What does mean by scalping in cryptocurrency market?

What does mean by scalping in cryptocurrency market?

Scalping in cryptocurrency

The idea that only long and medium-term investments in cryptocurrency can generate large profits is no longer valid today. Scalping and day trading strategy in the cryptocurrency market has become more popular and profitable among investors.

In this article, you will discover a precise definition, the most effective scalping techniques, and strategies, and finally, the precautions to take before you scalp the market.

What is Scalping?

  • Scalping is a very short-term trading strategy
  • This strategy consists of opening trades and closing them quickly with small profits
  • Scalping is high-frequency trading ( You can even take 100+ trades in a single day )
  • A strategy to accumulate profit from small price moves
  • The goal of traders is not to make a large profit from a single trade but to make small profits again and again from multiple trades

Scalping is based on the fact that it is easier to predict small market movements than large market movements. The scalper or investor will therefore open and close his position over a very short period (5- 15 min maximum) and take a few ticks or pips. 

Scalping (scalp trading) is one of the most widely used day trading strategies. It requires quick decision-making and skills in technical analysis and charting tools. The scalping strategy works in all financial markets including forex, stock, and cryptocurrency.

Scalping Techniques

  • Ichimoku

The Ichimoku method is the most popular. In the 1940s, a Japanese financial journalist studied the market for over 20 years to publish a 7-volume report on a method to analyze the market and draw bullish and bearish trends as simply as possible.

  • 1 Minute scalping

This technique is ideal for beginner traders but requires a great deal of organization and precision to make the scalper’s capital grow. This strategy consists of opening order and closing it after gaining pips.

  • Trend trade

A trading method based on market flows, consists of adapting one’s trade by opening positions in an upward or downward trend depending on the scalper’s strategy. 

Guidance for effective scalping

  • Being a scalper you need to understand the behavior of the market. Either it is an uptrend /downtrend, or range market and behaves accordingly.
  • Transactions cost brings a strong impact on scalpers’ trading results. This prompts them to overtrade, which is not an appropriate response, as any multiplication of positions exposes them more to the risk of failure. So, you need to be aware of the transaction fees charged by the exchange.
  • You must be aware of fundamental news, and if you find any fud in the market, stay out of the market. Scalping works better when the market is out of extreme fear. 
  • Scalping is a highly stressful form of trading. You have to make quick decisions because you follow short time frames. Scalpers typically trade on short time frames like 5 min or 15min, and some scalpers choose 1 min time frame as well.
  • Understanding the order book is necessary for scalpers. When you make quick trades, you must understand the flow of buying/selling of assets. 
  • Technical analysis is more important than fundamentals When you trade on short time frames. Scalpers should heavily rely on technicals to create more vital trade ideas.
  • There are a few technical factors that many scalpers follow. If you have an understanding of these, it can add value to your scalping strategy.
  1. Price action
  2. Trading volume
  3. Support and resistance levels
  4. Candlestick chart patterns
  • Many scalpers also follow technical indicators. You can’t rely heavily on these indicators but you can take help for more confirmation during trades. Here are a few important out of these.
  1. Moving averages 
  2. Relative strength index (RSI)
  3. Bollinger bands
  4. MACD
  5. Fibonacci retracement tool

Final thoughts

Scalping is a high-frequency form of trading to generate quick profits. However, the high volatility of the cryptocurrency market is the key factor that you must keep in mind when scalping the market. There is a high risk associated as well.

There is no single efficient scalping method, but an infinite number of methods. Each scalper has his or her own goals, knowledge, and risk tolerance. It is through trial and error that scalpers define themselves and know where and when to position themselves in the financial markets. 

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