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Scalping is one of the day trading methods that require intense TA (Technical Analysis) and discipline. Scalping is a highly intense but rewarding trading strategy if the trader is careful and practices flawless TA, and sticks to a predetermined system.
But, what exactly is scalping in crypto?
Scalping is a strategy that is used by traders who like to get in and out of a trade in a short amount of time, preferably less than a day. Traders who practice scalping are known as scalpers and are aiming to profit from small price moments. With the volatility associated with crypto, scalping is a high-risk, high-profit trading strategy relative to other markets.
Scalpers tend to harvest limited profits from small but repetitive trades. Their goal is small but consistent profits over and over again. Many traders scalp to get a shot of adrenaline, and they generally use leverage to increase their buying power. Unlike usual day traders, scalpers rely on various technical indicators like support and resistance, RSI, and candlestick patterns.
In scalp trading, positions are typically closed as soon as they become profitable; making a profit in the neighborhood of 2% is enough. The key is to repeatedly make small profits until the daily target quota is achieved.
Scalping: Basic Prerequisites
- Strong Technical Analysis skills
- Charting tools
- Capital management skills
- Discipline
- Trend line analysis
What is the difference between scalping in cryptocurrency and other markets?
Even though the concept of scalping throughout all market genres remains the same, scalping in cryptocurrencies is totally different. Below are some of the major differences between scalping in crypto and regulated markets. These differences are to be acknowledged, and scalping strategies are to be applied accordingly for a profitable scalping experience in the crypto domain.
Volatility
An unregulated market like cryptocurrency tends to be more volatile than other markets like the share market. A skilled scalper will seize the opportunity, take advantage of the volatility, and generate quick and relatively more profits with crypto. But high profit means high risk, and hence the chance of a loss is also high.
Mediator
Markets like Forex require an intermediary or mediator to regulate the transactions, leading to a higher cost of transactions since a scalper takes on repetitive and sometimes multiple trades; transaction costs can go higher in other markets than crypto.
Time
Cryptocurrency markets are open 24X7X365; no matter what holiday it is, crypto never stops. Other markets like share and Forex are available at a fixed period, like certain hours of the day and weekdays. This opens a new window of opportunity, especially for scalpers, since there will be no delay in the market reaction to the news. Scalping is all about seizing the opportunity as soon as possible and open markets allow that.
Regulations
As mentioned above, cryptocurrency is not a regulated market; hence, there is a certain risk involved while trading with cryptocurrencies. However, Forex and the stock market are constantly monitored, and any kind of malpractice or abnormal volatility will be investigated.
What technical indicators are generally used for scalping?
Since fundamental analysis tends to work on the market slowly and can’t predict short-term and accurate movements, scalpers generally use technical analysis. Furthermore, precise technical analysis demonstrates high accuracy and hence is more relevant for them.
Exchanges like WazirX provide all major technical indicators that scalpers generally use, making it easier for them and, most importantly, saves them a ton of time.
With the appropriate amount of experience and knowledge, some scalpers usually use their own customized trading setup and sometimes trading indicators. But as a beginner, one can start by using the following trading indicators no matter what strategy they choose to practice:
- Candlestick pattern
- Trading volumes
- Relative Strength Index (RSI)
- Support and resistance
- Bollinger bands
- Fibonacci Retracement Patterns
- Moving Average Convergence Divergence(MACD)
- Order book analysis
- Exponential Moving Average(EMA)
- Trendline Analysis
While fundamentals help to understand the market state and where it will be heading in the long term, these technical indicators help scalpers provide good entering and exit points in different time frames. Each indicator doesn’t need to be always right, but using a collection of indicators will dramatically increase the accuracy of trades.
Some of the most famous scalping strategies
Range trading
Range trading is one of the most popular trading strategies among scalpers that involves monitoring the price movements(highs, lows) on a specific time frame, after establishing top and bottom, which will act as resistance and support, respectively. Buying at support and sell at resistance is generally the trading strategy, and if one of them is broken, traders can long or short accordingly.
Bid-Ask spread
Bid-Ask spread scalping strategy involves exploiting the order difference between the bid and ask prices in the exchange order book. The profit is the difference between both of them. The volatility of cryptocurrencies makes it easier for scalpers to exploit the order book, but it still requires considerable capital and a keen eye to make substantial profits.
Leverage
Leverage is one of the most prominent scalping methods out there; it increases a trader’s buying power exponentially. In leverage trading, instead of buying from the available capital, scalpers can use their capital as a margin and take a leveraged position (nx). Here, n is a natural number signifying the multiplier effect they are adding to their capital, that could be as high as the exchange allows. Of course, these leverage positions carry a risk of liquidation; traders need to manage their capital accordingly.
Some tips for beginner scalping traders
- Always use stop-loss, especially in leveraged positions.
- Commit most of your portfolio (at least 80%) into investing, and holding strategy since scalping carries higher risks.
- Use an exchange with high volumes and low fees, like WazirX.
- As a scalper, on some blue days, prepare to face loss.
- Do not take over-leverage positions or over trade.
- Practice strategies like portfolio rebalancing regularly.
- Do not go against the market sentiments.
- As a beginner, due to extreme volatility, try to scalp on top cryptocurrencies like Bitcoin and Ethereum.
- As a beginner, set and try to achieve daily targets.
- Learn to follow market waves.
- Avoid FOMO or FUD.
- Stick to one strategy at a time.
- Even though it is not necessary, solid fundamental analysis might come in handy.
- As a beginner, start with a 30m to 1h time frame.
Role of exchanges in scalping
Exchanges play an essential role in scalping in crypto since it is the platform a trader will use for scalp trading. Since a scalper has to open and close trades again and again, they prefer exchanges with low fees. One has to be extremely fast in closing and opening trades since volatility might not give them another chance; hence, the exchange must have high volumes, providing enough liquidity for multiple traders.
WazirX is one of the leading exchanges in the market, with INR pairs that can be used for scalping because of the low fees, remarkably high volumes, and strong customer support.
If you are a beginner in crypto or looking for short-term but confirmed profits, scalping is for you, but it is vital to DYOR. The key to becoming a successful crypto scalper is to enhance your charting reading skills, knowledge, and decision-making speed. But it is also important to remember that even losses are a part of the game. And for being a master in scalp trading, bearing losses is necessary too.
Frequently Asked Questions
What Are The Best Cryptocurrencies To Invest In?
The best cryptocurrencies to invest in would be the ones you study and analyze in detail. Some of the most popular cryptocurrencies include Bitcoin, Ethereum, and many altcoins such as Tron, Ripple, Litecoin, etc.
What Is Cryptocurrency?
A cryptocurrency is a digital currency secured by encryption, due to which chances of activities such as counterfeiting and double-spending taking place get close to impossible. Cryptocurrencies get created on blockchain technology ( a distributed ledger enforced by a distributed network of computers). Cryptocurrencies are unique in that they do not get issued by any central authority. The term "cryptocurrency" comes from the encryption techniques used to keep digital currencies and the network safe.
Is Cryptocurrency Banned In India?
No, cryptocurrency is not banned in India. India has seen its ups and downs in the crypto sector concerning its legal status. The Reserve Bank of India (RBI) issued a circular in April 2018 advising all organizations under its jurisdiction not to trade in virtual currencies or provide services to assist anyone in dealing with or settling them. A government committee proposed outlawing all private cryptocurrencies in mid-2019, with up to ten years in prison and severe penalties for anyone dealing in digital currency. The Supreme Court overruled the RBI's circular in March 2020, allowing banks to undertake cryptocurrency transactions from dealers and exchanges.
Is Pi Cryptocurrency Safe?
Pi Network captured the crypto community’s interest even before it officially debuted. Its innovative mobile mining approach and user-friendly design simplify crypto adoption for a broader audience. Some users see this as a chance to get engaged in the crypto from the beginning and profit in the future, similar to how early Bitcoin adopters made huge profits by mining and keeping the coin. Other users have compared Pi to a worthless multi-level marketing (MLM) scheme.
Is Ethereum Safe To Invest?
The Bitcoin market is unquestionably more volatile than the stock market. This may not be the market for you if you are incredibly risk-averse. Ethereum, on the other hand, may be a terrific investment for you if you're a diamond-handed investor who won't lose sight of short-term losses. Ethereum is a relatively safe investment as it is also based on blockchain.
What Is The Meaning Of Crypto?
A cryptocurrency is a digital currency that is secured by the process of cryptography, making counterfeiting and double-spending almost impossible to happen. Blockchain technology is used to produce cryptocurrencies ( a distributed ledger enforced by a distributed network of computers). Cryptocurrencies are distinct in that a centralized authority does not issue them.
How Many Cryptocurrencies Are There?
There are over 5000 other digital currencies available on the internet in addition to Bitcoins. The only problem is that they haven't gotten the users' attention. Besides Bitcoins, a few other digital currencies have gained popularity among users. It's been more than ten years since Bitcoins were first released, and now they've achieved new heights thanks to their phenomenal success.
How To Invest In Cryptocurrency?
There are two ways of investing in cryptocurrency, mining and via exchanges. Cryptocurrency mining is considered the procedure of verifying and adding transactions to the blockchain public ledger. Another option is via cryptocurrency exchanges. Exchanges generate money by collecting transaction fees, but there are alternative websites where you can interact directly with other users who want to trade cryptocurrencies.
Are Cryptocurrencies Legal In India?
In India, cryptocurrency is legal, and anyone can buy, sell, and trade it. Because India lacks a regulatory system to regulate its operations, it is presently uncontrolled. According to the Ministry of Corporate Affairs, companies must now document their crypto trading/investments inside the financial year.
Can I Invest In Cryptocurrency?
Yes, with exchanges like WazirX, you may invest in cryptocurrency in India. To begin, go to the WazirX website and register. After that, you will receive a verification email. The link received by verification mail will only be available for a few seconds, so make sure you click it as quickly as possible. This will successfully verify your email address. The following step is to set up security, so choose the best solution for you. After you've set up the security, you'll be given the option of continuing with or without completing the KYC process.
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
