By Nathan Ferguson
Mining cryptocurrencies has been getting harder with each passing day. This is due to the reason that the mining equipment is getting sophisticated. Miners from all over the world are buying the latest mining equipment to earn maximum profit. Therefore, the competition is getting tough. As a result, most people are switching toward trading cryptocurrencies.
It is common knowledge that cryptocurrencies are highly volatile. Their prices fluctuate with each passing minute. Most traders try to exploit this fluctuation and make a profit by rapid buying and selling of cryptocurrencies. This phenomenon is called crypto scalping.
Crypto scalping is a novel trading technique used in the crypto trading community. Crypto traders rely on making money from the slight variations in the prices of cryptocurrencies. They purchase the cryptocurrencies at low rates and sell these currencies as soon as the price climbs even a little bit.
Crypto scalping is a risky process. The traders have to be aware of the risk that they are taking. After calculating the risks, crypto trades observe the changes in the price fluctuation of the currencies and perform trades that benefit them.
This article will discuss the detail of crypto scalping, the art of scalping while observing the fluctuation in the cryptocurrencies, the complications involved in the process, the advantages and disadvantages of scalping, and how much money is needed to be invested in scalping to get a reasonable return.
Scalp Trading
The aim of digital currency scalp traders is to make little profits by engaging in several trades over the course of a short period. The small trades ensure that there is minimal risk. The profits made by such trades are also small. However, the repetitive nature of the process converts small gains into considerable profit.
Scalp trading requires in-depth knowledge of the market. The scalp traders need to be completely aware of all the latest news in the crypto community. Although crypto scalping is a short-term trading technique, it requires a lot of market insights.
The traders need to be completely aware of the supply and demand of the currency they aim to scalp. The traders use spreads to trade. The spread allows traders to buy the cryptocurrency at the bid price and sell it at the asking price. In this way, scalp traders make profits for every transaction.
How does scalp trading work
Scalping requires in-depth knowledge of the crypto market. It requires detailed insight into the market. The market knowledge is later analyzed technically and then the trader makes an informed decision with calculated risk.
Traders use technical analysis to calculate the spread gap between the bid price and asking price. This gap is then further analyzed by software and the final result is presented to the trader. This finalized analysis enables scalp traders to make their desired trade.
Elements of Crypto Scalp Trading
There are three basic elements of crypto scalping. These elements are charting, speed and consistency. These elements are essential for scalp trading and must be taken into account while scalp trading cryptocurrencies.
Charting is the study of the price variation of cryptocurrency. Scalp traders use charts to determine the price of their cryptocurrency. If the chart drops below their desired value, then they purchase the cryptocurrency. Similarly, if the chart goes up beyond a certain point, the traders sell their assets of cryptocurrency. This way, the gap between the buying price and the selling price generates profit for each trade.
Speed and consistency are the next essential elements of scalp trading. Traders rely on making speedy trades because it allows them to earn maximum profit in a short amount of time. Since the crypto market is extremely volatile, traders make trades in a matter of seconds to avoid any loss.
Therefore, it can be said that the crypto market is speedy and it can vary in a matter of seconds. To avoid any losses, the traders have to be vigilant enough to avoid any loss and make profitable scalp trade.
Lastly, consistency is of paramount importance in crypto scalping. Since the rewards for scalping for a single trade are low; the scalp traders rely on performing multiple trades at a time. This enables them to reduce the risks involved and maximize their profits. The volatility of the market forces the scalp traders to make speedy trades and the consistency ensures that the scalp traders get the maximum payouts.
Mechanism and Tools of Scalping
Crypto scalpers use different indicators that enable them to make profitable scalping. These indicators include leverage, bid-ask spread, and range trading. All of these tools are essential to scalping. These indicators are used by professional traders all around the world while scalping.
The indicators provide the information that is necessary to understand the trend of the market, gauge the supply and demand curve, and get in touch with the latest happenings in the crypto community. Therefore, these indicators must be understood thoroughly to have a profitable scalping experience. These indicators are briefly explained below.
Leverage means how much scalp traders contribute themselves to increase their margins. This means that the traders contribute a certain amount of their profits into scalping leverage so that their margins for the next trade could be increased. This method is common in scalping and it is used worldwide by all professional scalpers.
Therefore, this technique is also recommended for new scalpers as well. Moreover, some scalpers use leverage to increase the size of their position. With increased position size, the scalpers can make profitable traders and earn more profit.
Range trader is another important scalping tool. This tool is utilized by traders who aim to have safe and secure trades. This tool eliminates any potential threat of loss. The tool enables the scalper to set upper and lower limits on trading. Therefore, if the price of a particular currency falls below a certain value, the system automatically sells the assets to avoid any losses.
In the same way, if the price of the cryptocurrency increases to a particular level, then the system sells the assets to obtain the profit from that trade. This tool is extremely helpful for scalpers who prefer to trade safely and avoid any risks and mishaps.
Another useful tool in scalping is the Bid-ask spread. This spread is the difference between the bid price and the asking price. This strategy enables the scalpers to take advantage of the price fluctuation between the highest bid price and the lowest ask price.
Scalpers all over the world employ this tool to get the most profit in a single trade. The volatility of the market further aids the scalpers because a sudden increase in the selling price results in maximum profits.
Scalpers can also purchase and sell the same asset in different marketplaces. This is called Arbitrage. This tool is also of paramount importance to scalpers because it allows them to take advantage of different trading marketplaces worldwide.
The scalpers use this tool to trade freely in the open market. They look for different markets that offer minimum rates for the trade. This way, scalpers can reduce their risk of losing money in the trades by ensuring that their selling price is always less than the buying price.
Types of cryptocurrency arbitrage trading strategies
Spatial arbitrage and pairing arbitrage are the two types of cryptocurrency arbitrage trading strategies. Both of these strategies are aimed at reducing the risk for scalpers and allowing them to earn maximum profit.
In spatial arbitrage, a trader can initiate short positions and long positions at various marketplaces simultaneously. This helps traders to protect themselves from any sudden changes in the prices of their assets.
This reduces the risk for scalpers because it allows the scalpers to invest in various exchanges simultaneously and if one exchange plunges into loss the scalpers could make a profit from another one. Therefore, this type of arbitrage trading is used worldwide by professional scalpers.
Pairing arbitrage is different from spatial arbitrage because it offers scalping on only one platform. In this type of arbitrage, the scalpers use only one platform to trade. However, they may choose the pair that offers the lowest volatility.
The scalpers in this type of arbitrage use the crypto pairs that are most stable and offer handsome rewards regularly. USD/ETH and USD/BTC are examples of such pairs because these cryptocurrencies are stable and don’t fluctuate like other cryptocurrencies.
The process of setting up a crypto scalping trading strategy
Scalping of cryptocurrency depends upon the strategy that the trader follows. Since crypto trading is extremely volatile, the new traders often find it difficult to make a profit, and often they end up losing most of their money. Therefore, to succeed in the scalping process and make profitable trades, the traders must follow a proper scalping strategy to save their money, energy, and effort.
The detailed crypto scalping trading strategy given below is developed by the pioneer of the trading community. The guidelines given below allow traders to make profitable trades and avoid losing their money by making bad decisions. Therefore, the following steps must be followed to set up a crypto scalping trading strategy:
Choose stable and trending pairs: Crypto trading is all about choosing the right trading pair. Usually, the volatility in the crypto market makes it difficult to spot a trending pair. To solve this issue, one needs to look at the chart value of the pair and analyze it over six months at least. This will give an insight into the extent of volatility or stability of the currency. Choosing the right pair will help traders to get the maximum return on investment.
Choose the right trading platform: Numerous trading platforms offer scalping services. However, only a few of them are worth trying. While choosing the trading platform, one must be mindful of the trading fee, customer service, interface, hidden charges, and customer feedback of the platform.
Many trading platforms charge high fees or deduct hidden charges. Since new scalpers are unaware of these tricks, they fall victim to such predators.
Use scalper bots: Speed is the foundation of scalping. The traders who trade with more speed are always more successful than the ones trading with low speeds. High trading speed allows traders to exploit the volatility of the market. Nowadays, there is various software available for scalping. This software is time-saving and error-free. Therefore, the use of this software is highly recommended because they ensure greater profit margins.
Try multiple trading strategies: Before diving into the volatile world of scalping, make sure that you are fully aware of the field. Moreover, look out for different strategies. Never rely on a single strategy or a single platform. Rather, diversify your options, this will help you to reduce your risk while maximizing your profit.
Advantages and disadvantages of scalp trading
Like all trading strategies, scalp trading has certain advantages and disadvantages. Scalp trading may not fulfill the needs of all traders. However, it may suffice for some beginners. First of all, scalp trading is a low-risk trading strategy. This is due to the fact that it has smaller position sizes. Therefore, beginners have a small chance of losing their money. Even if the traders lose money, the amount is of negligible value.
Moreover, scalpers can’t take advantage of significant price changes. They can only take advantage of small moves regularly. Therefore, any bull run may not have a huge impact on scalp trading. On the other hand, a sudden drop in prices in the market would also not affect the scalper’s portfolio.
The scalpers have to make multiple trades across different marketplaces to make sure that they get a decent payout. The Economist states that scalping is not profitable in 90% of the trades. Therefore, scalpers have to rely on the use of multiple trades and different trading platforms to get the most out of their time and money.
Furthermore, scalping requires a lot of technical skills and technical analysis as well. Although scalping is a short-term strategy, it requires in-depth knowledge of the market. Also, the final amount of payout is decided by the trading volume of the scalper. The more the initial investment, the more the payout. Therefore, initial investment also plays a role in scalping.
Day trading vs. scalp trading
Opposite to long-term trading, day trading involves focusing on minute price changes. Moreover, day trading involves holding assets for some hours. In scalp trading, the traders hold the asset for seconds or minutes. In day trading, the trader holds the asset for some hours.
Furthermore, scalpers perform tens or hundreds of trades per day to make decent payouts. Day traders usually make a few trades and they often hold their assets for hours.
Another form of trading is swing trading. This type of trading is also different from scalp trading because, in swing trading, traders hold their assets for weeks or months sometimes. Whereas, scalpers trade their assets every few seconds.
Another difference between swing trading and scalp trading is that swing trading is long-term trading. Therefore, it requires detailed knowledge of the market and an in-depth understanding of crypto trading. Moreover, traders need to be aware of all international news about cryptocurrencies.
On the other hand, scalp trading involves short-term trading. In scalp trading, one has to constantly monitor the price fluctuation throughout the trading session.
Is scalp trading of cryptocurrencies worth it ?
The ability to read, understand and analyze charts lie at the heart of scalp trading. One who becomes an expert in chart reading becomes an expert in scalp trading. Generally, scalp trading is demanding. It demands constant monitoring of the price fluctuation. Therefore, it may present a challenge to some traders, who prefer their comfort and mental freedom.
Moreover, the gains of scalp trading are very small. The traders require a huge volume of capital to produce reasonable gains. The volume of initial investment is of paramount importance in scalp trading. Traders with more initial capital can benefit more from scalping than traders with relatively low initial capital.
Another useful strategy of scalping is the use of tools. The scalping tools provide the necessary insights into the trading world and enable the scalper to make profitable trades. The Crypto scalping journey is a unique one. There is no all-knowing strategy. There is no single right path to follow. Scalp trading is based more on the personal nature and experience of the trader.
One has to find one’s way in scalp trading because the tricks that prove beneficial for one trader might prove to be disastrous for the other. Therefore, the journey of scalp trading is molded by the personal experience of the trader.
The critical lesson to be learned for all traders is to manage their risks. Risk management lies at the heart of scalp trading. Scalp trading is all about entry points and exit points. A scalper needs to be an expert in determining the correct entry and exit points. The difference in these points amounts to the profit earned by the scalper.