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What is Scalp Trading in Crypto?
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5 Best Profitable Strategies for Scalping Crypto

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With 25+ years of financial marketing experience, Niki has an extensive knowledge of the forex, fintech, stocks and cryptocurrency sectors. Niki is a founder and director at the Contentworks agency.
By Niki Nikolaou
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With 25+ years of financial marketing experience, Niki has an extensive knowledge of the forex, fintech, stocks and cryptocurrency sectors. Niki is a founder and director at the Contentworks agency.
on March 21, 2023 | 6 min
Updated on Jan 22, 2024
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Charles Archer
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Charles Archer is an experienced financial writer specialising in monetary law. With a background in stock market and private equity analysis, he’s worked for many years as a freelance investment author, and has had articles published in a wide range of regional and national titles, both online and in print. He holds a Master’s degree in Law from the University of Law, the UK’s largest legal training institution. Charles believes the key to successful investing lies in quality research, and aims to offer a unique viewpoint that investors cannot find elsewhere.
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Cryptocurrency scalping is a high-frequency trading strategy to take advantage of small price fluctuations. Cryptocurrencies are popular among Millennials and Gen-Zs because of their digital and decentralized nature. The global cryptocurrency market size is expected to reach $11.71 billion by 2030, with a CAGR of 12% from 2022 to 2030. The popularity of this digital asset is the primary reason cryptocurrency scalping has gained popularity over the past few years. This article looks at the best cryptocurrency scalping strategies and describes how novice traders can develop a strong foundation for their crypto scalping.

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What is Scalp Trading in Crypto?

Scalping is one of the most popular cryptocurrency day trading strategies where traders aim to generate yields from small price movements. Scalpers open multiple small-sized positions throughout a trading session to make small profits in many of them. They look for highly liquid and volatile assets with significant trading volume, which provide more trading opportunities within a short timeframe.

This trading strategy requires swift decision-making to enter and exit a trade in a short time, even within seconds! In addition to charting and technical analysis, scalpers must develop strong trading psychology. This prevents them from making emotional decisions in the heat of the moment, as fast-paced trading may get intense. Often, scalp traders use leverage and tight stop losses to ensure risk management while aiming for compounded gains over a series of positions.

How Does Scalp Trading Work?

Scalp trading has three elements:

·  Consistency

A fast-paced environment with small gains may not suit every trader’s temperament. Scalping requires opening and closing positions repeatedly to make a considerable profit at the end of a trading day, even if some trades make losses.

·  Speed

As scalping takes advantage of the tiniest price movements, traders must respond very quickly to market movement. It is critical to not lose opportunities as traders aim to capitalize on price movements within minutes and even seconds.

·  Analytics

Scalpers use technical analysis to take advantage of gaps caused by bid-ask spreads and request streams. Basic knowledge of an asset’s fundamentals and market behavior helps traders make informed decisions.

Best Crypto Scalping Strategies

Choosing the best strategy for scalping cryptocurrency starts with traders recognizing their scalping goals and trading styles. Next, they should assess their risk appetite and choose the technique that aligns with all three, while ensuring they use risk management techniques.

1. Arbitrage

In this strategy, traders profit by buying and selling assets in two different exchanges. The trader aims to buy crypto for a lower price on one exchange and sell it for a higher price on another exchange. Crypto arbitrage opportunities arise due to the disparity in the liquidity in different exchanges. However, often price differences between cryptocurrency exchanges are not significant enough to record substantial gains even with multiple trades. Traders must consider the cost of trading when calculating whether arbitrage opportunities are worth it.

2. Crypto Range Trading

Range trading is one of the popular scalping techniques in crypto trading. In this, traders focus on crypto price movements within a range. Scalpers wait for a price range to get established to identify support and resistance levels for the timeframe they wish to trade in.

3. Price Action

This strategy requires deeper knowledge of the assets than just price movements. With the help of fundamental analysis and a study of the crypto markets, traders predict price movements that may be in-trend or against the trend. Experienced traders often use leverage to increase their profit potential while scalping. However, using leverage can be risky in the volatile crypto market, as it also enhances the losses when the market moves in the opposite direction to what one expected. Therefore, they use tight stop losses and size their positions according to their risk appetite.

4. Support and Resistance

This scalping strategy also begins with establishing support and resistance levels of the price action but differs in how traders take positions. During a trend, they may take positions to capture profits when the price breaks out of support or resistance. This technique is also known as breakout trading. While in oversold or overbought conditions, traders predict market corrections to make the most of a trend reversal. In both the above techniques, the price moves across one of the limits of the established range.

5. Bid-Ask Spread

Market makers – those market players with a duty to be the buyer or seller of last resort – make their profit from selling at a mark-up (known as the bid price) and buying at a mark-down (known as the ask price). The difference between these two prices is known as the bid-ask spread. However, it is impossible for a retail trader to replicate this strategy, so crypto traders should forget about this as it is not a realistic strategy.

How to Set Up a Crypto Scalping Trading Strategy?

Here is a simple step-by-step guide for beginners to develop an effective crypto scalp trading strategy:

  1. Calculate your risk-to-reward ratio. Based on that, choose a crypto pair that offers volatility and liquidity to help you meet your trading goals.
  2. Select a trading platform that facilitates trading with your chosen crypto Scalpers must consider the trading fee, platform credibility, and the complexity of the interface, before choosing a platform.
  3. Speed is essential in scalping. Experts often use scalping bots that help in selecting cryptos as per trading goals and strategies.
  4. Develop a risk management plan to ensure that losses do not accumulate.
  5. Try out different strategies and techniques with a demo account before entering the live markets. Choose a strategy that aligns with your trading plan and trading style.

Best Timeframe for Crypto Scalping

It is the timeframe that gives ‘trading velocity’ to scalpers. Crypto scalping timeframes can be anywhere between 30 seconds to 30 minutes. However, most traders consider a timeframe of 1 minute to 15 minutes as the best crypto scalping strategy.

Scalpers most commonly analyse price movements using 1-minute, 5-minute, and 15-minute charts. After setting the timeframe, they apply technical Indicators to charts that help them to make trading decisions. Traders can use the 4-hour (H4) or daily trends in their chosen cryptocurrency to get a broader perspective of the market. Additionally, traders should remain updated about the coin, market, and blockchain news as these can cause dramatic price movements.

Which Broker is the Best for Crypto Scalping

Choosing a brokerage can affect the number of trading opportunities, which impacts the profit potential of a scalp trader. A few things to look for are good reputation, long experience in the crypto market, wide assets offered, regulation, and alignment with the trader’s trading strategy. You can also read reviews of other traders before choosing a crypto scalping broker.

Best Tools to Scalp Trade Crypto

Traders can select from several tools available for crypto scalping based on their skill level. For instance, experienced traders prefer tools that offer high customisability, while coders prefer those that allow them to develop their trading techniques and automate them. However, the best way is to test the available tools on a demo account and choose accordingly. Some of the best tools widely on offer are:

1. Crypto Trading Bots

Manual trading can be slow and prone to errors. Therefore, from beginners to institutional traders, automation tools are often used to help enter and exit trades quickly when the opportunity arises. Trading bots work on pre-defined criteria and a set of instructions. They can be programmed to automatically apply risk management techniques.

2. Crypto API Tools

APIs provide additional support to what is offered by the trading platform. These APIs support a comprehensive range of functions, technical indicators, and facilities such as wallet integration and portfolio analysis.

3. Crypto Trading Charts

Price charts are very important for crypto scalping. Price and volume charts, when supplemented with technical indicators, give all the information required by traders (or bots) to set up a trading strategy, take positions, and set risk control limits.

How Scalping is Different in Crypto

Although both crypto and forex trading work on similar strategies and offer high liquidity desirable for scalp trading, there are some differences between the two:

  • Cryptocurrencies offer higher volatility and considerably larger price movements than forex markets. Cryptos are inherently more volatile than all traditional markets.
  • Cryptocurrency trading does not involve intermediaries, which translates to reduced transactional costs.
  • Cryptocurrency markets remain active 24/7, whereas forex is traded five days a week. Thus, there are more trading opportunities in crypto scalping than in forex.
  • Since cryptocurrencies are often not backed by ‘real’ assets, crypto trading can be riskier and more unpredictable than Forex trading.

Pros of Crypto Scalping Strategies

Crypto scalping strategies can be automated easily to aid quick action and increase the number of opportunities targeted, as smaller price fluctuations occur more often than sharp movements. Consistency pays well in crypto scalping when applied with robust techniques and stringent risk control measures.

Risks of Crypto Scalping Strategies

Crypto scalping is like other forms of trading in one way. It has associated risks. Position sizes tend to be large as profit targets tend to be relatively small. Therefore, crypto scalpers need markets with higher liquidity to increase their gains. Scalping inherently relies on more trading, which means incurring additional costs and risks.

Conclusion

Cryptocurrency scalping is one of the most popular strategies to take advantage of volatile crypto markets. Traders must back their trading decisions with a strong and analytical strategy and not act on impulse. They must use risk management techniques to cap their losses within their risk appetite.

FAQ

  • Is it legal to scalp crypto?
    Yes, crypto scalping is widely legal and one of the best crypto trading strategies.
  • Is crypto scalp trading worth it?
    Crypto scalp trading is a great strategy to take advantage of price fluctuations in cryptocurrency prices. It can be profitable, but you should keep in mind that crypto spreads are relatively large, which can make scalping challenging in this asset class.
  • Is scalp trading good for beginners?
    Scalp trading is challenging so may be hard for beginners to start their trading journey with. Swing or position trading is easier for most.
  • How to make money with a crypto scalping strategy?
    To make money from crypto scalping, traders must develop a strong strategy and use proper risk management tools. The goal is to book tiny gains in multiple short-term trades.
  • What is the best crypto scalping strategy?
    A trader’s individual goals, risk appetite, and trading style determine the most suitable strategy and risk control measures to take advantage of the volatile crypto market.
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About Niki Nikolaou
With 25+ years of financial marketing experience, Niki has an extensive knowledge of the forex, fintech, stocks and cryptocurrency sectors. Niki is a founder and director at the Contentworks agency.
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