What Is Scalping in Crypto, and How Does Scalp Trading Work?

Today, the cryptocurrency market offers users a variety of earning options. Traders have the opportunity to make good profits in a day, an hour, or even a minute. Read more about what scalping is and what the advantages of this trading strategy are.

What Is Scalp Trading?

Scalping is a trading strategy that entails profiting from relatively minor price fluctuations in a token. The essence of scalping is to make small transactions in large numbers. During the day, a trader can make dozens or even hundreds of trading operations that can last less than one minute.

Traditional cryptocurrency scalping is a long search for a signal or entry into a trading position. Technical and fundamental analysis tools help in making the right decision. When using scalping, long-term preparation is not relevant. The investor starts trading regardless of the crypto market formation and the state of a single cryptocurrency pair.

The profitability of one transaction is usually small, so in this case, their number is important. On average, this is the minimum profit—about $1—but a lot depends on the investor’s initial capital.

How Do Scalp Traders Generate Profits?

Generally every trader develops his own trading method in an attempt to achieve maximum profits. Some fundamental rules and techniques can also be applied to any trading trader in a certain manner.

This type of market trading is greatly differ from the traditional model of buying and selling cryptocurrencies.

Scalp Trading Principles

Technical analysis. The scalper method relies on real-time technical analysis, so traders have less time to do basic market analysis. Technical analysis allows traders to predict future market behavior based on previous price movements and volume data. It includes observing charts and models, technical indicators and oscillators, or a combination of various techniques and methods. Many technical analysis tools can be measured and expressed in math formulas, so this method of trading assures the objectivity of all calculations. In addition, technical analysis takes into account the psychology and emotions of crypto market players.

Fast decision making. As mentioned earlier, traders benefit from even small fluctuations in the market. This means that they need to react quickly to any changes in the token price and make trading decisions quickly. Moreover, scalpers usually trade on small timeframes. These can be hourly, fifteen-minute, five-minute, or even minute charts. A scalper can open positions approximately 2-3 times per minute.

Huge number of transactions. One transaction will not bring a large profit to a trader, so in scalping, it is important to make many successful transactions at once. Given the duration of one operation, their number in one day can reach tens or even hundreds.

Best Time Frame for Scalping

The scalping timeframes are used to achieve a “transaction velocity”. It is recommended to have a scalpeting time of five minutes to 30 minutes. As time horizons shrink, there will be more options to buy and sell cryptocurrencies. Note the following can vary greatly from the scalping method used. This is a simple example of BTC/BUSD. We used the 5-min chart moving averages (MAs) for the trend indicator and the stochastic oscillator for momentum. In this example, an experienced scalper can perform 6 profitable trading positions in approximately seven hours and the trade can be executed within 30 minutes. It’s an awesome way to use a cryptocurrency scalp!

Scalp Trading Tools

In addition to all of the above, in the scalping process, traders use not only their knowledge and skills, but also auxiliary tools:

Leverage

Some traders think that the main thing in scalping crypto is the minimum duration of transactions, but actually the leading role is played by the size of the leverage. It is a loan of funds from a broker to open a position. For example, if your balance is $100 and you open a position with x5 leverage, then the transaction amount will be $500.

Leverage for crypto scalping should allow the trader to get the maximum profit in the shortest time possible. It is also worth mentioning the rule according to which the shorter the duration of transactions, the greater their leverage and the allowable number.

Stop-loss and take-profit

Stop-loss and take-profit are the main position management tools. With their help, the trader controls the level of risk, because they set a certain exit point from the position.

Stop-loss. Atrader needs a stop loss to limit possible losses in the event that the price direction does not meet his expectations. Suppose you bought 10 tokens at a price of $100. To minimize the risks, the stop loss should be set below the entry point, for example, at $90. When the market price of the token drops to this level, the system will automatically put up a bid for sale.

Take-profit. If a stop-loss limit the amount of loss, a take-profit limit the amount of profit. The investor determines the price at which the broker will automatically sell the shares after their growth. This tool’s operation scheme is similar to that of a stop loss, but it should be set above the market price.

Bots

When using a bot, trading becomes fully automatic, because the presence of a person is optional. Crypto bots take into account a lot of indicators and other data, which is difficult for an ordinary trader to follow alone.

In the process of choosing a trading bot assistant, you should be extremely careful, as there are many scammers whose programs simply steal money from user accounts. It is not necessary to turn to third-party services that are paid and potentially vulnerable. Such large platforms as Binance and ByBit offer their own crypto bots, which even a beginner can handle setting up.

Signals

Crypto signals are indications for buying and selling digital assets offered by professional traders. The essence of this function is that the trader receives information from the analyst about possible profitable trades. Transactions are implemented automatically by setting up all the necessary parameters based on the analyst’s forecast.

Crypto signals are suitable for both beginners and experienced traders. This type of algorithmic trading helps professionals find new strategies. In turn, novice traders have the opportunity to gain the necessary experience and knowledge in the field of crypto trading. There are many sources of information with crypto signals, for example, Cryptorobotics, Cryptoleks, Bitmind, and so on.

Scalping Trading Strategies

Experienced traders know that in the process of scalping crypto, it is important to have a clearly structured plan of action. There are several basic strategies or ways to make money on crypto scalping:

Crypto range trading

This is one of the simplest and most understandable trading strategies for scalping. Its essence is to monitor the movement of the token price within a certain range. For example, suppose a token is currently trading at $ 50 and you believe it will rise to $ 60. In this price range, you should aim to buy at support and sell at resistance.

The more often the price touches one of the levels, the more likely the level will break. The main tools in the process of such trading will be the support and resistance lines on the chart.

Bid-ask spread

This is the difference between Ask and Bid at a certain point in time. Traders are looking for large discrepancies between the highest and lowest price, thereby benefiting from this process.

When the prices of supply and demand are almost equal, it usually means that the token has high liquidity. In this case, the cryptocurrency has a narrow bid-ask spread. This is a profitable situation for investors, as it facilitates entry and exit from the position.

On the other hand, there are coins with a wide bid-ask spread — the prices of supply and demand differ greatly, which makes scalping completely unprofitable.

Arbitrage strategy

Cryptocurrency arbitrage consists of extracting profit from the difference in prices for the same assets at the same time on different exchanges. The simplest arbitration scheme between cryptocurrency exchanges is:

1. Find a coin or token that has a lower exchange rate on exchange A than on exchange B.
2. Buy a token on the A crypto exchange.
3. Sell on the B exchange.
4. Take the price difference for yourself.

Pros and Cons of Scalping Crypto

Trading strategies have both positive and negative points. As for crypto scalping, it is customary to highlight the following features:

Advantages of crypto scalping

Profitability. Profit accumulates gradually, but due to the large number of transactions and use of leverage, this process is significantly accelerated.

Easily automated. Traders do not have to constantly monitor changes in the market. Experienced users use special crypto bots that automatically perform various operations with tokens.

Low risk. Due to the large number of transactions, it is not necessary for a trader to use a significant part of his capital. Compared to traditional long-term trading, the risks of losing a large amount of funds are much lower.

Disadvantages of crypto scalping

Not for beginners. To achieve success in crypto scalping, it is necessary to study technical analysis, the operation of indicators, and other mandatory things. Without special preparation, this type of trading can lead to funds loss.

Trading fees. The crypto platform charges a certain commission for each completed operation. During the day, a trader can make more than 30 transactions, so the costs will be high.

Psychological stress. Novice traders plunge headlong into the technical school of trading and do not pay attention to psychological training. They underestimate the problem of emotions and pay dearly for it.

Best crypto scalping indicators

Scalping is a style of trading where profit directly depends on the speed of reaction. There is no time for a thorough and detailed analysis of the market and high timeframes — you need to act quickly. Therefore, scalpers use indicators that speed up the decision-making process.

Moving average

A classic indicator of technical analysis for predicting the direction of the price. Today, the Moving Average trend indicator is the most popular technical analysis tool among both beginners and more experienced market participants.

There are four main types of Moving Average indicator:

• Simple Moving Average (SMA)
• Exponential Moving Average (EMA)
• Smoothed Moving Average (SMMA)
• Linear Weighted Moving Average (LWMA)

The principles of trading for each of these types of indicators are the same. The difference is only in the method of calculating the Moving Average.

Some of the main functions of the moving average are to identify the direction of the trend, identify potential areas where the token will find support or resistance. In addition, moving averages can be useful when setting stop-loss orders.

Stochastic Oscillator

Stochastic opens in a separate window at the bottom of the terminal. It looks like a simple and signal line, ranging from 0 to 100. But for full performance, it is also necessary to take into account the overbought and oversold zones:

• Overbought – from 80 to 100;
• Oversold – from 0 to 20.

In simple words, Stochastic Oscillator allows you to determine when the trend reversal will begin and will tell you at what exact moment you should open a deal.

RSI

The RSI, or Relative Strength Index, is one of the key oscillators that is in demand among traders around the world. With the help of RSI, we can analyze the strength or weakness of the current market state of the price. The indicator is based on the use of closing prices for a certain period of time, so it is as effective as possible.

Like the previous tool, the indicator is displayed on a scale in the range from 0 to 100.

• When RSI is close to 0, the downward movement of the price is weakening.
• When RSI is close to 100, the upward movement of the price is slowing down.

The main reason why RSI is so loved by novice traders is its simplicity. Any novice speculator will be able to recognize signals for opening trades without any problems.

The main signals are:

• the intersection of lines with overbought and oversold zones;
• divergence;
• false waves;
• convergence and so on.

Read more about how to read charts in our guide to understanding crypto charts.

Demo Accounts For Scalping Practice

Scalping training is an important component on the basis of which you can build an effective working strategy. Demo accounts on popular platforms are available for traders to train their skills.

1. ByBit

On ByBit, you can find all the technical analysis tools for scalping, as well as additional functionality. For example, operations with leverage are available to users of the platform.

With the help of the ByBit test network, you can practice predicting the movement of the cryptocurrency exchange rate. The platform shows real market signals, which is one of the important advantages of ByBit.

2. Bityard

Bityard has an intuitive interface and allows to use all platform functions without risking your funds. This feature is free and becomes available after account registration. You don’t need to register a separate demo account to start trading. You will be able to switch between a demo and a real account in the order creation form. 100,000 USDT is available for trading in demo mode, but if they run out, you can add more.

3. Binance Futures

The trading simulator of the most popular crypto platform offers users wide range of opportunities. Users have access to such tools as a stock glass, a window of the history of transactions, depth charts, technical tools, and many other features.

In addition to directly creating orders, the exchange’s functionality includes:

• Checking and adjusting the leverage (x20 is set by default).
• Tracking the marking price on the basis of which positions are liquidated.
• Monitoring of the position queue for auto-deleveraging.

4. Currency.com

A centralized platform that allows users to trade on a demo account without going through identity verification. After the transition, the trader will receive 1 BTC to his account. The balance can be increased or decreased at any time.

Currency.com has many trading opportunities, for example:

• Buying and selling cryptocurrencies
• Leverage trading
• A variety of tools, such as indicators, stop-loss and take-profit functions, and so on

5. Bitmex

Bitmex crypto exchange specializes in trading futures and perpetual contracts and also has a demo version of the exchange. After passing a simple registration, virtual Bitcoins (0,01 XBT) will be credited to your account.

The platform offers several types of orders on a demo account:

• limit;
• market;
• market stop order;
• limit stop order;
• limit with profit taking;
• market with profit-taking and so on.

Scalp Trading vs. Day Trading

There is also important to mention differences between scalp trading and day trading.

The first and the most important difference is that scalp traders hold trades in minutes while day traders can hold them for hours.

Also day traders make much less transactions per day than hold trades.

Additionally, traders who scalp require an understanding of technical analysis, whereas day traders use fundamental analysis.

And the last but not least is the fact that scalping is a time-consuming trading strategy that requires constant monitoring throughout the entire trading session, while day trading generally only requires moderate monitoring and an up-to-date understanding of news and business events in order to be successful.

Therefore, it is a much more efficient approach for traders who do not have the time or resources to dedicate to the more intensive scalping strategy.

Summary

Today the cryptocurrency market offers users many opportunities for development and earning money. Crypto scalping is both a profitable and risky activity, because the process involves using leverage. This type of trading attracts more and more market participants, but without special training and knowledge of technical analysis people risk losing their funds.

Updated on 01/27/2023: added information about scalp trading and day trading.

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