Cryptocurrencies became the most lucrative target for scalpers who enjoy high market volatility, long uptrends, and good liquidity. Who are scalpers? These traders are often compared to day traders, but very distinct differences exist and set one group from another. The main difference is that many day traders do not aim to close their deals within an hour. Their orders stay up for many hours and generate decent profits when the stars align.
What's a scalp trade? It is an order with a lifespan shorter than half an hour and placed on a 1-minute or 5-minutes time frame. The idea of the strategy is to reduce potential risks by having a strict stop loss policy while aiming to take any profit. Originally used widely in Forex, the method became even more popular in crypto, since exchanges do not have a “spread” allowing for much better yields when dealing with coins and tokens.
Advantages of scalping
If you call yourself a scalp trader meaning that you focus on short time frames, chances are you understand why many active investors support this school of trading. There are several distinct advantages that this particular method has:
- Trend reversals are less devastating. The nightmare of a trader usually involves a sudden trend reversal that can only be compensated by a stop/loss. Many traders who operate on longer time frames do not use them and can become victims of a change of price direction. Downtrends that are not quickly countered by closing a deal can be very destructive to one’s portfolio.
- Higher rate of correct guesses. It is close to impossible to reliably predict the direction of the price within a day or a week. Longer periods can be analyzed using both technical and fundamental analysis. However, forecasts for hours or days are often skewed, due to panic selling, shocking news, and other events that cause dips and spikes. Using technical analysis alone can be beneficial in 1-minute and 5-minute frames.
- Lower entry barrier in terms of knowledge. You don’t have to rely on fundamental analysis at all and can skip the part where you have to study the asset. Knowing its price history is often enough to make educated guesses with some assistance from technical indicators.
The cryptocurrency scalping strategy is also great for the third reason. With several thousand different assets, it is hard to know much about them. Many are emerging projects that have enormous amounts of technobabble and sophisticated terminology. It is simply impossible to be an expert on any of them without lots and lots of time dedicated to forum surfing and other research.
Are there any disadvantages?
All the reasons above may have convinced you that a scalping crypto strategy is the best way to make money and the world will never come up with something comparable. However, one must understand that there is no profit without risk. Scalpers are concerned with many things like bankroll, liquidity, and even reaction speed. However, experts usually name two main disadvantages:
- The necessity of leverage. You either have to use a very large personal capital or use leverage to make substantial profits using small movements of the price. Using any borrowed funds is quite dangerous. The inherent risk of leverage is especially apparent when traders forget to use a stop loss.
- High intensity. Anxiety and stress are two main enemies of a scalper. There is an emotional toll that can be more than frustrating and lead to losses. It can be psychically draining and challenging to maintain an acceptable level of performance over long periods.
One thing that is not exactly a disadvantage is that you must have a very strict stop-loss policy in place. Going in without risk reduction is financial suicide. Even if you think that you can easily get by without stop loss orders, there will be a moment where a slip of judgment and poor reaction obliterates your portfolio.
About scalping: trading cryptocurrency
There are several distinct advantages to using crypto assets instead of stocks or currency pairs. While many consider leveraged cryptocurrency markets and Forex similar, some key differences create approaches that have nothing in common. Here are some key aspects that make it more profitable to be active on Binance, Coinbase, and other exchanges in this domain:
- Increased volatility. Many assets do not have the same long history as internationally recognized national currencies. It means that there are no established tendencies and patterns. The absence of stability creates chaotic movement best analyzed using technical analysis.
- The lack of intermediaries. Since Forex brokers employ liquidity providers and have to refer to third parties when entering international markets, fees here are much larger. The standard practice is to measure fees in pips (price interest point) which are the smallest increments of price movement. Crypto exchanges do not have such issues and charge fixed commissions allowing for much more profitable trades.
- Working around the clock. Financial markets are open during business hours from Monday through Friday. Since many scalpers have limited opportunities to make money, reducing the time when they can be active is a big downside. A crypto scalping strategy does not have to account for any idleness, as the market is open 24/7.
What is scalping in crypto trading?
The main goal of an active investor is to make money while reducing risks. It is impossible to remove them completely, but the desire to protect yourself from losing should be much higher than your desire to become a millionaire overnight. The strategy relies on building your portfolio slowly by taking any profit you can as reliably as possible while mitigating any financial damage with well-placed stop loss orders.
In the crypto industry, many active investors employ automation to reduce risks even more and have an edge in speed. Bots are very handy. They are simple scripts that execute orders based on simple instructions that anyone can write. By using an automation platform like WunderTrading, you can make a scalping crypto strategy much easier.
Here are some advantages of scalping tools:
- Scalper trading software programs are very fast and react to inputs instantly. The moment they receive a signal, you will have an order placed according to the settings that you use.
- Bots do not have to sleep which is a great advantage in a market that operates around the clock. You can leave everything to automation and make money even when you rest.
- Robots do not have to deal with emotional distress or anxiety. They execute commands decisively and swiftly removing any possibility of a human error or unnecessary delay.
Yes, machines are great, but even they need precise instructions to follow. Even with the availability and affordability of these automation services, you require a good strategy. Let’s talk about some of the most profitable crypto scalp trading strategies.
#1. Moving Average.
The most popular indicator has gained its fame for a reason. Moving average is a very simple tool that represents the gradual change of average prices within certain periods. A single curve is just a more comprehensive view of the current situation, but add a couple more and you have a very interesting set of graphical instruments that help you identify trends and the potential of a reversal.
One of the simplest strategies that you can employ is using two moving averages with periods of 20 and 200. When they converge, it is a moment when the trend reverses. When they start diverging, it is a good time for a scalper to make a couple of moves while the trend is strong and short-term movements are more predictable.
Three moving averages form a strategy commonly known as “ribbon”. Set up 5-8-13 MAs and watch how they move. When 5 and 8 converge to penetrate the 13-period line, it is a strong signal for reversal meaning that you should be on alert. When all three cross, you either sell or buy depending on the direction of the lines.
#2. RSI-based strategies.
The relative Strength Index shows the power of any trend allowing traders to pinpoint moments when a reversal is more likely to occur. When used in conjunction with 3SMA, it has a more informative role and may solidify your predictions. When you start scalp trading cryptocurrency, using as many tools as possible is a good idea. You don’t have to master a single indicator. Instead, look for easy-to-follow strategies that can inform your decisions without overwhelming with information.
RSI is very good in this regard. You need to track only one metric. When RSI drops to 30 or below, it is a good moment to make a buy order. On the contrary, when it is at 70 or higher, you should consider selling. Such predictions can be further fortified by the crossing of moving averages allowing you to make even more reliable forecasts.
#3. Stochastic Oscillator.
This indicator compares the current price of an asset to its average price over a period of time. It allows traders to identify potential moments when the trend reverses and starts moving in the opposite direction. When the indicator dips, it means that the price correction is close to ending and the market is ready to continue moving alongside the general trend.
The indicator has a very simple layout with two lines marking the numerical values of 20 and 80. When two lines cross each other and go close or over the 80 lines, it is a good signal that the price will go down. The opposite is true for the 20 mark. Again, a very easy-to-use instrument that displays valuable information.
#4. SAR or Stop and Reversal.
The parabolic indicator is a good graphical tool to overlay on top of your moving averages. SAR shows the direction of the market in its current state. When dots on the chart are placed below bars, the direction is bullish. When they appear above bars, it means that the market is going down. While not something to use as the foundation of a strategy, it is a valuable addition to your set of graphical tools.
#5. Multi-chart (support-resistance strategy).
Open three charts of the same asset and use three different time frames. 5 minutes, 45 minutes, and 90 minutes. These three charts will look wildly different, but they will help you understand the direction of the trend. You don’t need to use indicators on any of them. At the same time, you won’t lose anything by having a better picture.
The idea is to find support and resistance levels of 45 and 90-minute charts to identify good moments to apply your knowledge of TA indicators when looking at the 5-minute chart. These indicators will provide a more reliable signal when you apply them with the context in mind. Let’s say that you see a strong support level for 90-minutes. It means that there is a higher chance of an uptrend. If all indicators tell you the same, you can place a buy order.
Using the knowledge effectively
Despite being straightforward and easy to use, these strategies do not give accurate predictions. Many work only up to 70% of the time when applied to an automated strategy. However, the 70% success rate with careful risk management is more than enough to increase your portfolio significantly with the power of bots. It is important to identify a strategy that works well and can be the backbone of your overall trading routine.
Identifying a trend using 2MA and then working within it by employing a variety of indicators is a good way to ensure that you make informed decisions. Now, you know how to scalp crypto efficiently. However, it is a much better idea to use this knowledge with bots.
How to scalp Bitcoin using automation
Platforms that have automation usually provide a wide range of possibilities to those who want to improve their profits. The main issue with crypto markets is that they require fast reactions and decisiveness. Two qualities that many investors simply lack. We, humans, are not suited well for operating efficiently in financial markets where livelihoods are often on the line.
Implementing robots in your trading routines is a good way to automate scalping. In general, the process looks like this:
- Indicators on TradingView generate signals that are sent to bots. The data is comprised of numerical values and does not require bandwidth meaning that even during high load, networks deliver them instantly.
- Robots receive signals and interpret them according to instructions. For example, a robot may receive a signal that RSI is at 28 which is a trigger for a buy order with a stop loss set at 5 pips below the entry line. The bot instantly places an order on an exchange.
- An exchange receives a command through the API and executes the order as quickly as possible. The order is closed either manually or by another command from the bot.
Using this scheme, you can implement any strategy and automate it efficiently. Now, what is crypto scalping when robots are involved? It is a fully automated strategy that allows users to employ the best, most profitable trading patterns without learning much about how they work. It is a very good solution for newcomers and beginners who just recently discovered crypto.
How to scalp crypto: choose a reliable method
The strategies that we discussed previously are quite effective, but each asset has its unique quirks that may require alterations. The best way to check whether a strategy works for any given asset is to use back-testing features on platforms like WunderTrading. Backtesting means that you apply your rules to the history of an asset and observe the results.
It is important to test all your ideas about investing before using them in real life. The cost of an error can be detrimental. Without thorough examination, even the most popular and, seemingly, foolproof strategy can fail spectacularly.
Most automation platforms have specialized features to test any strategy and select the best crypto to the scalp. Again, you can view them in TradingView to increase readability and ensure that you understand how your set of indicators works when applied to the real market.
What is a scalp trade for a small-time investor?
Scalping seems like the best way to trade for beginners. Controllable risks, lots of opportunities to earn money right here, and slowly accumulating profits — these factors make trading on short frames feel lucrative and safe. However, there are many risks that newcomers have to face.
- Bad money management. One of the most important concepts that novice traders do not grasp is bankrolling. It means that you should never use your whole portfolio to place a single order. Using about 5% of your portfolio should be more than enough with a leveraged position to make a small profit without the risk to lose a significant portion of your portfolio.
- Panic selling. Many traders make decisions that they immediately regret. Selling when the price goes down even when it didn’t hit the stop-loss mark is something that many beginners do. They are afraid to lose more and don’t have enough faith in their strategy. The lack of self-discipline is often the key problem for newbies.
- Using obscure coins to trade. High liquidity is required to efficiently use the scalping approach. It is also a good idea to trade during periods of high activity which differ depending on an exchange. Some exchanges have higher activity during business hours in South and North America, others may be more active when Europe or Asia wake up and start working.
Should you try scalping?
Yes. It is a reliable method of earning money while learning many things about technical analysis and its application to the real market. At the same time, you will be able to control risks quite handily. The strategy also teaches you discipline and creates good habits like setting up a stop loss for any deal or checking indicators before making any decision.