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When trading in the market, different traders have different techniques, tools, or strategies that help them to achieve their individual goals. For example, some may want to stay longer in the market to gain greater profits, while some may want to make quick profits and exit the market right after. So, to help them achieve these goals, they formulate different strategies. One such strategy is Scalping.
Scalping strategy requires some extra effort from the traders and sufficient knowledge to help them gain satisfying rewards. Read this article to understand more about scalping.
What Is Scalping?
Scalping is a trading strategy where the trader makes a profit after small price changes; generally, after a trade is executed and becomes profitable. The more general definition is that scalping traders keep their trades from a couple of seconds, minutes to a couple of hours.
Scalping is a trading strategy used by traders to profit from the little changes in the price that happen within a single day. These little profits made from many movements in the price in a single day make up a larger profit by the end of the day. However, this strategy requires the trader to be hyper-active throughout the trading period as a slight movement can make a big difference.
The traders who actively use this strategy are known as scalpers. Since it’s intraday trading and requires more attention to the price movement than day trading, technical analysis is more useful in such trading strategies. For example, if a trader is using a scalping strategy while trading cryptocurrency, they will opt for technical indicators like Fibonacci retracements or support and resistance level or even candlestick chart pattern could be of great use.
Scalping while trading crypto is quite famous as there are frequent price movements within a single day compared to other assets. But this does not restrict the use of this strategy to only one type of asset. With proper knowledge and technique, traders can earn from other assets as well.
Let’s see further how scalping crypto is done.
Should I scalp crypto?
My personal opinion is DO NOT SCALP CRYPTO or any assets. Scalping, where traders make small profits, and small losses, can be dangerous because of the spread and possible losses. There is a minimal number of traders who are profitable in scalping strategies. Cryptos are volatile, and scalping is not good for commodities and cryptos.
Strategies for Scalping Crypto
Every trader uses a different strategy to trade on different assets. This is mainly because of the varying volatility of the assets and how distinctively they behave in the market. So is the situation with cryptocurrency. Compared to other assets, cryptocurrency’s volatility is higher, and even some cryptocurrencies are much more volatile than others. So, shaping the strategic plan for trading should be done with other factors, such as volatility, associated with the asset or the cryptocurrency.
Following are two strategies that the traders commonly use while crypto trading scalping.
- Bid-Ask Spread: To understand the Bid-Ask Spread, one must know the bid price and the asking price. The bid price is the maximum price that a buyer is willing to pay, and the asking price is the minimum price the seller will accept. This strategy is widely used by scalpers while trading crypto. There are two situations in which the scalpers can profit from the bid-ask spread.
One situation is when the bid price is much higher than the asking price. This is known as narrow bid-ask spread as there are more buyers than sellers in the market.
Another situation is when the bid price is lower, and the asking price is higher. This situation is known as a wide bid-ask spread. The price of the asset rises due to a lack of sellers and more interested buyers. The traders scalping crypto can benefit from this situation by selling the cryptocurrency.
- As the name suggests, a range trading strategy works by setting a range in the price movement by taking a high price level and a low price level. The higher price works as the resistance while the lower one works as a support. The crypto scalpers keep an eye on the chart and the price movement within this range. As soon as the price breaks any of these levels, they take positions. If the price breaks the support level, traders tend to buy more, and if it breaks through the resistance level, they tend to sell more.
The crypto scalpers can make an adequate profit if the breakout occurs more frequently, which is common in cryptocurrencies. But, it is advisable to use the stop-loss when using this strategy while scalping crypto. Using other tools and the support and resistance level, such as moving averages, can also be profitable.
Tools for Crypto Scalping
It is stated that every scalping strategy needs a scalping tool to accompany it in achieving favorable outcomes. Every trader or crypto scalper must know the application of these tools and possess the skills to apply these tools as per the requirements of their trading strategy.
Following are some scalping tools that are commonly used for scalping crypto.
- Technical Indicators: When scalping a cryptocurrency, traders can benefit from shorter timeframes than other assets. So, the trader must choose from the indicators that are faster to perform and can keep up with the shorter time frames of cryptocurrencies, like bitcoin. The best crypto scalping indicator will help the trader reach his goal.
The most suitable strategy for scalping cryptocurrency like bitcoin should follow the momentum and trend of the price. An example of one such scalping tool is MACD (Moving Average Convergence and Divergence) which could be a better trend indicator in this situation. And if the trader has the skills and knowledge, he can combine MACD with other tools, such as EMA or SMA, and get even better scalping results. Such tools will help the crypto scalper ascertain the signals to buy or sell the crypto.
To use the MACD indicator in the right way use MACD MT4 2 lines indicator.
- Signals: Just like technical indicators, signals help the traders to ascertain the buying and selling points. And just like technical indicators, traders must also manage these signals according to their scalping strategy. They can either go for automated signals that send signals through text, email, or message, or they can follow other traders in the market and learn from their moves. These signals in the crypto market depend upon the predictions made on past price movements and current market situations. After analyzing these conditions, signals are sent whether to buy or sell.
- Bots: Bots or an Automated Trading System is another scalping tool used for crypto scalping. An Automated Trading system is made from various computer programs to help traders have a system that can automatically create orders for buying and selling. These systems prove much more beneficial when scalping cryptocurrencies because of their more frequent price movement. Because of this reason, these bots use technical analysis like support and resistance or RSI to analyze the market.
Considering their popularity among scalpers, some bots can also be a fraud. Because of this, traders are advised to check the reviews of the bot or the automated system they are planning to use to know their authenticity.
Every trader has different goals and different trading styles. As a result, they have various crypto scalping indicators available to them, from which they chose to accompany their trading style. But to have a suitable indicator takes practice, time, and knowledge. So, the trader must first fully be aware of the basics of scalping to be successful.
Advantages and Drawbacks of Crypto Scalping
Crypto scalping can prove extremely beneficial for traders who acquire the knowledge of scalping and practice it with the help of indicators and tools to get more efficient in scalping. But, due to some underlying reasons, traders must also consider the drawbacks of scalping that may also affect their trading decisions and hence their investments. Read the advantages and drawbacks of crypto scalping to understand more.
Crypto scalping Advantages
- Lower Risks: Long-term investments means higher risks. Since scalping is intraday trading, traders take small positions within a single day that prevents such risks. Therefore, the risk involved in scalping is much less than compared to other forms of trading.
- More Profits: As mentioned before, with efficient knowledge of scalping, traders can earn profits even with a slight movement in the market. These smaller, but frequent, profits can accumulate into larger profits over a period of time, increasing the popularity of scalping, especially amongst those who do not wish to wait longer or make long-term investments.
- Compatible with Automation: Scalping is quite compatible with automated trading. This is also because of the short positions of traders who can effectively use automation systems like signals or investing bots while trading. The use of such features can ease the stress for the traders.
Crypto Scalping Drawbacks
- Skills Required: Scalping is a strategy that requires a high level of trading skills. Traders who are skilled with the knowledge of scalping know how to react to the movements and take positions quickly and how long they should wait to take positions. So, scalping requires both speed and patience.
- Costly: As the traders make more trades within a single day, it can add up to their costs and reduce the profit margins. So, it becomes necessary to discuss the costs of trading with your broker before they actually start trading with the broker.
- Higher Leverage: With more than one opportunity to trade within a single day, some traders may go for margin trading, which will require them to opt for more leverage. Therefore, it becomes riskier if more leverage is involved, especially when the trader is new to crypto scalping.
- Insufficiency of Bots: Scalping can prove to be beneficial and hassle-free if it is automated. This does not mean that any bot available in the market can benefit every scalper. It requires research to select the best bot to help the trader make the maximum out of it. The research becomes more important when efficient bots are not available in a great number in the market.
Every decision requires careful and efficient research before any decision is taken. So is the case of scalping. The trader must be aware of all the possibilities, availability of indicators, strategies, brokers, and tips that could help them get better returns.
Following are some points or facts that a trader must know before choosing a broker and starting scalping.
How to Scalp Crypto?
To scalp crypto, please use strategies that are already tested and only using small spread accounts. When your scalp, please think about the following steps:
- Costs and Fees Involved- Scalping involves frequent trades within a single day. And since every trade involves some cost, it can add up to more than what a trader is willing to pay. So, the trader must, beforehand, find out about these costs or fees charged by different exchanges or brokers to get a reasonable broker. Some brokers may offer them comparatively cheaper fees for crypto scalping. Of course, traders can expect that they will have to incur general costs like commissions for trading, but this will be different with every other broker.
- Extensive Use of Bots and Charts- Scalping is a trading strategy that requires quick action and continuous focus on the market price movements. Due to this reason, the use of charts and indicators plays a vital role. As the availability of such indicators and tools is quite large, the scalper must try and test the indicators that suit their trading strategy the most and from which they can make out the most. Some traders may also find bots a beneficial move as they are quite compatible with the scalping strategy. But, it is advised not to entirely depend upon the bots and accompany it with some indicators.
- Demo Accounts- Since scalping is a high intensive trading strategy that requires knowledge and practice. Therefore, it may become a little overwhelming for a beginner as they may not keep up with others in the market. So, it is advised for new scalpers first to practice scalping on demo accounts.
Through demo accounts, traders will understand how scalping is done, what skills are required for scalping, what type of indicators best suit their trading strategy, and which cryptocurrency they want to scalp. After doing some practice on demo accounts and gaining some knowledge, scalpers can shift to live accounts and start bitcoin scalp trading or altcoin scalp trading or whichever crypto they wish to scalp.
- Need for Knowledge- As said before, scalping requires knowledge and skills to perform better in the market. These skills and knowledge can be gained before you start scalping, but that does not end the process right there. One must always be attentive to any knowledge gained, even while scalping on live accounts. They can even opt for brokers who can educate them on scalping while trading in the market. Or they can choose from the many books available in the market. Also, if one is scalping on Binance, they might know that they provide excellent services for scalping education through their crypto academy.
Conclusion
Scalping can prove to be a trader’s friend, especially when one doesn’t want to take long positions. If one has access to efficient resources, proper knowledge and skills, a reliable broker, and a good platform, they can make the most out of scalping quickly. The indicators and bots can also help in accomplishing the goals.
However, it can prove not beneficial for traders who do not have the correct knowledge and skills required for scalping. Also, traders planning for long-term gains may not find it attractive enough. Keeping addition, keeping the speed of price movements, especially in cryptocurrencies like bitcoin, can be a task. So, it depends upon the style and expectation of each trader if the scalping strategy is suitable and valuable to them or not because scalping requires time and commitment before one starts to gain from it.
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He is an expert in financial niche, long-term trading, and weekly technical levels.
The primary field of Igor's research is the application of machine learning in algorithmic trading.
Education: Computer Engineering and Ph.D. in machine learning.
Igor regularly publishes trading-related videos on the Fxigor Youtube channel.
To contact Igor write on:
igor@forex.in.rs
