Instead of viewing volatility as a threat, scalpers think of it as an opportunity. Want to know how scalping works and why is it perfect for Bitcoin trading?

Bitcoin scalping strategies

Cryptocurrency has broken many milestones in the last few years. Today, millions of people from all around the globe are beginning to flock to Bitcoin and trying to get a hold of the digital coin themselves. But even so, some are still skeptical about the future of virtual assets and argue that Bitcoin trading is too risky to be a good investment. One of the biggest concerns is regarding the high volatility of the crypto market.

If we look at the Bitcoin price dynamics in recent years, we can definitely tell that the movements are pretty extreme. One time it skyrocketed and broke a record, but the next thing you know, it plunged down to rock bottom. That means, while it's true that the crypto market can multiply your gains, it can also multiply your loss in such a short time.

In general, Bitcoin trading is considered a very risky business. The good news is, the risk can be reduced with a good trading plan. However, it's worth mentioning that not all trading strategies are suitable in the volatile market. One of the best trading strategies for Bitcoin is scalping since its essence is to capitalize on small price movements. In other words, while some people view volatility as a threat, scalpers see it as an opportunity. Curious about how it works? Here's everything you need to know about Bitcoin scalping strategy.

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How Does Scalping Work?

Scalping is a pretty common intraday trading strategy. The concept is universal, so it's not exclusive for crypto trading and can be used with basically any other assets such as forex and stock. As mentioned before, scalping basically allows traders to take quick profits from small price movements, especially in lower time frames. So instead of aiming for massive profit in every trade, scalpers would place as many trades as possible over short times to gain small but consistent profit. The idea is to collect several small gains and pile them up to turn into a considerable profit by the end of the trading day.

Typically, the ideal time to scalping is when there's an increased interest in a particular asset with high volume and good liquidity. Since cryptocurrency prices are volatile most of the time, traders have a higher chance of finding more opportunities in a single day. Scalping in the crypto market like Bitcoin can therefore make a great strategy to generate consistent profits. However, remember that scalping is a short-term strategy, so traders need to be able to act quickly and precisely.

Considering how fast scalpers need to operate, they tend to rely more on technical analysis. It's a type of analysis that enables traders to predict future price movements based on market price action and volume data over time. This technique basically requires traders to identify patterns from the price chart and technical indicators and then process the data to produce insight into future market behavior. The result will then be used to determine entry and exit points, stop loss, and take profit.

Some of the best indicators for scalping are:

  • Trading volume
  • MACD indicator
  • Candlestick chart patterns
  • Support and resistance levels
  • Relative Strength Index (RSI)
  • Fibonacci Bands
  • Bollinger Bands
  • Open Interest
  • VWAP
  • Real-time order book analysis
  • Volume profile

Of course, traders don't have to use every single tool listed above. Instead, they need to find the right combination that works for them. Developing a custom strategy is possible, but it will take time and many trials and errors. It may be more effective, but it isn't something that just anybody, especially beginners, can accomplish.

 

Different Types of Scalpers

  • Systematic Scalpers
    Systematic scalpers tend to follow a systematic predefined trading system, hence the name. They usually do proper research and prepare trigger setups for when to enter and exit the trade. That being said, every movement is planned and ready to go. Their system relies on how well they make the rules and how consistent they are with them. As a result, they must rely on data and algorithms, and not let their emotions take over because then it might change the whole plan.

  • Discretionary Scalpers
    On the other hand, discretionary scalpers tend to make trading decisions "on the spot", adapting and adjusting to the market movement. Some of these scalpers may or may not have set up entry or exit points because they usually just react to the changes without following any specific rules. However, that doesn't mean they tend to act recklessly and without further thinking. They may consider several factors before taking any action, but they rely on intuition and gut feeling more often than not.

 

Best Bitcoin Scalping Strategies

The following are some of the best trading techniques for Bitcoin scalpers:

 

Range Trading

This is a scalping strategy where traders must wait for a specific price range to happen on the chart and then trade within that range. The idea is that the bottom of the range will be the support area and the top of the range will be the resistance area. As long as the price moves within the range, traders would take price retests from support and resistance to place orders. But once the range is broken, they either trade the breakout or wait until the price consolidates in a fixed range again.

Range trading

This is often very beneficial for expert traders, but it may not always work out for everyone and in any situation. This strategy requires the trader to understand the market and can quickly identify short-term price patterns. In addition, it's also recommended to set a stop loss to further reduce the risk of losing too much money.

 

Bid-ask Spread

This technique requires traders to use a considerable difference between the highest bid and the lowest ask. With that being said, this system is more suitable for algorithmic or quantitative trading. The reason is simple: it's because humans aren't as reliable at finding small inefficiencies in the market as machines. Therefore, this trading strategy is mainly dominated by the use of trading bots. They can read algorithms better than humans and relatively faster too.

 

The Use of Leverage

Leverage refers to the amount of additional "borrowed" money so that traders can increase their position size. This is why many Bitcoin scalpers like to utilize margin trading platforms, futures contracts, and other types of products that allow them to use leverage. However, since scalpers tend to open many positions at once, they need to be aware of slippage.

 

Some Scalping Tips

Now that you've learned about the general understanding of Bitcoin scalping, you might be wondering whether you should start trying the strategy or not. The answer actually depends on your trading preference and what trading style you use. Some people prefer to close their trades overnight, so they choose short-term trading strategies like scalping or day trading. Meanwhile, some like to plan a thorough and detailed plan before they open a position and don't mind leaving their trades open for more than a day.

Furthermore, trading expertise plays a part in this. Scalping may not be the best choice for beginners because it leaves very small room to double-check everything and think deeply. Since the time is really short, scalpers need to make quick decision-making. This surely requires a good understanding of the market and excellent emotional control.

If you decide to try scalping with cryptocurrency, make sure to take some time to consider the crypto that you're going to trade with. Try avoiding low-volume altcoins because you might not be able to trade them enough to earn a decent profit. Also, don't risk your entire capital for a single trade, no matter how confident you are about your price prediction. Lastly, use several technical indicators to support your trade. You don't have to use a lot of them at once, but you need to find the right combination that works for you.

 

Bottom Line

In summary, scalping Bitcoin can be an excellent way to earn profit from all the small price movements in a single day. However, keep in mind that this trading strategy comes with its own unique set of rules that should be learned and followed. Like any other investment, you must have a good trading plan and stick to it. Part of this involves ing the best indicators that suit your scalping style. Other than that, always consider the risks and weigh the pros and cons before trying it out. Once you tick all the boxes, you just need to practice and start making profits.