Introduction to Scalp Trading

scalp trading Jun 30, 2021

Like most people around the world, you most likely were slightly bewildered the first time you heard the term ‘cryptocurrency’.

You most likely dismissed it out of hand as another internet fad that would soon be replaced by another and smugly nodded as the term faded from public consciousness, seemingly proving you right.

However, it came back, shocking you and this time, it has grown so large that it has changed the lives of many people and been adopted by several governments worldwide.

Now, there are crypto exchanges everywhere and the way crypto is discussed on your social media timeline makes it feel like you’ve just arrived in a new city where everyone speaks a different language.

At this point, your interest is piqued; you need an alternative source of income to bolster your finances so you decide to jump on the crypto wave.

What do you do when you go to live in a foreign country with a different language than yours? You learn the language or at least the basics so you can communicate better.

In the introduction to spot trading article, the basics of crypto trading was discussed with several trading strategies highlighted. In this article, one of the trading strategies previously discussed, known as “scalping” will be expanded upon.

WHAT IS SCALP TRADING?

The goal of every trader is to make as much profit as possible with minimal risk and scalping is no different.

Scalping is a short-term trading strategy that involves stretching out numerous, small trades over a day to benefit from small price changes.

Scalping is based on the premise that smaller moves are easier to get and more frequent than larger moves. Traders who favor this trading strategy are not interested in the larger profit opportunities but prefer to make an easy, quick killing in several different trades in the hope that if executed well, these small trades will add up to a profit greater than the sum of its parts.

It’s also a way for traders to hedge their bets as this type of trading is less risky than going for a huge profit.

An easy way to explain this is with football betting, for those that are familiar with the concept. Compare two punters who want to place bets in one day with $100, one wants to go for a 10-game accumulator full of risky bets like; Wolves to defeat Man city, Leganes to defeat Barcelona etc. and places the whole amount on that bet. The other prefers to place five separate bets with $20 each; Liverpool to defeat Arsenal. Bayern Munich to defeat any German team. Sheffield United to lose to any EPL team. Each has a different betting strategy and the former has a bigger chance to win more money by betting on the underdogs to win. However, he’s taking more risks and there are too many variables in play so it’s unlikely he makes any profit off that bet.  The latter has a bigger chance of winning because he placed safer bets, going for the most likely outcomes, and although football is a game where anything can happen, he has a bigger chance of winning over half of the bets placed and making a profit on his initial bet. This strategy, although carrying significantly lower profits than the former, has a higher chance of winning and long-term, is the safer strategy.

Scalping works the same way, scalpers need to first understand the comparatively safer bets to place while also combining quick, precise decision-making with a knowledge of how the market works. It is a good tactic for newbie traders to begin their trading journey until they understand market complexities better.

WHAT SCALP TRADING STRATEGIES CAN YOU USE?

Successfully executed scalp trades require traders to be attuned to exact market changes and have the willpower to back out of trades when the exact moment to strike and make the trade has passed.

To successfully execute this strategy, a trader needs to be patient enough to wait for the right opportunity to pull the trigger on the perfect trade, by deciding the right time, and having the discipline to walk away if the exact moment to make the trade is missed.

For scalping, there are several strategies traders can implement to ensure their scalp trading is more successful than not.

FIVE STRATEGIES TO EXECUTE TO MAKE YOUR SCALP TRADING A SUCCESS:

1.     Crypto Range Trading: The price movement between high and low steady price levels within a specific period is the range. When traders choose this strategy, they tend to go in both long and short (at separate times) depending on the position of the price within that range.

At the specific point when the trader identifies the ideal trading range, he can manually enter positions by acquiring at support and selling at resistance*. Once the market reaches support level (a price the company rarely goes below), scalpers can easily send limit orders** to long crypto at a lower entry price within the range. Scalpers can easily exchange ranges in level markets.

For example, if Dogecoin is available at $0.26 dollars on the Obiex app, and  you believe the value will rise to $0.80 dollars, you can then choose to obtain several quantities of $Doge and trade in a range between $0.26 and $0.80 dollars. This means you buy the Dogecoin at the normal price, sell it if it rises to around $0.80 and continue this pattern until you think the stock will no longer trade in that range. This is going long.

To take a short position, you decide to sell some/most/all of your dogecoin if you anticipate a drop in the value of the dogecoin. If, as predicted, the value drops, you can start buying up dogecoin again when you feel the value is about to start trending upward. the (lower) amount you buy back, compared to the value you sold it means you've made a profit by taking a short position.

To employ the crypto range trading strategy, you take advantage of markets that fluctuate within a range of consistent highs and lows. If the swings are not consistent and are too abrupt, avoid the trade.

2.     Arbitrage/Exchange: this strategy is popular in crypto trading because of how much prices fluctuate and vary across exchanges, allowing a savvy trader to make quick profits by buying and selling the same asset(s) in different exchanges.

If for example, on the Obiex app, 1 $BTC is available at $34,435.71 but Bitcoin is available on another trading platform for $34, 234.71, you could buy the bitcoin on the other trading platform and flip it by selling it on Obiex to make a quick $210 profit.

3.     Price Action: this strategy is based on traders studying (seeing and interpreting) the asset price movement to create trade ideas. There are several tools that can be used to analyze price action such as: line chart, bar chart and the Japanese candlestick chart.  

Line chart © Investopedia
Bar Chart © Investopedia


Japanese Candlestick chart ©Alphaex Capital

Using the tools mentioned here, along with some practice, you will be able to read the market, predict and make trading decisions based on readily available data. For more information about how to utilize the ‘price action’ strategy, check here.

4.     Bid-Ask Spread: this strategy is the difference between the highest price a buyer will pay for an asset and the lowest price a seller will accept.

An example is if you’re trying to buy 1$BTC from someone and you offer them $33, 000 for it. If the person refuses and insists on selling the Bitcoin to you at $34, 900, the difference; $1,900 is the spread.

In simpler terms, your bid is the demand while the counter-offer of $34,900 is the supply. Basically, the bid-ask spread is the difference between the asking price and the offering price of a cryptocurrency coin/transaction.

5.      Margin Trading: This strategy involves using third party funds to improve gains, thereby allowing traders to invest larger amounts and leverage their positions, potentially leading to higher profits. When a trader initiates a margin trade, the trader will have to commit a percentage of the total order value, this percentage is the margin.

If you want to buy some Bitcoin because you believe the value will appreciate, you can either buy the corresponding value of bitcoin and choose to leverage a trade on the trading platform.

The rate you're offered will let you know how much you need to invest from your own funds. For 10:1, it means for every $10, you'll be required to invest $1 from your account and the rest will be covered by the trading platform you use.

BEST TOOLS TO SCALP CRYPTO WITH

Even the most experienced traders need certain tools to make trades more quickly and efficiently. Here are some tools that will help you scalp trade crypto better:

1. Crypto Trading Bots: This is the most popular software tool designed for traders. Trading bots like Pionex and ApexTrader use preset criteria and set instructions to perform automated trading. With these, a trader can make continuous trades while the bot enhances the probability for success and minimizes the possibility of failure.

2. Crypto Trading Charts: Crypto trading charts such as price and volume charts give traders all the necessary information they need, making it impossible to trade, or even scalp without consulting trading charts.

3. Crypto API Tools: Crypto APIs provide traders with several functions such as wallet integration, market price tracking, and transaction support. They can even help traders conduct academic research into cryptocurrency and build trading bots. Examples of Crypto APIs include LunarCRUSH and Messari.

PROS AND CONS OF CRYPTO SCALP TRADING

Pros: The risks to traders are lower as smaller price positions are targeted, making it easier to record a higher success rate since small price movements occur with a higher frequency than large price movements.

Scalp trading can also be automated easily, making it easy for the trader to make continuous trades while the bot enhances the rate of success and reduces the possibility of failure.

Cons: Scalping requires quick decision making to trigger trades at the precise moment the trade should be executed, leaving a very narrow window of opportunity. If that window is missed, the success rate drops considerably.

The profits are also quite low and require a large amount of trades (sometimes hundreds of trades) to turn a decent profit.

FAQs

1.     Is crypto scalping a viable trading method for a beginner?

This depends on the qualities you possess. If you’re impatient and prefer to make your profits quickly, then this trading technique is not for you as it requires patience, discipline and very good timing.

2.     Is crypto scalping illegal?

No it isn’t. Unlike regular scalping where scalpers buy game tickets and resell them at inflated prices, crypto scalping is a perfectly legitimate way to make profits off cryptocurrency.

3.     Is crypto scalping the same as forex scalping?

There are similarities between both kinds of scalping such as the supply & demand, the digital platforms they’re both available on and the fact that you can use trading bots to trade both forex and crypto.

There are also differences however as cryptocurrency is more volatile than forex and forex requires an intermediary to trade while crypto trading does not use middle men.

Cryptocurrency trades can also be made 24/7 while forex markets are not available over the weekend.

4.     Will I be charged a trading fee?

As scalping requires you to make hundreds of trades to turn a profit, you will use many different exchanges, some of which will charge trading fees per transaction. This is where Obiex has a clear advantage over other trading platforms - you will not be charged a trading fee on Obiex.

5.     What trading platform should I pick?

Obiex, of course. We're the best🙂

CONCLUSION

It is important to know that scalp trading isn’t for everyone as it requires people with the patience to sit through hundreds of small trades and the discipline to do that without jumping the gun and taking a huge risk. However, if you possess both these qualities, crypto scalping is a good place for you to begin your crypto trading journey.

Good luck! 👍🏽


*Support and Resistance: Support is the price level reached where the value of a particular cryptocurrency drops and the demand for it suddenly increases. This is caused by the concentration of demand which will arrest the decrease in value of the particular coin.

Resistance refers to the zones that are created by selling interest as prices increase.

** Limit orders: A limit order is a command given to buy or sell crypto for at least a specific rate. Limit orders will only be filled if the value of the cryptocurrency is at least a particular value or more, never less.

They help to ensure traders do not pay more/receive less than a price you set and are very useful if you're not in a trade, making it perfect for scalp trading.


Tags

Great! You've successfully subscribed.
Great! Next, complete checkout for full access.
Welcome back! You've successfully signed in.
Success! Your account is fully activated, you now have access to all content.