How does the scalper know when to take profits or cut losses? 5-3-3 Stochastics and a 13-bar, 3-standard deviation (SD) Bollinger Band used in combination with ribbon signals on two-minute charts work well in actively traded markets, like index funds, Dow components, and for other widely held issues like Apple Inc. (AAPL).
The best ribbon trades set up when Stochastics turns higher from the oversold level or lower from the overbought level. Likewise, an immediate exit is required when the indicator crosses and rolls against your position after a profitable thrust.
You can time that exit more precisely by watching band interaction with price. Take profit into band penetrations because they predict that the trend will slow or reverse; scalping strategies can’t afford to stick around through retracements of any sort. Also, take a timely exit if a price thrust fails to reach the band but Stochastics rolls over, which tells you to get out.
Once you’re comfortable with the workflow and interaction between technical elements, feel free to adjust standard deviation higher to 4SD or lower to 2SD to account for daily changes in volatility. Better yet, superimpose the additional bands over your current chart so that you get a broader variety of signals.