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
- 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.
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.
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.
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.
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 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 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 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.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.