Cryptocurrency scalping is one of the most popular and intensive trading strategies, attracting many traders due to the high speed of trades and the opportunity for quick profits. Unlike long-term investments, scalping requires attention to minor price fluctuations and quick decisions.
What is cryptocurrency scalping?
Scalping is a method of trading cryptocurrencies, where a trader makes a large number of trades throughout the day with the goal of profiting from minor price fluctuations. Typically, trades last from a few seconds to a few minutes, and traders try to 'capture the cream' from small market movements. Speed plays a key role in scalping: it is essential to find cryptocurrencies where quick entry and exit from positions can be made, securing a small profit.
Scalping, day trading, and swing trading: what is the difference?
Trading and scalping cryptocurrencies are divided into several styles, each of which differs in the duration of trades, depending on market movements. Both types of trading have their pros and cons, as well as their risks:
Scalping: ultra-short trades aimed at profiting from the slightest price changes. The duration of trades ranges from seconds to minutes. Let's consider two types of scalping.
Day trading: in day trading, traders hold short positions for one day and close them before the trading session ends. This happens because most brokers charge a fee for holding a position. Day trader transactions can last from a few minutes to several hours, depending on market movements.
Swing trading: in swing trading, traders hold positions from several days to weeks, focusing on more significant price fluctuations.
The main difference between scalping and other types of trading is the extremely short holding time of positions and the high frequency of trades. The differences between these two types lie in the choice of timeframes on which trades are executed, as well as the duration of holding an open trade. Day trading typically uses smaller timeframes, such as from seconds and minute charts to one hour. For swing trading, it is necessary to choose longer timeframes, from 15 minutes to several hours. Higher timeframes are chosen by investors or those who trade according to the Hodl strategy (buy and forget), where positions can be held for a week or several months.
Scalping strategies for cryptocurrencies
Scalping includes many approaches to market analysis and opening trades. The main strategies include:
Trading at levels of diagonal or horizontal support and resistance: traders try to catch bounces from key price levels where the price changes direction.
Impulse scalping — based on using sharp price movements (impulses). Traders enter the market on the wave of strong movement and quickly secure profits.
Breakout orders — this strategy focuses on moments when the price breaks through important levels (for example, resistance or support), after which trades are opened in the direction of the movement.
Trading sessions — the main difference of the cryptocurrency market is that cryptocurrencies are traded around the clock. However, each region has its own working hours, so within a day, there are, for example, American, European, or Asian sessions. Some traders trade during the transition from one trading session to another, as increased volatility is noted before the close of one session and at the beginning of another, due to the fact that in one part of the world, trades are being closed, while in another, they are just starting.
In-book trading — small scalpers take large orders from major participants in the order book as a guide. Scalpers trade in the opposite direction of these orders or in the direction of the trend after a breakout when these areas with large orders are quickly 'dispatched' by other market participants.
News trading — in the world of cryptocurrencies, there are moments when news has an impact on prices, whether positive or negative. This can be related to updates or incidents in a specific project, such as a successful implementation of an update or a hack of the project and loss of funds. Global news, for example, changes in monetary policy in major countries, pandemics, or other important news in traditional finance, as well as statements from important public figures, also affect the volatility of the crypto market.
Scalping tools
Successful scalping requires special tools that help make quick decisions and manage risks.
Real-time charts: accurate and fast charts with minimal delay help track price changes.
Stop-Loss and Take-Profit orders: automation allows for instant closure of trades when reaching predefined profit or loss levels in percentage terms. With a Stop-Loss order, you can limit your losses or move a trade to a breakeven position and continue to observe the trade. With a Take-Profit order, traders can specify a value at which the trade will be closed, and the profit will be secured.
Scalping bots: automatic programs that open and close trades based on predetermined algorithms. Sometimes it is difficult to keep track of a large number of trades, especially if the trader simultaneously makes several trades on different assets. That is why high-frequency bots were created, which track many assets according to specified algorithms or parameters and execute trades automatically. Traders can only monitor the trades made by trading robots and adjust the settings or close a trade if the robot opens many losing trades.
Indicators for scalping cryptocurrencies
To analyze the market, scalpers use many technical indicators, among which:
Moving Averages SMA (Simple Moving Average) or EMA (Exponential Moving Average), which can indicate the direction of the trend and help identify reversal points;
RSI (Relative Strength Index): the RSI oscillator, or relative strength indicator, shows whether an asset is overbought or oversold, helping to predict reversal points where the price may change direction in the near future;
Bollinger Bands visualize market volatility, which is useful for finding entry and exit points. The indicator is based on three moving averages: upper, middle, and lower. The trading asset tends to bounce off these lines or move along one of them;
MACD (Moving Average Convergence Divergence) — the structure of the indicator includes a histogram and moving averages based on the RSI indicator but has its differences. The indicator allows tracking trend intersections and signals for opening trades at points where histograms or moving averages intersect.
In general, it can be said that when scalping cryptocurrencies, traders use the same indicators as traders and investors who trade on longer timeframes. The difference lies in the smaller timeframes.
Popular scalping terminals, screeners, and additional tools
For scalping, traders choose platforms with minimal delays and a user-friendly interface.
TradingView: one of the most popular platforms for technical analysis with many built-in indicators.
MetaTrader 4/5: a platform with extensive capabilities for scalping, including support for automated trading advisors.
3Commas: offers scalping bots and powerful tools for automating trading.
Screeners and additional tools
To select and track popular cryptocurrencies, traders can use resources like Coinmarketcap and Coingecko, Cryptorank, and Coinlore. On these resources, you will find almost any crypto project. You can then check information about the project, such as the official smart contract and social media, see which cryptocurrency exchanges trade the selected cryptocurrency, learn the daily volume and market capitalization, price changes, and capitalization. You can also sort cryptocurrencies by many parameters, such as trading volume, price, which coins have risen or fallen the most, and also divide them by sectors (Gaming, DeFi) and other parameters.
On the Bitinfocharts platform, you can track not only charts but also technical indicators of many leading coins. For example, the number of transactions, cost of fees, number of active wallets, and other parameters. You can pay attention to significant changes in technical data that may impact the price of the asset.
The so-called 'screeners' also play an important role, which allows tracking significant price or volume changes that are displayed in individual charts. Examples of screeners include Scalpstation, ScalpLive, CScalp Bitscreener, Arby Trade, Scalper, and others. Screeners help in real time to find interesting assets for scalping. For example, based on sudden changes in trading volume, breakouts of important support and resistance levels, formation of large areas from which trades can be made in the opposite direction, or after breakouts due to the 'dismantling' of these areas, as well as the purchase or sale of an asset for a large amount.
The best cryptocurrencies for scalping
For scalping, assets with high liquidity and volatility are suitable so that traders can quickly enter and exit trades. Among the best cryptocurrencies for scalping are:
Bitcoin: the most liquid cryptocurrency with high trading volume;
Ethereum: the second most popular asset with volatile movements;
Binance Coin: the exchange asset of Binance with a high liquidity level;
Ripple (XRP) and Solana (SOL): also popular cryptocurrencies for scalping due to their volatility and high trading volume.
One of the advantages of scalping cryptocurrencies is the wide selection of cryptocurrencies for trading. Traders can track a large number of cryptocurrencies where they believe an impulsive movement is expected. Therefore, during moments of low volatility in the cryptocurrency market, it is almost always possible to find an instrument that stands out due to increased volatility and trading volume.
Advantages and disadvantages of cryptocurrency scalping
Like any strategy, scalping has its pros and cons.
Advantages:
Quick profits due to frequent trades;
No need to wait for long-term trends;
Ability to work in any market, including flat;
A large number of cryptocurrencies for trading.
Disadvantages:
High commissions. With a large number of short-term transactions, the commission on trades can 'eat up' part of the profit. Cryptocurrency exchanges provide the opportunity to reduce fees by increasing the trading volume, even paying you for very high volumes. However, this requires a lot of capital to reach the necessary average daily volume.
Scalping requires significant time investment and constant attention to the market.
Risks of losing capital due to sharp price movements or delays on the platform. Usually, increased risks are related to increased leverage. Cryptocurrency exchanges allow you to multiply your funds several times based on your own funds. For example, with a leverage of X10 and an investment amount of $1000, you are trading a virtual amount of $10,000, so if the market moves against you by 1%, your loss is 10%.
Who is the scalping strategy suitable for when trading cryptocurrency?
Scalping is suitable for active traders who are willing to spend a lot of time analyzing the market and have sufficient experience with technical indicators. This strategy is best suited for those who like to make quick decisions and seek immediate results from their trading. Beginners may find it challenging to master scalping due to its high intensity and the need for a deep understanding of the market.
Cryptocurrency scalping is a complex but exciting strategy that can yield significant profits with the right approach. It requires maximum concentration from the trader, quick decision-making, and good market knowledge. However, with the proper use of tools and strategies, scalping can become a powerful way to earn from short-term fluctuations in cryptocurrency assets.
