Cryptocurrencies are generically possessed with a high level of volatility. But they offer traders numerous ways of making profitable returns. Those who don’t shy away from risky strategies and devote most of their time to monitoring price movements favor scalp trading or refers to scalping as one of the preferable options.
This article will discuss what scalp trading is, how it works, and highlight some of the scalp trading tips to help you build a strong crypto trading foundation for your benefits.
What Is Scalp Trading?
Scalping (or scalp trading) is a short-term trading strategy when a trader generates small but relies on numerous trades per day. The profit from each trade is relatively small yet sustainable as it continues to yield over an extended period.
Forex or crypto traders utilize this strategy through a quick response to market movements. As opposed to holding a position for some hours, days, or weeks, a scalper tends to react within minutes and sometimes even seconds. Consistency and speed are the main factors that determine the results.
Scalping requires high volatility of the chosen currency pair. Significant movements in price facilitate generating profits, though scalpers more often utilize short-term bursts of volatility. When comparing scalp trading with day trading or swing trading, scalp trading involves relatively low risks and provides yields on the spot. But the results highly dependant on a trader’s perseverance, self-discipline, and large capital amounts to gain substantial success.
How Does Crypto Scalping Generate Profits?
Each trader formulates a personal trading system to receive the highest possible profit, but some basic trading principles are shared and used to some extent by any traders. The scalping method derives based on real-time technical analysis as the trader minimal time for fundamental market analysis.
On average, scalpers open positions approximately once every 5-10 minutes. While the M5 timeframe is considered the most preferable as it works with most strategies and is amenable to analysis, thereby increasing the predictability chance.
There are entirely two different approaches to crypto scalp trading— manual and automated. To fully comprehend manual crypto trading, a trader must focus on the market movement diligently and continuously monitor the trades. To profit from an exchange, traders need to track the market movements to open and close the positions in time.
On the contrary, an automated trading system implies that scalpers create a unique program to support their defined strategies. This program is designed to mitigate risks and perform the trades while traders are away from their desks.
In most cases, a scalper has to make a trading decision on a specific asset without having time to think about the transaction. At this moment, intuition is the only adviser. Such an approach is called intuitive scalping, and it requires profound experience in trading, analytical abilities, and an excellent understanding of the market.
Crypto Scalping vs. Forex Scalping
The concepts of forex and crypto trading possess similarities in which both of these trading types shared a parallel operation with a kind of currency. Their primary features seem to be similar as well. Here’s the overview:
- Supply and demand: The price of any currency, either crypto or fiat, is determined by the supply and demand factor, making both markets thrive.
- Digital Platforms: Both markets provide electronic trading via the Internet, making it possible to trade numerous currencies on various digital platforms.
- Bots: Automated trading is plausible and manageable with the right tools. By utilizing the online auto-bots (robots) combined with artificial intelligence, traders can scalp on the go.
Any novice traders would assume forex and crypto are nearly identical. However, the truth tells that they boast disparate purpose and intend. In contrast to cryptocurrency, the forex market is older, and it is accepted and recognized universally.
While the crypto market is relatively new, volatile, and the price fluctuations are considerably tense. Hence, this led to a more pronounced discrepancy in their performance:
- Volatility: Cryptocurrencies tend to be much more volatile than fiat money. A proficient scalper tends to quickly seize the opportunity to generate greater profits with the crypto market.
- Intermediaries: Forex trading usually requires an intermediary in which leads to higher costs and fees. Crypto trading, on the other hand, evades the use of middlemen. So, the transactional costs will be significantly reduced.
- Time: The cryptocurrency market is available within 24 hours on any day of the year, making it possible for any person to start trading at any moment. However, the forex exchange markets are accessible only five days a week within business hours.
- Regulation: The forex market trades are legally regulated, and centralized governments back the traded fiat. Cryptocurrencies are only recognized in certain countries. Hence, the crypto market is much riskier and more unpredictable.
Types of Crypto Scalping Strategies
Any scalper needs a thorough understanding of all his or her scalping activities. That’s why it best to hold onto a specific strategy to avoid unnecessary decisions and breakdowns. There are five well-known scalp trading strategies that any beginner to advanced crypto traders can implement right away.
Crypto Range Trading
The range means a price movement between two consistent price levels, high and low, within a certain period of time. When crypto range trading, traders tend to go in both long and short (at different times) depending on the price’s position within the range.
When a trader identifies the ideal range to trade, the trader will attempt to enter positions manually by buying at support and selling at resistance. Alternatively, scalpers can deploy limit orders to long (buy-in) crypto at a lower entry price within the range in a favorable direction once the market reaches the support level. Scalpers can trade ranges when markets are flat.
The bid-ask Spread is the difference between the asking price and the bid price. The primary purpose is to allow scalpers to open a position at the bid or ask price and then close the position fast a few points lower or higher to get a profit. However, in scalp trading, the bid-ask spread and happen in two scenarios:
i.) A Wide Bid and Ask Spread:
When it happens, the asking price will be higher, and the bid price is significantly lower than usual. The probable cause of this scenario is when there are more buyers than sellers. Naturally, the prices will surge, causing crypto scalpers to sell.
ii) A Narrow Bid and Ask Spread:
When buyers outnumber sellers, the asking price will be lower, and the bid will be higher than usual. Scalpers will deploy the strategy to expedite the buy-in frequency to balance out the selling pressure.
Crypto arbitrage is favorable in crypto trading due to the volatile price fluctuations. This type of trading happens when a trader gets profits from the difference in the same asset prices by buying and selling it in different markets. An arbitrage scalper does it nearly simultaneously.
Crypto traders can either trade on spatial arbitrage or pairing arbitrage when it comes to crypto arbitrage trading. That means a spatial arbitrage trader can open a long position and short position at different exchanges simultaneously and hedge against fluctuations on various trends. Pairing arbitrage, on the other hand, is suitable for only one platform. Traders would capitalize on the trading pair’s changes, like shorting the main crypto of the USD/BTC to mitigate risks.
This method is based on a study of the asset price movement. A trader needs to see it and interpret. Scalping the markets with price action doesn’t differ much from trading with other price action strategies.
This is a method of trading with the third party’s funds instead of your own to enhance potential gains. This allows traders to operate with more significant amounts and to obtain greater profits as a result. Other traders usually invest in margin trading in the cryptocurrency market. Though sometimes, some cryptocurrency exchanges offer margin funds to their customers. This will help a scalper to be more resultative as scalping requires large capital for success.
Some of these strategies are riskier than others. Try implementing each of them to find which one works best for you.
Market Factors to Consider When Scalp Trading Crypto
An experienced crypto trader rarely monitors the news or look out for social media signals. Instead, all the market factors needed to make a decision are represented in the candlestick charts. In addition to the candles, there are also numerous crypto trading indicators that an individual relies upon to make a complete analysis of a trade’s prospects.
Trading indicators represent simplified information on the price chart for a certain period. This is an indispensable tool for any scalper, and some indicators are broadly recognized in scalping.
There are dozens of various indicators and their combinations, so here is an example of three market factors to consider:
Moving Average (MA)
The Moving Average indicator demonstrates the average value of the asset calculated over a specific period. As a result, a scalper gets an idea of where the asset price is moving.
Relative Strength Index (RSI)
This technical indicator determines the strength of the price trends and the possibility for their change. Signals are generated by finding divergences and failure swings. RSI is a great tool to identify the general trend.
Support and Resistance Levels
The concept is based on extreme price points. The support is the point where the price stops falling and begins to move up, and the resistance is the point where the price stops rising and begins to move down.
In addition to the analysis tools described above, a trader can obtain information from the price movements themselves displayed on the candlestick graphs.
If you take a look at the candles, you may see that some obvious patterns repeatedly in some parts of the graph. These are regular and repeated combinations of data on prices, amounts, or indicators. They can build an understanding of trends and predict further price movements. The most popular patterns are Head and Shoulders, Flag, Triangle, and Cup and Handle chart patterns. They are the most recognized and often used so that they can facilitate your trading decisions.
How to Set up a Crypto Scalping Trading Strategy?
If you are a newbie in crypto scalping, don’t be afraid and have a try. You can achieve success if you follow some simple rules.
- Choose the trading pairs for scalping. There are a few thousand various assets traded on the crypto market. They differ in their prices, trading volumes, popularity, and capitalization. To choose wisely, mind the asset liquidity and volatility.
- Find a suitable trading platform. The selected platform should support your trading pairs. Its reputation is crucial, and nothing beats comprehensive reviews of the interface, trading experience, and post-trading feedback. Pay attention to the fees and additional services.
- Consider a trading bot. Scalp trading is based on speed. So those who trade using programs are always in pole position. Though manually managing the portfolio and information is often possible, they are usually very time-consuming, and the chances for errors are high.
- Mind the trading fees. You will make a large number of trades, and many exchanges charge trading fees for each transaction. Use each opportunity to reduce them.
- Try various strategies to choose the best one. Don’t be obsessed with a single method; bet small amounts to check which strategies work best in your case.
- Start scalping!
Best Tools to Scalp Trade Crypto
There are a lot of useful tools that are indispensable to successful trades. They can be either free or paid, though the paid ones are more functional and more helpful overall. Among the tools that you can make the best use of are the following.
Crypto Trading Bots
Trading bots are the most popular type of software designed for traders. This is a program that performs automated trading on predefined criteria through thoroughly set instructions. A trader can trade continuously, even benign, while the chances for success enhance and the possibility of errors minimizes. 3Сommas and Haasbot are popular bots for crypto trading that support scalping.
Crypto API tools
APIs ensure your interaction with trading platforms and other blockchain-based projects. They provide users with an extensive range of functions like wallet integration, transaction support, market prices tracking, and more.
Crypto Trading Charts
It is impossible to scalp without analyzing the trading charts. Price and volume charts give all the necessary information, and it is impossible to set up a strategy without it. In addition to trading charts, relying on the tools like a stop-loss is ideal to help you make a logical decision.
The Pros and Cons of Crypto Scalping
Any trading has its advantages and disadvantages, and scalping is not an exception. Look at the pros and cons list before you start scalping.
Crypto scalp trading style involves low risks as smaller positions size are engaged in the process. It is easier to achieve success as small price movements occur more often. Also, scalp trading can be easily automated as it is usually based on technical criteria that can be calculated.
This type of trading requires the fastest possible reaction; any delay is crucial. In general, scalp trading can be demanding and aggressive; crypto scalping especially can be exhausting for unprepared minds. The profit for each trade is too low, so a more considerable capital is needed to achieve substantial results. Finally, trading costs are higher as the trades are numerous, and it is necessary to pay trading fees every time.
Is Crypto Scalp Trading for Everyone?
Of course, it is not. If you are a beginner who just dipped the toe in the crypto industry, it’s best for you to try something less risky. Perhaps, we recommend investing in cryptocurrencies in the mid to long term. However, if you’re feeling confident and ready to embrace the trades of art, crypto scalp trading is a good start.
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