If you know what forex trading is all about, then you must have come across the term
“Scalping”. It is also referred to as “scalp trading”. It is a trading strategy in which investors make profits from small changes in the prices of derivatives. For its execution, it mostly relies on technical analysis like MACD, and candlestick charts. This is now a common practice among crypto traders. This strategy is meant to quickly make profits, but the question that keeps coming up is, how does it work with cryptocurrencies such as Bitcoin? We’ll discuss the details of how scalping works for cryptos and how you can take advantage of it as a crypto trader.
How does scalping work?
It has historically been proven that scalping is a short-term and a low-risk type of trading strategy that leads to smaller profits with low risk. Traders using this strategy do it by quickly making a set of small trades. And as time goes in the trading day, these small trades can add up into a substantial amount in profits like in this minute scalping strategy, where a trader has to put in all his speed and focus for these small trades to come through, and this is the reason why most veteran traders use automated trading platforms, which are designed to help traders identify and execute trades based on data gotten from the scalp trading bots.
Traders using this strategy for cryptocurrency will monitor the prices of a crypto pair, say ETH/BTC or BTC/USD, and will make the most of the fluctuation in prices to make a wide range of profit from each small trade. Investors take advantage of increased trading volume when the prices go up because it adds liquidity. This allows you to quickly open and close trades without holding them for a long period of time. And as soon as the market gets to your target price, the sell signals will come up and close the positions for you while you exit with small profits.
Something very important that you have to consider while doing this strategy is the exchange and trading fees. Since most trades charge taker and nominal maker fees for each trade, and you’ll be making several small trades back-to-back, it is vital for you to have profit margins and the risk capital to pay the fees that you’ll incur using this strategy. Trades that promote liquidity always offer bonuses in order to reduce trading fees. These bonuses are always connected to an exchange specific token which can further be used to reduce the fees and at times go up to a 50% discount.
Altcoin scalping vs Bitcoin scalping
As compared to other cryptocurrencies, Bitcoin is often the most stable of their volatile group. This means that the profits per trade are lower, yet is good for scalp trading, as technical analysis predicts that BTC will remain stable throughout your trading session. That is why BTC scalping is the most common type of scalp trading in the cryptocurrency market.
On the contrary, Altcoin can have huge price differences. This is more so if they are not backed by a renowned company and are smaller coins. A coin could be removed from the listing, or a lot could just go wrong, together with any profits that you accrued from the trades. At times the price you pay for the trading fees could be more than what you make from trading if the coin is not worth much.
No matter the crypt you choose to try your scalping strategy with, what is very important is patience and focus. It is often advisable to switch your emotions off at this point and avoid getting frustrated easily or giving up quickly on your trade if you don’t make profits within a few minutes. The Axiory broker’s trading academy provides traders with the much-needed information and lessons through several educational articles that will help them understand a trading strategy using whatever means, whether through automation software or even manually.
What time is good for scalp trading with cryptos?
When you know what to watch out for, with more time and constant practice, you will be able to identify if the current market conditions favor scalping or not. There are three main market factors that crypto investors often look out for when using the scalping strategy.
Relative Strength Index (RSI)
This is a tool that is calculated in regard to the recent changes in price. The relative Strength Index assesses if an asset like Altcoin is oversold or overbought, and shows it as a line graph. It could indicate a value between 0 and 100. A 70 or more Relative Strength Index often suggests that an asset is oversold or overbought, which will be a good time to sell. When it is 30 or below, the reverse is true is undervalued and ready for an increase in price and means that it is a good time for a trader to buy.
Support and Resistance Levels
The support and resistance levels of an asset will change as its price increases or decreases. This change can trigger an asset to go through a downward trend and a concentration in demand or increase demand as the prices fall.
The Moving Average
Investors use this to gain an insight into where the prices of an instrument are leading to, using previous information to infer what will sell in the future. Some traders also track these indicators manually by using charts, although automation software can help you analyze the same information faster.
Scalping gives a trader the chance to make a lot of small profits from batches of small trades that accrue quickly, a true definition of “a little goes a long way”. However, traders should take note of the fees that come with such trades because at times, the value generated is less than the fee charged. However, as with anything else, for a trader to become an expert, they need to put in time and practice especially in a market as volatile as crypto trading.