What Is Scalping Trading in Cryptocurrency?
The term "scalping" is related to the trading style of the adrenaline junkies. Do you spend most of your time looking at 1-minute charts? Are you a fast trader who likes to enter and exit positions faster than an investor can open a report? Then you might want to make use of the scaling strategy.
Scalpers aim to make a profit from small changes in price, which are known as small movements. The goal for these traders is not to make a lot of money with each trade, but a lot of small profits over an extended period of time. Over time, their trading account will grow and grow if they do it well. A lot of scalp traders use leverage as well as tight stop-losses to increase their profits.
Introduction
The term Scalping (short for scalping) refers to a strategy used predominantly in short-term trading. As a matter of fact, day trading is one of the most commonly used trading strategies. A good deal of technical analysis and charting tools are required because it involves shorter time horizons and quick decision-making. This is among the reasons why many professional day traders allocate a portion of their trading accounts to scalping.
In addition to scalping, scalpers are active in the stock market, forex market, and cryptocurrency markets because scalping strategies can be applied to so many different financial markets.
Let's take a look at what you need to know about scalping cryptocurrency as well as some of the most common scalping strategies that are commonly used.
What is scalping?
scalping refers to a trading strategy that allows the trader to take advantage of relatively small price movements to make a profit. The scalers do not aim for huge profits with their trades. Rather, they aim to gain substantial profits by making small adjustments to the price as often as possible.
Consequently, scalp traders will often place many trades over a short period of time in order to take advantage of small price movements and market inefficiencies. By stacking and compounding these small wins over time, the profit will start to add up and turn out to be a substantial amount in the end.
Scalpers tend to be heavily reliant on technical analysis in order to generate trading ideas, since the timeframes involved in scalping are short. Most fundamental events are played out over a longer period of time, so scalp traders are less likely to be concerned with fundamental analysis. In spite of this, fundamental narratives can be extremely influential in deciding what asset to trade. Stocks or coins that experience a sudden rush of interest due to some news or fundamental event will generally have an increase in volume and good liquidity. In this case, it is the scalpers who can take advantage of the increased volatility and make a profit.
As a result, scalpers take advantage of short-term bursts of volatility as opposed to longer-term price movements. Although it might not be the best strategy for everyone, it is a strategy that requires a deep understanding of the mechanics of the market as well as rapid decision-making capabilities (often during stressful times).
How do scalpers make money?
How do scalpers consider technical factors? To identify trade setups, traders look at trading volume, price action, support and resistance levels, and candlestick chart patterns. Moving averages, Relative Strength Indicator (RSI), Bollinger Bands, VWAP, and Fibonacci retracement tools are among the most common indicators used by scalpers.
Additionally, many scalpers are also making use of real-time order book analysis, volume profiles, open interest, and other complex indicators. many scalpers create their own customized indicators in order to provide them with an edge over the market. The success of any trading strategy depends upon finding a unique advantage over the market and finding a way to exploit it to maximum effect.
The purpose of scaling is to find small openings in the market and take advantage of them. These strategies can easily become unprofitable if they are revealed to the general public, and for this reason scalp traders can remain quite secretive about their trading methods and strategies. Therefore, every scalp trader should be able to create and test their own strategy.
In our previous discussion, we mentioned that scalpers generally trade smaller time frames. Intraday charts are those that show price movements within one hour, fifteen minutes, five minutes, and even within one minute. There are some scalp traders who even consider time frames less than a minute when looking to trade.
However, with these time frames, we start to take a step into the realm of high-frequency trading bots, which may not be appropriate for humans to monitor. Despite the fact that machines can process a lot of data quickly, most humans are not at their best when examining 15-second graphs and charts.
The signals and levels that occur during the course of a high timeframe are generally more reliable than those appearing during a low timeframe. In addition, most scalpers will still look at high time frame market structure first to get a better understanding of what's going on. But why? As a result, they generally list out the important levels from a high time frame first, and then zoom in to look for scalp trading setups. Even when you are trading for shorter periods, it can be very helpful to keep an eye on the market structure from a high-time frame perspective.
However, there can still be substantial differences between the trading and investment strategies of different traders. When it comes to scalping, there are no hard and fast rules, however, there are guidelines you can follow to set your own standards.
Scalping trading strategies
A scalp trader can be classified into two different types - discretionary or systematic traders.
Market discretionary traders make their trading decisions based on the conditions of the current market as they unfold. It is possible that they do not have any specific requirements for when they should enter or exit, but their decision will always be impacted by the current situation. Therefore, discretionary traders take into account many factors, but the rules are less rigid, and they rely more on intuition and gut feelings.
Traders who follow a systematic approach take a different approach. Their trading system revolves around well-defined entry and exit points that essentially trigger when the time comes for them to enter and exit. There are certain conditions in their ruleset that must be met for them to enter a trade or exit a trade. In contrast to discretionary trading, systematic trading is more based on data. Rather than relying on intuition, systems traders rely more on data and algorithms.
In fact, this classification could also be applied to other kinds of traders as well. However, the distinction is clearer in the short-term strategies as opposed to the long-term ones. On higher time frames, discretionary trading maybe not as consistent as it is on lower time frames.
There are some scalpers who employ a strategy known as range trading. The traders wait for a price range to be established before they trade within it. There is a concept in which the bottom of the range will act as support, and the top of the range will act as resistance, up until the range is broken. However, this is not a guarantee, although it can still be a successful scalping strategy. In addition, good scalp traders will set up a stop-loss that will protect them in case a breakout occurs from the range.
Another scalping technique that is commonly used is taking advantage of the bid-ask spread. Scalpers can profit if there is a large difference between the price at which the highest bid is made and the low price at which the lowest ask is made. However, this type of trading strategy is more appropriate for algorithmic or quantitative trading. Humans are not as good at finding small inefficiencies in markets as machines. Due to this, the trading bot market has become heavily saturated. Thus, in the case where humans want to adopt this strategy, they will in general have to compete with algorithms.
Should I start scalp trading?
There is no single best method for trading, but it depends entirely on the style that works for you. It is common for traders to avoid leaving any open positions when they are asleep, for this reason they use short-term strategies. Day traders and other short-term investors may be considered to fall into this category. Furthermore, long-term traders are willing to ponder their decisions for a longer period of time and are not adverse to holding positions for a prolonged period of time. They may only specify the entry point, the profit target and the stop-loss, and occasionally monitor the trade to see if it is working. Swing traders can also fit into this category.
Thus, if you are trying to decide whether you would like to take part in scalping, then you must define which style of trading is best suited to your own ability. Additionally, you have to develop a trading strategy that matches your risk profile and personality so as to be able to apply it consistently and profitably. It's very natural to test out different strategies and see which work and which don't.