What is crypto scalping? The prices of crypto coins keep on changing rapidly and if you do not follow the price movements on a regular basis you will be missing out on the opportunities that these price movements have to offer.
In such situations, one of the most commonly followed strategies by the crypto traders is crypto scalping.
Crypto scalping, ideally, is like intraday trading, but is a short-term strategy that is done with an aim to gain small yet frequent profits. Over time, these profits accumulate to offer a substantial return on investment.
Since the time period is short, crypto scalpers need to rely heavily on technical analysis instead of fundamental analysis to make proper trading plans. They actually look for the events which result in high trading volumes and good liquidity for a short period of time.
Crypto scalping is a high-intensity yet rewarding trading strategy if you have the proper tools and knowledge. You will need to know a lot of things including:
- The major considerations to make
- The best scalping signals to follow
- The best live indicators to refer to
- The ways to analyze candlestick chart patterns
- The ways to identify support and resistance levels and
- The technical tools to use such as Bollinger Bands and Fibonacci retracements.
It also needs you to be very much disciplined and extremely patient to be a successful crypto scalper.
What is Crypto Scalping
Crypto scalping is primarily a trading strategy in which liquid and more volatile crypto coins are chosen to make financial gains from the small price movements.
This is essentially not a strategy to be followed in expectation of making massive profits. As a result, several trade orders are placed by the trader over a short period of time based on the market inefficiencies and price movements.
No matter how promising this type of trading sounds, jumping into it without being confident will be utterly unwise.
It will not only make things difficult but may also result in a significant amount of losses. Check out Best Crypto Tools to Use for Different Purposes.
Things to Know about Crypto Scalping
In this article you will find everything that you need to gain more knowledge about crypto scalping and how exactly you can execute your trading plans according to your needs, trading style, and investment objectives.
Types of Scalpers
Ideally, there are two specific types of crypto scalpers namely, Systematic Scalpers and Discretionary Scalpers.
Systematic Scalpers, as the name signifies, are more systematic and follow a particular trading system that is meticulous and well defined. They enter and exit trades only when an accurate trigger is set off.
They conduct thorough research before making any move and based them all on the conditions of the marketplace, potential of the tools, and profitability ratio.
They are the ones who care for the numbers only and do not create or follow any rule that is based on emotions.
On the other hand, the Discretionary Scalpers are those who make instant decisions and improvise them on the spot.
They adapt to the market conditions and behavior and are more flexible in their approach in comparison to the Systematic Scalpers.
They do not follow any specific rule as to decide when to enter or exit a trade and do so simply by reacting to the changes that occur from time to time. They are essentially not data driven.
The strategy to follow during crypto scalping may vary according to the type of scalper you are. However, here are some of the best crypto scalping strategies to follow.
Pure Trend Scalping – This particular crypto scalping strategy is based on the trends and the indicators applicable to different time frames. Mostly, the scalpers start with an indicator called the MESA Adaptive Moving Average.
These are indicators that track the trends over a longer time period in excess of 1 hour to a day. It uses Hilbert Transform Discriminator to monitor and display the rate of change in a phase.
It is much more responsive to changes in price since the trend line is much more composite and is created on both, a fast and a slow moving average.
Most commonly a 4-hour MESA indicator chart is used by a trader to switch to a 5-minute timeframe based on the crossovers of 5 and 25 EMA or Exponential Moving Average.
Range Trading – This is another common crypto scalping strategy in which the scalper needs to wait for a particular price range to emerge in the bouncing pattern of the price between the parallel lines of support and resistance.
The trader typically operates within that range till the time it is not broken. Here, the bottom line of the range indicates the spontaneous support level while the top indicates the resistance level.
If you are an experienced crypto scalper, this strategy may prove to be very lucrative but it may not work out well for one who does not know the market well and cannot identify the short term patterns quickly.
Bid-Ask Spread – This is a strategy followed on the basis of the difference between the bid price and the asking price. The trader usually opens a position at the asking price or bidding price and closes it quickly when it reaches a few points higher or lower to make profit.
It can happen in two given conditions such as when the asking price is higher than the bid price and is called the Wide Bid-Ask Spread.
Since there are more buyers than sellers, the crypto scalper sells at this point. On the other hand, the Narrow Bid-Ask Spread is just the opposite where the crypto scalpers buy and balance the selling pressure.
Arbitrage – This strategy is followed when there is a chance of making the most out of the volatility of the market. The profit to this type of trade is made from the price difference of the same asset by buying it from one market and selling it on another.
This is usually done almost immediately without holding the crypto coins. There are two types of arbitrage trading namely, spatial arbitrage and pairing arbitrage.
In spatial arbitrage, you open both a long and a short position at different exchanges at the same time. This allows hedging against any fluctuations of a variety of trends. On the other hand, in pairing arbitrage, you can trade on only one platform capitalizing on the changes in the trading pair.
Apart from the four major crypto scalping strategies mentioned above, there are also other strategies that are also good to follow for crypto scalping. It includes:
- Price Action, which is based on the price movements of a crypto asset
- Margin Trading, which is done by using the funds of a third party instead of your own to make profit
- Volatile Trend, which is based on the direction of a trend determined by the 4-hour charts of MESA and
- Momentum Crypto Trend, which is based on a broader trend determined by the 4-hour charts and combining it with the momentum indicators.
Choose any of the crypto scalping strategies based on the risks involved, the settings and your needs.
The Time Frame
Once you know which specific crypto scalping strategy to follow, you should know the best time to start trading to achieve maximum trading velocity. Selection of this time should be based on the number of trades made within a specific period of time.
Typically, the best time to trade happens to be anywhere between 5 and 30-minute charts.
If you choose a smaller time frame you will be able to create a larger number of trade setups, depending on the specific scalping strategy you choose.
Crypto Scalping Tools
Now, it is the time to know about the different crypto scalping tools to use to achieve your goal. There are a large number of tools available but the effectiveness of each will depend largely on your experience and preferences.
Trading Bots – These are good tools to make automated trading. These are quite popular among crypto traders because it simplifies the demanding nature of work.
Crypto trading bots are designed with different programming languages. They automate a trade after scanning the market using three specific things such as:
- The RSI or Relative Strength Index
- The support and resistance levels and
- The moving averages.
These bots usually vary from one platform to another and major and reputed crypto exchanges like Binance and Kraken come with their own crypto trading bots integrated. However, check the reviews before choosing since there are scams reported to operate in this area.
Market Signals – These tools will guide you to make the right decision as to when you should buy and sell. You can choose to use automated signals or managed signals depending on your preferences, to analyze the current market conditions. The signals are usually sent via SMS, email, or smartphone notifications.
API Tools – These tools will ensure that you have a better and easier interaction with the trading platforms as well as other projects based on blockchain. These tools come with a wide range of functionality such as providing transaction support, wallet integration, tracking market prices and more.
Trading Charts – These charts will help in analyzing prices and volumes of different crypto assets. You will have all the required information to set up a proper and more productive crypto scalping strategy with it.
In addition to the above tools, you may also use the Stop-loss tool which will allow you to make more logical decisions and avoid taking on losses.
The crypto scalping trading indicators need a special mention and hence a separate subhead.
These are very useful for crypto scalping because traders here do not rely much on the fundamental analysis but on technical analysis.
These indicators will make technical analysis much more relevant and precise.
You can use as many trading indicators as possible for more accuracy but some of the best ones to use are as follows:
- Moving Average – The MA will provide you with a fair idea about the movement of the price of a specific crypto asset. It will consequently make your trading windows relatively smaller.
- Support and Resistance – This will enable you to know the degrees of resistance and support and help you in making some quick scalp trades, being cautious about the breaks so that you do not incur any loss.
- Relative Strength Index – The RSI tool is relatively simple to use for the beginners. It will help them to identify the exit and entry points of trade which is usually 70 and 30 respectively.
Crypto scalpers usually use combinations of trading indicators for more accuracy in price predictions from different sources of confirmation.
This may however need some practice to master and of course, it is not mandatory to use multiple indicators. Still there are other indicators to use such as:
- Trading volume
- Volume profile
- Real-time order book analysis
- Candlestick chart patterns
- Open interest
- Bollinger Bands and
- Fibonacci retracements.
And, if you have years of experience in crypto scalping and are not a beginner, you can even create your custom crypto scalping indicators as well for successful trading.
Crypto Scalping Broker
Now it is time to choose a reputable and reliable crypto scalping broker. There are a number of factors to consider for this.
Here is the checklist that will make things easier for you:
- They should have a trading history of 2 years at least
- There must be a good customer support of a number of knowledgeable staff
- They must fall under a specific jurisdiction regulation in case there are any disputes to settle
- They should be able to make faster deposits and withdrawals preferably within a couple of day at the most
- They should have a global presence and
- They should be able to communicate in your local language
In addition to the above, also make sure about the minimum deposit required for opening an account with them, the funding methods offered, and spread types.
Crypto Scalping Tips
Here are a few crypto scalping tips that you should keep in your mind, apart from being patient, especially if you are a discretionary scalper.
- Crypto scalping is not suited for all
- Avoid low-volume altcoins because you cannot trade a lot of them to make a reasonable profit
- Always have a clear plan along with a good exit strategy
- Stick to your strategy but be flexible to adapt to the changing scenarios
- Do not invest more than 2% of your assets in one single trade even if the price direction is favorable
- Always follow the technical indicators preferably a combination of them
- Keep a record of all transactions made along with their fees and
- Choose the right trading pairs.
And, always try out different trading strategies with small amounts for crypto scalping to choose the best one for you.
Pros and Cons of Crypto Scalping
Just like all crypto trading strategies, crypto scalping also comes with its characteristic pros and cons as follows.
You do not need to get involved with the micro details in this strategy to make profits on a regular basis. These profits may be small but will add up over time to become a substantial amount.
Crypto scalping is comparatively a low-risk strategy since the amount invested in it is quite low.
It can be done automatically by using one of the several crypto trading bots. This removes the chances of emotional influences in making trading decisions.
The trading fees can be high and, being charged everyday on each trade over time it may add up pretty fast to eat your profits.
To be successful in crypto scalping you will need to use the right trading software and indicators which will need time to research.
It is a strategy that is suitable for skilled traders who have a lot of patience and a high commitment level. It may need using leverage which may make it quite risky.
In today’s setting, scalping crypto is a quite significant strategy. It helps traders to make money even when the prices keep falling and it seems nothing can be done about it. However, ample knowledge is needed to be a successful crypto scalper.