay indicates the maximum number of signals per day. The default setting for the Trading Range Index Scalper strategy is 3. The parameters DeltaUp and DeltaDown allow the users to modify the trading range. The standard setting is 0.
The parameters can also be changed via the chart. Click the relevant parameter and enter the value of your choice.
When to open a position?
When the market price breaks out of the trading range after 10h00 a position is opened at the market price. The market can break upwards out of the trading range –this is a buy signal– or downwards -this is a short sell signal-.
Not every signal is accepted. A combination of three trend indicators (MACD, SuperTrend and Directional Movement Index) determines if a signal should be accepted or rejected.
When all three indicators are unanimously positive the background of the chart is green. In this case a long position is bought when the market price breaks upwards out of the trading range. When all three indicators are unanimously negative the background of the chart is red. In this case a short position is sold when the market price breaks downwards out of the trading range. When the three trend indicators are not unanimous, the background of the chart is white. In this case every signal is rejected.
When to close a position?
The Trading Range Index Scalper strategy uses a target, a trailing stop and a time filter.
Typical in scalping is the small target. In the case of the DAX index, for example, the target is 3 to 5 points. If the market price does not reach the target the position is closed at the market price at the open of the next candle.
The trailing stop is only there for safety purposes. The stop has a distance of 100 points and is in essence never triggered.
The time filter closes an open position at 14h20 (enter 18h20 for U.S. market indices). This event in essence never occurs.
This example shows a profitable trade. The chart background is green. Buy signals (trading range break-out upwards) will be accepted. A first candle closes above the range. A position is bought at the open price of the next candle. The target (little green line) is reached. The position is closed with a profit.
This example shows a losing trade. The chart background is red. Short sell signals (trading range break-out downwards) will be accepted. A first candle closes below the range. A position is sold short at the open price of the next candle. The target (little green line) is not reached. Therefore the position is closed with a loss at the open price of the next candle.
The results of the Trading Range Index Scalper strategy depend on the distance to the target. These examples show back-test results for the DAX future over a period of 10 years. Using the NanoTrader Full trading platform it is easy to back-test different combinations of market indices, trading ranges and targets.
Tip: traders can use the “multiple targets” function to set different targets for a single position. For example 2 and 5 points to close a position in two parts.
Conclusion
The Trading Range Index Scalper strategy trades on a trading range break-out. The direction of the trade is determined by three trend indicators: MACD, SuperTrend and DMI. The indicators need to be unanimous. Typical in scalping is the small price target. 80% to 90% of all trades are closed with a small, positive result. The strategy thus depends on this high probability of a positive result.
Practical implementation
In NanoTrader Full follow these steps:
- Choose the instrument you wish to trade.
- Open a chart with the template study "Trading Range Index Scalper".
- Semi-automated trading? Simply activate the TradeGuard+AutoOrder or the AutoOrder function.