The Complete Guide to Scalping in Cryptocurrency

From the two top methods to choosing the best coins, here is the complete guide to scalping in cryptocurrency should you be interested in trying this method.

Cryptocurrencies generally have a high level of volatility and this means there are several ways by which they can be traded to provide profitable returns. Some of the methods involve risky strategies and devoting a lot of time to monitoring price movements. One good example is the scalping strategy.

What is Scalping?

Scalping in crypto is a form of short-term trading that is employed by traders to make small profits consistently by capitalizing on small price movements. As the small profits from each trade keep accumulating, traders can rack up a significant amount of profit as time goes on. The major premise of this strategy is to increase the number of winning trades while sacrificing the size of the wins.

It is a form of day trading and it has the shortest trading cycle among other day trading strategies because it essentially involves entering and exiting the market quickly to skim small profits off of multiple trades throughout the course of a trading day. Scalping is seen as less risky because it is based on the idea of profiting from small movements in asset prices instead of risking trades on large price movements. Nevertheless, it takes a lot of focus and energy to execute properly because the trader needs to set tight trading windows when it comes to the time frame and price movements.

Scalping involves executing a high volume of trades since the small profits will have to be made off a series of multiple trades. Therefore, traders need to have a strict exit strategy because the series of small profits could be wiped out with a singular large loss. This is why using a direct-access platform that has tools such as a live feed is crucial to the successful implementation of this strategy.

Scalping is quite popular as a trading strategy in the cryptocurrency market due to the high volatility of the market. Traders then capitalize on the volatility by using leverage to enter more trading positions while utilizing strict stop losses for risk management.

Crypto traders use scalping by quickly responding to price movements in the market. Therefore, instead of holding a trading position for hours, days, or even weeks, crypto traders using this strategy usually react within minutes or sometimes even seconds. Two major attributes that a trader needs to have for this to work are speed and consistency.

How Scalping is Used to Generate Profits in Crypto Trading

Every crypto trader designs a personalized trading system that will help them achieve the highest profit possible. But regardless, some basic trading principles are common to the systems and used by most traders. Scalping relies on real-time technical analysis as the trader has little time for fundamental analysis. This is why charts and technical indicators are crucial tools to discover trading events and for creating points of entry and exit in the market.

In scalping, trading positions are open by traders at least once every 5-10 minutes. The M5 time frame is seen as the best choice because it can be used with most strategies and is compliant with analysis, thus increasing the trader's chance of success. There are two major approaches to using scalping for crypto trading namely: Manual and Automated approaches.

Manual crypto trading requires a trader to diligently focus on movements in the market while also monitoring trades consistently. This process of tracking market movements is important because it will enable the trader to open and close trading positions promptly in the market.

On the other hand, automated crypto trading involves the creation of a unique program by traders to support their specific strategies. The program is designed to reduce risks and implement the trades even when the trader is not monitoring the market.

More often than not, a crypto scalper has to make a trading decision on a specific asset without having a lot of time to think about the transaction. In cases like this, traders have to rely on their intuition and this is known as intuitive scalping. It requires an enormous amount of trading experience, excellent analytical skills, and an in-depth understanding of the market.

Setting up a Scalping Trading Strategy for Crypto

Having discussed some of the best coins for scalping, it is advisable to also discuss how to set up a scalping strategy to make the most of the opportunities that the crypto market offers considering its volatile nature.

1. Selecting the Coin for Scalping

Various digital assets are available for trading in the crypto market and they vary in trading volumes, popularity, capitalization, and prices which are all factors that the trader needs to consider when making a choice. However, the two most important factors that the trader needs to focus on are the volatility and liquidity of the coin.

See also: Top 10 Cryptocurrencies by Market Caps

Usually, the most popular choice for traders with little experience in scalping is Bitcoin due to its stability and lesser volatility in comparison to other coins. Below are the best cryptos that are ideal for scalping strategy.

Bitcoin (BTC)

This is the most valuable cryptocurrency in the world with a massive amount of liquidity which has allowed it to maintain its global allure and makes it one of the best coins for scalping. It has been widely adopted by most crypto exchanges and trading in this coin also allows traders to enjoy arbitrage trading.

When scalping this coin, traders are not subjected to overnight market exposure which means there will be no overnight funding charges on their trading positions. This way, traders can maximize the daily volatility seen in the price of Bitcoin by profiting from short-term price movements in the coin.

Dogecoin (DOGE)

In the crypto market, this is the top meme coin i.e. an asset without a specific use but is quite popular regardless. One major characteristic of many meme coins is price volatility and DOGE is not exempted from this. Sometimes, the coin can experience as much as a 20% rise in a single day, and on such days, traders that have invested in the coin will undoubtedly enjoy immense profits.

Ether (ETH)

This is the second most valuable digital asset after Bitcoin as it has a market cap of one billion dollars. Its steady growth over the years has attracted investors to keep purchasing and trading more with it. The value of Ether is linked majorly to the Ethereum Blockchain. Presently, Ethereum is widely regarded as the largest layer-1 smart contract blockchain that is available in the crypto market which makes it virtually impossible for it to flop. As a result, the coin Ether can always be seen in the news either due to some upgrades on the Ethereum chain or some adoption news.

Binance coin (BNB)

This is widely regarded as the most popular exchange token on the planet. It was launched by Binance which is a widely known name in the crypto world because it is the largest cryptocurrency exchange today. Since the coin is from Binance and the exchange is always in the news, it means that the price of BNB will more often than not be affected by updates that concern the exchange. Also, BNB has a wide range of usage such as fee payments and staking in the BB Vault among other various functionalities that contribute to the coin's price changes in the market.

2. Choosing the Ideal Trading Platform

The ideal platform should support the coin(s) that the trader is interested in scalping. This is why the reputation of any potential platform should be checked and this can be achieved by looking for in-depth reviews of the trading experience, the interface, and the feedback after trading. Also, the fees charged for each transaction should be noted as well as any additional services.

3. Consider Using a Trading Bot

As mentioned earlier, speed is a major component of scalping which is why trading using specifically designed programs always put such traders in an advanced position to make the right moves at the right time. While it is possible to manage the information and portfolio manually, the process tends to take up a lot of time which increases the chances of the trader making errors – errors that tend to be costly. A trading bot helps to mitigate this possibility.

4. Check the Supporting Tools

To succeed with the scalping trading strategy, certain tools are needed such as trading bots which make it possible for the trader to perform automated trading using certain criteria and a specified set of instructions. There are also crypto API tools that are necessary for the trader's interaction with trading platforms and other blockchain-linked entities. These API tools make it possible for the trader to have access to a wide array of functions such as transaction support, tracking of market prices, and wallet integration just to mention a few.

Another important tool needed for crypto scalping is trading charts which are analyzed to help the trader make appropriate trading decisions. There are price and volume charts that provide scalpers with the necessary information so that a comprehensive strategy can be formulated to maximize the trading opportunities in the market.

4. Be Aware of Trading Fees

Since scalping involves executing a large volume of trades, it means the trader will have to be paying trading fees for each transaction. Therefore, the trader has to take the chance to be reducing the fees so that it does not affect the series of profits made later on.

5. Test Different Strategies

There is no need to get hung up on a particular method for scalping when there are different ways to achieve success. Simply try out different strategies by investing in small amounts before choosing the most suitable one that will bring consistent profits.

In summary, scalping is an excellent trading strategy in markets with high volatility and liquidity such as the crypto market. If you are energetic, fast, and have a high level of self-discipline as a trader, then scalping might be a good avenue for you to exploit those attributes because it is not for the faint-hearted due to the demanding and aggressive nature. Coins whose markets do not trend, but are flat and sideways, are more suitable because it will be easier for scalpers to accumulate their profits steadily in such markets. This is why coins like BTC and ETH are ideal for scalping.

Apart from the scalping strategy, cryptocurrency trading is also available for hedging which is well-known for its ability to mitigate losses. Learn all about it in "Cryptocurrency Hedging Strategy: the Ultimate Guide".