Throughout the decades, trading developed multiple strategies and tactics, allowing traders to profit from their activity the way they like the most. Cryptocurrency traders quickly borrowed these practices for their own benefit. The crypto boom brought new demographics to trading and made inexperienced people learn trading strategies and how to combine them to earn through trading.
Lately, we have been publishing articles on how to read chart patterns, trade using multiple indicators, etc. This article tells about one of the popular trading strategies known as scalping. Although it was developed long before the emergence of cryptocurrencies per se, it is fully applicable to this market. From this article, you will learn what scalping means, what strategies are associated with scalping, and how scalpers make money.
What Is Scalping?
Before we go with the scalp trading definition, we should note that scalping is one of the four most effective trading strategies that, apart from scalping, include day trading, long-term trading, and swing trading.
Now, let’s move to the meaning of scalping. Scalp trading is a trading strategy that involves a myriad of low-amount trades made in a short time span. Scalping allows traders to accumulate considerable profits through the high number of transactions per a certain amount of time. Many scalpers use leverage to maximize profits from these trades.
Scalping is one of the most convenient trading models for the cryptocurrency market as the latter has been the most volatile market to date, and volatility is the key to scalping.
Scalping Compared to Day Trading, Swing Trading, and Long-term Trading
Scalping is similar to day trading. However, the latter strategy is about fewer daily trades with huge profits per trade. It’s all about scale. Day traders aim at the best trades they can open and close within one day, whereas scalpers hold positions for minutes or seconds and close them as soon as they get any profit. Day traders can wait for the best moment to execute an order, while scalping is about moving as quickly as possible. You can’t afford a long wait.
Swing trading is a different scale as this strategy supposes that you can hold positions for several days waiting for the best buying/selling opportunity to maximize profits. Statistics show swing traders use leverage less often than day traders and scalp traders. Such long-term processes require the use of stop-loss orders in order to prevent losses.
Long-term is the next step. This strategy involves even more extended periods of time in the hope of finding the best moment to win the most money via a single transaction. So, as you can see, scalping is the fastest trading style aimed at winning any amount of money in seconds. These small trades are piling into huge profits. In combination with margin trading, scalping can give huge returns.
How Do Scalpers Make Money?
Scalp trading requires a good understanding of the market, the skill of fast reaction, and good experience in trading. The profits are made of small wins from each transaction. The transactions are frequent and usually occur in a period of several seconds. Sometimes they take longer — up to 15 minutes or so.
Everyone makes mistakes — especially rookie traders. To avoid losses, scalp traders should use stop loss and take profit orders. Another excellent recommendation is to have practice using demo trading, a function available on several huge crypto exchanges. It will give you the much-needed skill without having to invest real money while you are learning.
Another significant factor in the success of scalping is the choice of the proper trading platform. If you choose to trade on an exchange with low liquidity or one that has a sluggish engine, your entire enterprise can fall short even if your skills are good enough. Actually, due to high speeds, scalping requires the best available exchanges capable of lightning-speed order execution.
The ability to seamlessly live update the actual market data on the graphs and in the charts is crucial for scalp trading. Scalpers monitor the price graphs for 1-minute periods. They need this data to be actual.
Scalping Trading Strategies
There are many ways traders use scalping. We’ll highlight several popular strategies. You can combine some of them if you believe it will improve your performance.
- One of the popular ones is called Crypto Range Trading. By “range,” we mean the difference between two prices an asset had in a given amount of time. Crypto Range Trading allows traders to post both long and short positions depending on the situation. You can buy at the support level and then sell when the price touches the resistance level. Limit orders can be used for long positions.
- Those of you who know how to read patterns and use multiple analysis tools (RSI, and others) quickly might prefer the Price Action strategy. It is based on the price movement analysis of a given asset and requires fast and proper reactions to the current changes on the graph.
- Arbitrage is one of the best strategies in the crypto market due to cryptocurrency’s high volatility. The strategy involves buying and selling the same asset at the same time on different platforms. The prices on different exchanges are not the same, so traders make micro-profits from each transaction when doing everything right.
- Another popular strategy is called Bid-Ask Spread. This spread is the range between the asking and the bid prices. The strategy works this way: you open the position at the bid or ask price and close it immediately after the price moves a bit in your favor. It can be wide (with an inflated asking price and too low bidding price) or narrow (the asking price is low and the bid is high, this variation is used when the buying pressure dominates the market).
- And, finally, Margin Trading. You can trade when the asset’s price makes tiny movements, but you can multiply your profits thanks to the borrowed leverage. This type of trading requires excellent skill as the mistakes are more costly than in the case of other strategies’ use. Not every crypto exchange supports margin trading, though. The conditions of margin trading on different exchanges can vary significantly, too. Do your own research if you want to try it out.
Should I Start Scalp Trading?
The answer is positive. If you are ready to learn something new and want to try trading in the fast lane, you can at least try scalping. Of course, first, it’s better to do it using a demo account without involving real money.
Why should you try scalping at all? Well, the reason is that if you do everything right, you can enjoy really huge returns. Even if you have a considerable percentage of mistakes, the overall result can be pretty good. By some accounts, even if only 60% of your scalping trades are profitable, you still will do well in the long run.
However, it’s only you who can decide whether you should or shouldn’t try this trading strategy. Scalping is not the only way to make money via trading. Some people prefer day trading and swing trading. Probably, you should stick with one of those, too.
The best way to figure out what strategy fits you the best is to try all of them and see what brings you the most cake. And, for sure, if you have all the conditions for scalping, you shouldn’t avoid trying this strategy, too.
Conclusion
Hopefully, with this article, you have learned what scalping is and can consider using this trading strategy or decide to opt for a different one if scalp trading doesn’t fit your skills or instincts. As scalping is one of the basic trading methods, you won’t have trouble finding guides on scalp trade (not necessarily cryptocurrencies). So we wish you good luck exploring your abilities and learning how to make money on the crypto market with or without scalping!
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