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Even though I’m not a big fan of trading, it’s interesting that cryptocurrency trading has evolved to the point where it encompasses (or even exceeds) the trading strategies of traditional financial markets.

Scalping is the one popular trading strategy used in the financial market that is also used in the crypto market now.

So, in this post, we’ll delve into what scalping is and the dos and don’ts.

What Is Scalping?

Scalping is a trading type where traders place multiple trades over a short period.

These trades can be as short as 1 second to a minute.

The trader’s aim is to take multiple quick trades in a single day and make an overall profit.

For example, Scalpers may aim to gain only 1-3% profit per trade. But executing 100+ trades a day allows those gains to compound significantly.

To engage in scalping, you need strong technical analysis skills. This involves understanding technical indicators such as support/resistance, moving averages, RSI, and volume, which inform trade entries and exits. Scalping also involves capturing macro trends while exploiting temporary micro inefficiencies.

How to Scalp Trade Cryptocurrencies?

Being successful in scalping requires an instinct to choose the right trading opportunities. Here are the steps to master scalping:

Choose Correct Cryptos.

To do scalping, the first thing you need to do is to choose the correct crypto asset.

It is better to choose a crypto asset that has volatility and high liquidity. Top cryptos like Bitcoin, Ethereum, and Litecoin are common scalping choices due to their stability and trading volume.

Choose Your Entry Point.

For predetermining profits in the scalping, it is better to analyze the charts using technical indicators to determine optimal entry points. Common metrics used include moving averages, support/resistance levels, RSI, and volume.

Entry points are usually identified near support/resistance levels, moving average crossovers, oversold/overbought RSI conditions, and high-volume surges or breaks.

Place Target Buy and Sell Orders.

Once the entry point is identified, it is time to place a buy and sell order at a predetermined level.

The buy order gets filled on the bid/ask spread when the entry point is reached. The sell order should be placed 1-3% higher to exit the trade at a profit.

Set a Stop Loss.

Risk management is crucial for any trade.

Even the precise analysis can fail at the time of trading, so a stop-loss order is placed below the buy order to limit potential losses if the trade moves against it.

Not only protecting from loss, stop loss is also important to protect capital and placed conservatively to give the trade room to fluctuate normally.

Monitor the Trade.

In scalping, multiple trades are placed at the same time, and scalpers must actively monitor their positions.

Also, sometimes, when price auctions unfold, scalpers have to make additional entries, exits, or stop loss modifications.

Use Bots.

Speed matters in the scalping, so who uses the software is consistently in the lead.

Using scalping bots from a trusted platform can easily bypass all the manual things scalpers have to do.

Manual management of an investment portfolio is often time-consuming and prone to errors.

Types of Scalp Trading.

There are several strategies that traders use to effectively execute scalping. Here are some of them:

Range Trading.

Range trading involves trading within a specific price range. When a cryptocurrency’s price consistently moves within a defined range over a certain timeframe, it is said to be trading within that “range.”

Traders enter the trade within this period to book profit.

The high point in the range is known as the resistance level, and the low point is known as the support level. A trader can buy at the support level and sell at the resistance level. They can also enter short trades at the resistance level and close their positions at the support level.

Bid-Ask Strategy.

The volatile nature of crypto assets often leads to price differences between the bid and ask prices in the exchange order book.

This price difference allows scalpers to take advantage and book profit.

However, identifying these price differences quickly can be challenging due to the efficiency of exchange algorithms. As a result, traders often rely on bots to efficiently identify minor price differences in the market.

Leverage.

Leverage allows traders to borrow funds for trading if they are confident about market fluctuations but have limited capital.

Traders can use borrowed funds as margin and trade with third-party funds. 

However, this is a risky strategy as it is tough to predict crypto price movements and borrowing funds to trade is always risky. Scalp traders using this technique usually set very tight stop losses to limit potential losses.

Key Factors in Scalp Trading Success.

Here are some key factors you must follow to become the best scalper.

Have a Plan.

Scalping is not possible without a proper trading plan. 

Set techniques, patterns, risk parameters, and target profit goals before trading.

Use Leverage Cautiously.

Taking leverage can enhance the profit but also the loss. Only leverage what you can afford.

Keep Position Size Small.

In scalping, you have to take multiple trades in quick succession, so don’t risk your capital more than 1-2% per trade.

Losses can accumulate quickly with micro-trades.

Master Chart and Patterns.

Become an expert in analyzing trends and technical indicators that signal entry/exit points.

Be Patient.

Not every day or minute is suitable for trading.

Let probability setups form. Don’t force trades when the conditions aren’t right.

Be Quick and Decisive.

Be patient and wait for the right movement. In scalp trading, the right movement is in a split second, so don’t second guess your strategy.

Stick To The Profit Target.

Don’t be greedy to chase extra gains when you achieve the profit target. Because it could backfire and erode your gains.

Learn From Losses.

Losses are part of trading. Analyze why they occurred and improve.

Technical analysis risk management with the trading plan is essential in scalp trading. Patience and decisiveness are also vital skills. Cryptocurrency markets provide the volatility needed, but it’s up to the trader to execute the proper scalping strategies.

Risks Involved in Scalp Trading.

Requires Constant Focus.

For scalping, you need to constantly monitor market movements, watching position charts for trading opportunities. It can be mentally exhausting.

High Commission.

Multiple high-volume trades can quickly accumulate exchange fees, which eat into profits.

Look for a zero or low-commission platform for trading.

Difficult to Automate.

Even though trading bots are there to trade, it is difficult to automate scalping.

Unlike swing or position trading, scalping is hard to systemize. The discretionary decisions and quick adjustments make automation tricky.

Increased Risk of Liquidation.

Use stop loss wisely because small margins for error, forced liquidations are more common if a trade moves against you.

Not Ideal for Low Volatility Markets.

Scalping is most effective when prices exhibit wide movements.

Low volatility makes profits harder.

Conclusion.

Scalp trading is best suitable for those who enjoy the fast-paced, high-intensity nature of seeking profits from short term fluctuations.

In the long term, it is meaningless to focus on minor price swings. Long-term investors provide opportunities for scalpers with the right abilities and risk tolerance.

For traders willing to put in the work to master scalp trading, the potential profits make it an intriguing option.

But as an individual, now you are familiar with scalping crypto. You understand the concept, strategy, keys to success, and risks involved. So make your own decision. Sometimes, it is not enough to just understand the concept. You have to look further to understand the market conditions and find out what causes the price fluctuation.

And finally do consider this post only a good guide for scalping not advice to do scaling.