Scalping and the Best Cryptocurrency Scalping Strategies

Scalp trading or scalping is a short-term trading strategy that a trader uses to make frequent small profits from small price movements each day. When the small profits from each trade add up, over time it can add up to a significant amount.

Cryptocurrencies tend to have a high level of volatility. However, they offer traders many ways to make a profit. Those who do not shy away from risky strategies and devote most of their time to watching prices move, prefer scalp trading or scalping as one of the most preferred options.

In this article, we will discuss what scalping is, how it works, and highlight some scalp trading tips to help you build a solid foundation for trading cryptocurrencies.

What is scalp trading in cryptocurrency?

Scalp trading or scalping is a short-term trading strategy that a trader uses to make frequent small profits from small price movements each day. When the small profits from each trade add up, over time it can add up to a significant amount.

Scalping is also a popular trading strategy in the cryptocurrency market due to its high volatility. Scalpers often use leverage to open more trades, as well as tight stops to manage risk.

Forex or crypto traders use this strategy to react quickly to market movements. As opposed to holding a position for hours, days or weeks, scalpers tend to react within minutes and sometimes even seconds. Consistency and speed are the main factors that determine results.

Scalping requires high volatility of the chosen currency pair. Significant price movements contribute to profit, although scalpers are more likely to use short-term bursts of volatility. Compared to day trading or swing trading, scalp trading is relatively low-risk and delivers returns on the spot. However, to achieve significant success, the results are highly dependent on the trader's perseverance, self-discipline and large amounts of capital.

How does crypto scalping make money?

Each trader develops a personal trading system to maximize profits, but some basic trading principles are common and used to varying degrees by all traders. The scalping method is based on real-time technical analysis, since the trader has a minimum of time for fundamental market analysis.

On average, scalpers open positions about once every 5-10 minutes. The M5 timeframe is considered the most preferable, since it works with most strategies and can be analyzed, thereby increasing the chances of predictability.

There are two completely different approaches to cryptocurrency scalp trading – manual and automated. In order to fully understand the manual trading of cryptocurrencies, a trader must closely monitor the movement of the market and constantly monitor trades. To make a profit on the exchange, traders need to monitor the movement of the market in order to open and close positions on time.

On the contrary, an automated trading system implies that scalpers create a unique program to support their specific strategies. This program is designed to reduce risks and make transactions at a time when traders are away from their workplace.

In most cases, the scalper has to make a trading decision on a particular asset without having time to think about the trade. At this point, intuition is the only adviser. This approach is called intuitive scalping, and it requires deep trading experience, analytical skills, and excellent understanding of the market.

Crypto scalping versus forex scalping

Similarities

The concepts of forex and crypto trading are similar in that both of these types of trading operate in parallel with one type of currency. Their main characteristics also seem to be similar. Here is an overview:

• Supply and demand: The price of any currency, be it cryptocurrency or fiat, is determined by the supply and demand factor, which is why both markets thrive.
• Digital platforms: Both marketplaces provide e-commerce via the Internet, allowing for the trading of numerous currencies on a variety of digital platforms.
• Bots: Automated trading is quite real and manageable with the right tools. Using online autobots (robots) combined with artificial intelligence, traders can scalp on the go.

Differences

Any novice trader can assume that Forex and cryptocurrencies are almost identical. However, in fact, they have different purposes and purposes. Unlike cryptocurrencies, the Forex market is older, it is accepted and recognized everywhere.

While the cryptocurrency market is relatively new, volatile, and price fluctuations are much stronger. Consequently, this led to a more pronounced discrepancy in their performance:

• Volatility: Cryptocurrencies tend to be much more volatile than fiat money. An experienced scalper seeks to quickly seize the opportunity to make big profits in the cryptocurrency market.
• Intermediaries: Forex trading usually requires the participation of an intermediary, which leads to increased costs and commissions. Crypto trading, on the other hand, avoids the use of intermediaries. Thus, transaction costs will be significantly reduced.
• Time: The cryptocurrency market is available for 24 hours on any day of the year, allowing anyone to start trading at any time. However, Forex exchange markets are only available five days a week during business hours.
• Regulation: Forex trading is regulated by law and centralized governments support traded fiat currencies. Cryptocurrencies are only recognized in certain countries. Consequently, the cryptocurrency market is much more risky and unpredictable.

Types of cryptocurrency scalping strategies

Each scalper must thoroughly understand their scalping actions. That is why it is best to stick to a certain strategy, avoiding unnecessary decisions and disruptions. There are five well-known cryptocurrency trading scalp strategies that any beginner or advanced crypto trader can immediately apply.

Trading in a range of cryptocurrencies

The term "range" refers to the price movement between two consecutive price levels, high and low, over a period of time. When crypto traders trade in a range, they tend to enter both long and short positions at different times, depending on the position of the price in the range.

When a trader determines the ideal range to trade, he attempts to manually enter positions by buying at support and selling at resistance. Alternatively, scalpers can set limit orders for long (buy-in) cryptocurrencies. This is best done at a lower entry price within a range in a favorable direction and after the market reaches a support level. Scalpers can trade ranges when markets are flat.

Bid-ask spread

The bid-ask spread is the difference between the ask price and the ask price. Its main purpose is to allow scalpers to open a position at the bid or ask price, and then quickly close the position - a few pips lower or higher - to make a profit. However, in bid-ask scalp trading, the spread can occur in two scenarios:

i) Wide bid-ask spread:

When this happens, the ask price will be higher and the ask price much lower than normal. The likely reason for this scenario is that there are more buyers than sellers. Naturally, prices will rise sharply, which will force scalpers to sell cryptocurrency.

ii) Narrow Bid-Ask Spread:

When there are more buyers than sellers, the ask price will be lower and the ask price higher than usual. Scalpers use this strategy to speed up the buying frequency, thus balancing the selling pressure.

Arbitration

Arbitration effective when trading cryptocurrencies due to the inherent volatility of the market. This type of trading occurs when a trader makes a profit from the difference in prices for the same asset by buying and selling it in different markets. An arbitrage scalper does both at almost the same time.

When it comes to arbitrage trading in cryptocurrencies, you can trade either spatial arbitrage or pair arbitrage. A spatial arbitrage trader can go long and short at the same time on different exchanges. Thus, the trader is hedged against fluctuations of various trends. Pairwise arbitrage, on the other hand, is only suitable for one platform. Traders use changes in the trading pair, such as shorting the main cryptocurrency in the USD/BTC pair, to reduce risks.

Price Action

This method is based on studying the price movement of an asset. The trader needs to see it and interpret it. Scalping markets with Price Action is not much different from trading with other Price Action strategies.

Margin trading

Margin trading uses third party funds instead of your own to increase potential profits. This allows traders to operate with large amounts and receive large profits as a result. On the other hand, some traders invest using margin trading in the cryptocurrency market. Some cryptocurrency exchanges also offer margin funds to their clients. This can improve the results of the scalper, since a lot of capital is required for successful scalping.

Some of these strategies are more risky than others. Try each one to see which one suits you best.

The best time frame for scalping

The scalping timeframe is a way to achieve “trading speed”, or the number of trades you take. Ideally, the best timeframe for scalping should be in the 5- to 30-minute chart range. The smaller the timeframe, the greater the number of possible trading settings. Please note that this indicator should depend entirely on the scalping strategy you choose.

Here is an example using BTC/USD as an example. We used the 5-minute chart with the moving average (MA) indicator as the trend indicator and the stochastic oscillator for momentum.

In this example, the scalper has six potentially profitable trades in about 7 hours, with each trade lasting no more than 30 minutes.

This is the beauty of cryptocurrency scalping! You can collect several profitable trades during the day, in which the cumulative profit will be significant.

While scalping can be a profitable trading strategy, it has its fair share of downsides, the biggest being transaction costs. Cryptocurrency trading is notorious for its high trading fees, which can significantly reduce your overall profits.

Scalpers need mental toughness to cope with the fast pace and high pressure of cryptocurrency scalping. Ultimately, this requires and ensures that they stick to their strategy and keep emotions out of their trading.

Overview of scalping strategies

For day traders, scalping can be fast-paced, exciting, and confusing all at the same time. We are going to describe cryptocurrency scalping in the simplest possible way.

At its core, scalping involves trades that are usually completed within a few seconds to a maximum of a few minutes. Naturally, the goal of any trading strategy is to get as much profit as possible. However, the main goal of scalping is to get the most profit from the shortest price fluctuations. And thanks to the volatility of cryptocurrencies, scalping has established itself as one of the best trading strategies.

A good crypto scalper needs to react instantly to price fluctuations in order to make consistent profits. For this reason, scalping revolves around three critical elements:

• Sequence
• Speed
• Chart Reading Skills

As a rule, scalpers do not engage in fundamental analysis, but rely mainly on determining short-term support and resistance levels. They read cryptocurrency price charts combined with technical analysis – thorough technical analysis. If you are not very good at technical analysis, scalping may not be for you. On the other hand, you will be able to hone your technical analysis skills in a short amount of time.

Remember that the purpose of scalping is to get as much profit as possible in a short time. This means that the ideal entry and exit timing is key. You should enter a trade at the beginning of a trend and exit it when the trend weakens. The ideal setup for crypto scalping is often a combination of technical indicators and momentum indicators. They allow you to determine the direction (trend) of a cryptocurrency pair and the magnitude of the observed trend. This is how you achieve consistency.

Although you may be understandably tempted to use several of these indicators, this will not improve your trading accuracy. On the contrary, you are guaranteed to experience analysis paralysis due to conflicting signals.

Moving Average (MA)

The Moving Average indicator shows the average value of an asset calculated over a certain period. As a result, the scalper gets an idea of ​​where the price of the asset is moving.

Relative Strength Index (RSI)

This technical indicator determines the strength of price trends and the possibility of their change. Signals are generated by detecting divergences and unfortunate swings. RSI is a great tool for determining the overall trend.

Support and resistance levels

This concept is based on extreme price points. Support is the point where price stops falling and starts moving up, while resistance is the point where price stops rising and starts moving down.

Trading indicators

In addition to the analysis tools described above, a trader can obtain information from the price movements themselves, displayed on candlestick charts.

If you look at the candles, you can see some obvious patterns repeating in some parts of the chart. These are regular and recurring combinations of price, volume, or indicator data. With their help, you can get an idea of ​​​​trends and predict further price movements. The most popular patterns are Head and Shoulders, Triangle and Cup and Pen chart patterns. They are the most recognizable and are often used to make it easier for you to make trading decisions.

How to set up a cryptocurrency scalping trading strategy?

If you are new to crypto scalping, don't be afraid and give it a try. You can be successful if you follow a few simple rules.

1. Choose trading pairs for scalping. Several thousand different assets are traded on the cryptocurrency market. They differ in prices, trading volumes, popularity and capitalization. To make the right choice, pay attention to the liquidity and volatility of the asset.
2. Find the right trading platform. The chosen platform must support your trading pairs. Its reputation is critical and there is nothing better than comprehensive reviews of the interface, trading experience and post-trade reviews. Pay attention to tariffs and additional services.
3. Consider using a trading bot. Scalp trading is based on speed. Therefore, those who trade with the help of programs always win. While manual portfolio and information management is often possible, it is usually time-consuming and the potential for error is high.
4. Be aware of trading fees. You will be making a large number of trades and many exchanges charge trading fees for each trade. Use every opportunity to reduce them.
5. Try different strategies to find the best one. Don't get hung up on just one method; bet small amounts to see which strategies work best for you.
6. Start scalping!

The Best Cryptocurrency Scalp Trading Tools

There are many useful tools that are indispensable for successful trading. They can be both free and paid, although the paid ones are more functional and useful in general. Among the tools that you can make the best use of are the following.

Cryptocurrency trading bots

Trading bots are the most popular type of software designed for traders. This is a program that performs automated trading according to predetermined criteria using carefully written instructions. A trader can conduct continuous, even honest trading, while the chances of success are increased, and the possibility of errors is minimized. 3Commas и haasbot – popular cryptocurrency trading bots that support scalping.

API Tools for Cryptocurrencies

APIs enable you to interact with trading platforms and other blockchain-based projects. They provide users with a wide range of features such as wallet integration, transaction support, market price tracking, and more.

Cryptocurrency trading charts

It is impossible to do scalping without analyzing trading charts. Price and volume charts provide all the necessary information, and without them it is impossible to build a strategy. In addition to trading charts, relying on tools such as stop loss can help you make a logical decision.

Pros and cons of cryptocurrency scalping

Any trading has its advantages and disadvantages, and scalping is no exception. Before you start scalping, check out the list of pros and cons.

pros

The scalping style of trading cryptocurrencies involves low risks, since the process involves smaller positions. It is easier to succeed as small price moves happen more often. In addition, scalp trading can be easily automated as it is usually based on technical criteria that can be calculated.

Cons

This type of trading requires the fastest possible reaction; any delay is critical. In general, scalp trading can be demanding and aggressive; especially crypto scalping can be debilitating for untrained minds. The profit on each trade is too small, so more significant capital is required to achieve significant results. Finally, trading costs are higher, as there are many transactions and commissions have to be paid each time.

Is scalp trading for cryptocurrencies suitable for everyone?

Of course not. If you are a beginner who has just dipped his finger into the crypto industry, you might be better off trying something less risky. Perhaps we recommend investing in cryptocurrencies in the medium and long term. However, if you feel confident and ready to start trading art, crypto scalp trading is a good start.