The Scalping Claw: A Crafty Method for Trading Commodity Markets

Today, we have another scalping strategy in store that you can apply on the 5-minute and 1-minute charts. The markets constantly provide trading opportunities; anyone who has ever opened a trading platform knows that prices move by the second! With scalping, we can catch more of those moves more often, meaning our efforts are well worth it.

The good thing about our scalping strategies is that many of them can be automated. Scalping should be simple and well-defined by a strategy’s rules. The simpler and cleaner our scalping strategies, the better results they tend to give.

This strategy works well in commodity markets but will also work well in Forex and indices.

Strategy indicators:

    * Bollinger bands – standard settings, period 20, standard deviation 2; default moving average removed as it is not needed

    * Shifted moving average – period 3, shift 3

    * Williams Fractals

The Claw Starts with the Compression of the Bands

The Scalping Claw strategy starts with the Bollinger Band indicator. A well-known and traditional tool in technical analysis, Bollinger Bands can be used in many ways. In our case, we only need the two standard deviation lines. We don’t need the simple moving average line in the middle, so we have removed it.

First, we look for compression of the Bollinger Bands. Since this is a 5-minute or 1-minute timeframe, periods of low volatility will happen quite often. This will be indicated by notable compression of the bands and is the first condition of this strategy (see chart below).

Next, we look at the Williams Fractals indicator. This one will plot useful bull and bear arrows on the chart to help trigger our trade entries.

In bullish cases, we need to look for a breakout above the upward-pointing arrow of the Fractals indicator. This will confirm a bullish breakout of the compressed Bollinger range. This is the trigger signal for a long trade.

In bearish cases, it’s the opposite. We are watching the down-pointing arrows of the Fractals indicator. A break of the price below this arrow is the trigger for a short trade. The Bands will expand as the price breaks out of the range.

Finally, instead of the moving average that is often plotted as part of the Bollinger Bands indicator, here we use a shifted moving average with a period of 3 and a chart shirt of the bars (blue line on the image above). We use this MA line for the stop loss and our exit strategy. In bullish cases, the exit is when the price closes below this moving average. In bearish cases, it’s the opposite.

A final point worth keeping in mind is don’t trade around big news releases. This is a scalping strategy, so most moves on the 5-minute chart are 5-10 pips at most. But a big news report can cause a giant 50-60 candle on the 5-minute chart. Such situations distort the chart and the potential trade setups. So we need to start over in such cases. Look for the next compression of the Bollinger Bands as the first sign that a potential trade could soon exist.

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