Crypto Trading 101: Scalping Trends With DEMA
Hi hoppers, today we are looking at a scalping strategy that involves scalping trends by combining the DEMA with the ADX. First, let’s break down the Double Exponential Moving Average (DEMA).
Double Exponential Moving Average
To understand the Double Exponential Moving Average, lets first explore the “Exponential Moving Average”. The Exponential Moving Average (EMA) is one of the most frequently used indicators in the crypto sphere. The EMA is a trend-following indicator that is used to identify the direction of a trend. The EMA reacts quicker than the Simple Moving Average to price changes because the EMA gives greater weight to the latest closing prices. The DEMA reacts faster than the EMA by giving even more weight to recent closing prices.
We can use the DEMA on the 15 minutes chart to identify solid entry points. Keep in mind, the DEMA has the same weakness as all trend-following indicators: ranging markets. When the market is ranging, the DEMA will keep opening up new positions. Therefore, it is critical to use another indicator to identify when the market is trending, and when it is not.
Now let’s take a look at how to use the ADX to improve the profitability of the DEMA.
Average Directional Index (ADX)
The ADX is a volatility indicator that measures the strength of a trend. When the ADX is above 25, we can infer that the market is in a strong trend. This can be seen on the graph when the white line crosses above the black line, and the green cloud is active. You can see this better if you click on “Maximize the chart”. We have chosen to run the ADX on the 4-hour chart as the indicator tends to be more reliable on the longer timeframes.
For our exit strategy, we have not chosen any indicator. Instead, we have decided to exit based on our usual scalping settings:
Take profit 7%
Stop-loss 1%
Trailing stop loss percentage 1%
Arm trailing stop loss 1.5%
You can see the positions opened by the strategy better if you click on “Maximize chart”.
Have a great trading week ahead, and we will catch you on the next one!
—CRYPTOHOPPER—
Double Exponential Moving Average
To understand the Double Exponential Moving Average, lets first explore the “Exponential Moving Average”. The Exponential Moving Average (EMA) is one of the most frequently used indicators in the crypto sphere. The EMA is a trend-following indicator that is used to identify the direction of a trend. The EMA reacts quicker than the Simple Moving Average to price changes because the EMA gives greater weight to the latest closing prices. The DEMA reacts faster than the EMA by giving even more weight to recent closing prices.
We can use the DEMA on the 15 minutes chart to identify solid entry points. Keep in mind, the DEMA has the same weakness as all trend-following indicators: ranging markets. When the market is ranging, the DEMA will keep opening up new positions. Therefore, it is critical to use another indicator to identify when the market is trending, and when it is not.
Now let’s take a look at how to use the ADX to improve the profitability of the DEMA.
Average Directional Index (ADX)
The ADX is a volatility indicator that measures the strength of a trend. When the ADX is above 25, we can infer that the market is in a strong trend. This can be seen on the graph when the white line crosses above the black line, and the green cloud is active. You can see this better if you click on “Maximize the chart”. We have chosen to run the ADX on the 4-hour chart as the indicator tends to be more reliable on the longer timeframes.
For our exit strategy, we have not chosen any indicator. Instead, we have decided to exit based on our usual scalping settings:
Take profit 7%
Stop-loss 1%
Trailing stop loss percentage 1%
Arm trailing stop loss 1.5%
You can see the positions opened by the strategy better if you click on “Maximize chart”.
Have a great trading week ahead, and we will catch you on the next one!
—CRYPTOHOPPER—