Cryptocurrency

What Is a Cryptocurrency Scalping Strategy and How Does It Work?

Scalping is a common trading strategy among traders worldwide, not only because it has proven profitable for those who have worked a working system out of it but also because it is useful in many financial markets, including stocks and forex markets.

What Is Scalping in Crypto Trading?

Scalping or scalp trading is a strategy in which a trader takes advantage of small price differences to make profits. Traders who use this trading strategy do not target massive profits at once; they rather try to make profits from small price movements over and over again.

For example, a trader buys coins at a lower price and makes quick profits by reselling them at a higher price. The trader then repeats this process itoprofit from minor price movements.

The rationale behind this trading strategy is that the little profits will add up to become a substantial amount over time. Scalpers, traders who carry out scalp trading, also believe that small moves are easier to get from the market and that less exposure to the market reduces the chances of adverse losses.

How Does a Scalping Strategy Work?

Below are some of the features of scalping strategies.

Short Timing and Quick Decisions

Scalpers do not stay in a trade for a long time. A typical trade may last from a few seconds to 15 minutes. However, they open many positions within a day and seek to profit from them.

Since the trades are very short, the strategy also requires making swift decisions because trading opportunities can present themselves at any time.

More Technical Analysis

Scalpers usually carry out more technical analysis than fundamental analysis. They use technical analysis tools to get information on what is happening in the market, as most fundamental analysis metrics affect the market more long-termly. Thus, fundamental analysis is more suitable for long-term strategies.

This is also not to downplay the role of fundamental analysis in scalping. Due to news or events, a crypto price can suddenly attract more traders or have a higher trade volume. Such a market could be a good one to scalp.

Use of Leverage to Boost Profits

Since the price and profit targets are usually small, some scalpers prefer to use leverage to make far more than they can ordinarily make with their balance or stake. This is why many short-term traders prefer to trade crypto futures markets and other markets that offer leverage trading.

Remember, though, that leveraged positions boost losses just as much as profits.

3 Crypto Scalping Strategies You Can Use

Below are three scalping strategies that could be of benefit to you

1. Range Trading

A range-bound market, as the name implies, is one in which prices move between a specific high and low price for a specific period. The range forms both resistance and support for the price. The high price forms the resistance, while the low price is the support.

The ranging market usually has a sideways trend, and what scalpers try to do is make profits off the restricted movement. In this market, traders try to buy at support and sell at resistance. They can also choose to have multiple entries at different points by using limit orders since they know the range at which the market is trading.

2. Bid-and-Ask Trading

This strategy allows traders to open a position at either the ask or bid price and close at a price higher or lower within a short time to make a profit.

The bid-ask trading strategy tries to profit off whatever considerable difference between the ask and the bid price. This strategy better suits traders who trade with trading bots because it makes finding these gaps easier.

3. Arbitrage Trading

We can also categorize arbitrage trading as a scalping strategy since arbitrage traders also seek to make money off little price differences in the market within a very short time.

This trading strategy allows investors to profit from minor price differences between cryptocurrencies traded on different markets or exchanges. This way, you can buy crypto from one exchange or market and sell it at a higher price on another.

Pros of Crypto Scalp Strategy

  • Easy Automation: Scalping strategies are easy to automate, which removes the physical and mental stress of using them.
  • Low-Risk Trading: Since trades size and position are very short, they can be considered a low-risk way of trading. Most scalpers lock in their profits within minutes.
  • Volatile Market: Traders skilled in scalping strategies can potentially make better use of crypto market price swings that result from some crypto news than those who trade long-term strategies.

  • Leverage Advantage: Scalpers also tend to make more with leverage. A little price movement can result in a lot of profit when leverage is used correctly.
  • Quick Profit: Scalpers don’t have to bother about long-term market movement. They are more concerned about what is happening and what will happen in a couple of minutes than what will happen in a couple of hours or days.

Risks of Crypto Scalp Strategy

Scalping is not without risks. Below are some of the drawbacks of a crypto scalping strategy

  • Transaction Cost: Since you will be making a lot of trades each day, it also means that you will have to pay transaction costs frequently, and this may affect your profit in the long run. Long-term traders, however, pay transaction fees or commissions once, and they can profit agreatlyfrom a single trade.
  • Tedious Process: Scalping is a tedious process that can lead to physical exhaustion. Many scalpers monitor the price for hours and are usually alert to make swift decisions. Having small profits per trade can also make it quite challenging to reach your financial goals.
  • Technical Issues: Issues like slippage, platform failure, and delays in order execution can result in huge losses. In addition, since every second is important, any lag or error from the trading system or on the trader’s path can lead to losses.
  • Leverage Risk: Scalping often involves the use of leverage to trade. This way, you can make more with little market movement. However, this can also magnify your loss. One big loss can affect the little profits you have been able to gather over time, and it can even wipe out your entire account balance.

Determining if Scalping Is for You

Scalping consumes a lot of time. In addition, scalping strategies present possible entry points that often require swift responses from scalpers as they can also disappear quickly. Because of this, many crypto scalpers remain glued to their trading platforms for a long time.

The time demand has been eased with the introduction of trading bots. Trading bots have grown in popularity in recent years and have proven reliable to an extent. If you are comfortable using trading bots and can automate your trading strategies properly, you can always use scalping strategies. The main issue with trading bots is that they are usually not sensitive to changing markets, and price volatility can cause them to produce the wrong results.

Scalping strategies may not be ideal for individuals with full-time jobs and activities. Rather, long-term strategies that require monitoring the market a few times and mostly at convenient times may be a better option for such people.

In determining if a scalping strategy is for you, you must consider your style of doing things. For example, scalping requires quick responses, and you might need to make spontaneous decisions. On the other hand, if you prefer to take decisions slowly or do not have a good grip over your emotions, you might also consider using longer-term strategies.

Is Scalping More Profitable Than Other Strategies?

The simple answer is no. No strategy can be said to be more profitable than another. What makes for winning trades is not the style of trades but the trader’s ability to build a strong strategy and be disciplined enough to stick to it. Scalpers make money faster, but don’t forget that they usually make little profit. A long-term trader may make what a scalper gets in ten trades in a single trade.

​The information on this website does not constitute financial advice, investment advice, or trading advice, and should not be considered as such. MakeUseOf does not advise on any trading or investing matters and does not advise that any particular cryptocurrency should be bought or sold. Always conduct your own due diligence and consult a licensed financial adviser for investment advice.

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