The strategy of scalping in trading cryptocurrency has become widespread on cryptocurrency exchanges since the beginning of their appearance. This, of course, is not the invention of cryptotrading. Scalping is used in any markets. However, it gained special popularity on crypto exchange stocks due to the fact that cryptocurrencies seem to be one of the most appropriate assets for this strategy. What is this strategy and what are its strengths and weaknesses? We will describe in this article!
How does the scalping strategy in cryptocurrency trading work?
A trader opens and closes positions (makes deals) very often – with a frequency of 1 to 15 minutes. Each transaction ideally brings him a small profit. A small profit from each transaction translates after a few hours into tangible numbers.
For example, a trader who trades over large periods of time, for a long time, calculates a good moment to enter the market and is waiting for this moment. If he is experienced and his forecast is correct, he receives a good profit as a result of one, but successful (and carefully predicted) transaction – say, $ 50.
A trader scalper either makes a very superficial forecast or does not make it at all, opens positions always when the cryptocurrency exchange rate is adjusted at least a little (and this happens almost every minute) and with each successful trade gets, say, 0.5 1 $.
However, in the end, it takes him as much time to get $ 50 as the first trader, because the scalper has made deals all the time during which the first trader predicted.
Scalping got its name because of such a superficial profit from each transaction. “Removal of the scalp” – “removal of the top” is the “removal” of small money that is “on the surface” and is easily accessible.
Some traders call scalping strategy, others – a kind of trading, and others – the style of trading. All definitions have a basis, but still, scalping is for the most part a strategy. It can be combined with other strategies, and can be used as the only trading option.
Scalping strategy in cryptocurrency trading: how to make money
Scalping is used quite rarely and carefully on traditional stock exchanges and on the cryptocurrency ones, on the contrary, it is active. This is due to the cryptocurrency volatility.
If the asset fluctuates weakly, say, at around 1-2% per day, the scalper will not work much. Successful transactions will bring a mere penny, and a significant amount will not be accumulated. Another thing is cryptocurrency, which fluctuates within a day to 15-20%, or even 30%, and within a few minutes to 1 2%. 1-2% in total bring a good profit if the scalper trades at least $ 100.
A scalper trader simply does not have time to analyze the market sufficiently so that all transactions are profitable. Losses from his mistakes are covered by the profits that he receives as a result of successful transactions. Therefore, it is important that the percentage of profit from successful transactions exceeds the percentage of losses on unsuccessful ones.
For example, if the ratio of successful and unsuccessful transactions is 50 to 50, but the asset is very volatile then the profit from successful transactions may be more than 100%. The profitability of scalping will be 5–10%, respectively. However, such volatility is not peculiar even to cryptocurrencies, so it’s not worth counting on profits, making mistakes 50% of cases. However, you need to trade blindfolded in order to achieve this ratio.
The scalper calculates the market superficially, but still it calculates it. Therefore, the number of successful and unsuccessful transactions is about 60 to 40, and for experienced scalpers – 70 to 30, and so on. With high asset volatility, scalping has a profit of just 10%. It can reach 30 40%, or even 50%.
For example, an arbitrary Ethereum on May 10 at an arbitrary point of 8:44 a.m. costs $ 765. At 8 49 – $ 764.1, at $ 8 59 – $ 762.3. A scalper that trades in a specified time interval in short and opened a position at 8 44, at 8 49 receives 0.2%, then at 8 59 – another 0.3%. For 15 minutes – 0.5%.
If a scalper is trading $ 100, then he gets $ 0.5, if $ 200 is already $ 1, if $ 1000 is $ 5 in 15 minutes. Accordingly, he will receive $ 16, $ 32 or $ 160, respectively.
Ethereum is not a very volatile asset, therefore, if the cryptocurrency fluctuates more strongly and more often, the profit can be higher than 4 times.
Profit depends on the choice of cryptocurrency, the market activity of this cryptocurrency, the approach and experience of the scalper in general. The average scalper, following the elementary rules of trading, usually receives about 25–30% per day, the more experienced – up to 60% per day. Exceptions up to 80 100% also happen.
Scalping strategy in cryptocurrency trading: techniques and approaches
Approaches are as many as traders. It works in scalping too. Fans of high-speed trading have different temperaments and ideas about the proper operation of the market, so the scalping in their performance also differs.
It is also called pips from the word “pips” – “points” – units of measurement of the asset’s fluctuation. Piping is considered the most high-speed and high-frequency method of scalping. Pipers work within 5 minutes, often within 2-3 minutes, trading as fast as a person on a stock exchange can work manually. They almost do not count, because the number of errors they have the maximum possible in the framework of profit. Piping is considered one of the most risky techniques. However, beginners often start with it, because it requires almost no knowledge.
This technique is used by more experienced and cautious traders. It involves a surface technical analysis. Basically, a trader assesses supply and demand, looks for trading figures on charts and uses one of two indicators to receive signals about profitable entry points to the market. Indicators in the scalping signal the minimum price jumps, which for the position trader do not matter. Traders working according to this method open positions approximately once every 6–12 minutes.
However, often scalpers use margin trading – trading with an amount that is several times greater than the assets of a trader. Many come to the stock exchange with $ 30,100, and if you trade this amount, your earnings go out too small. Margin trading provides an opportunity to increase it.
Some traders use high-frequency robots. The trader adjusts the bot so that it works as often as possible. Some bots make dozens of deals per minute. Naturally, there is no analysis. Bots are mistaken in this way too often.
The strategy of scalping in trading is crying out: shortcomings
The main underwater stone of scalping is an exchange commissions. If position traders make transactions relatively rarely and, accordingly, spend less money on commissions, then scalpers dozens of transactions per hour result in large commission expenses.
At the same time, the lowest commissions are usually established by new or unpopular exchanges. The scalper has to choose it works on a less profitable, but reliable stock exchange or it goes to a smaller and less reliable one. Naturally, the scalper needs a faster and more reliable exchange, so he chooses the first option and loses more.
High volatility is just as dangerous for a scalper as it is meaningless – low. If the asset fluctuates strongly and unpredictably, the losses may be prohibitively high so that the profit will cover them with interest.
Therefore, during periods of strong fluctuations, crypto-drafts can play a cruel joke with scalpers, as well as too unstable cryptocurrencies, to which inexperienced scalpers pay attention first of all.
Scalping itself is a risky strategy. Many people call Piping a game of roulette or lucky or unlucky. The classical method gives more certainty, but the crypto market is unstable, it doesn’t even have accurate predictions from experienced position traders. So the effectiveness of surface analysis of scalpers too often depends on luck.
A lot of problems in scalping are emotional. Even experienced scalpers can not always distinguish the emotional impulse from the rational. They have no time for it. Often they automatically open positions where it seems to be beneficial only at first glance and when thinking about it for a couple of minutes, it seems to be a failure. However, a couple of minutes are not enough.
Time also fails scalpers and cryptoscalpers – more often than others. Cryptocurrency exchanges still do not work as smoothly as the largest traditional ones, so a fraction of a second delay occurs. Scalpers, who in the literal sense are important every second, suffer from this loss.
Should I use a scalping strategy in cryptocurrency trading?
However, there are a lot of scalpers on the crypto-market. The rule of the markets is that if a strategy is common, then it is profitable and works. Despite the listed drawbacks, scalping on cryptobirds is beneficial today, and not only for experienced traders. It is not unreasonable with beginners begin with it.
Scalping is a great school for a novice trader. The newcomer will still not be able to figure out all the tools and use them thoughtfully in the first weeks of trading. Consequently, long calculations and thoughtful forecasts for him will often be erroneous.
Scalping using the classical method allows a novice to quickly master the basic, simplest tools of analysis, quickly begin to navigate the market, adapt to the market, train the reaction speed, develop their own algorithm of actions and learn to make decisions in seconds.
After the “scalping practice”, newbies trade much more efficiently using calmer strategies. In fact, this is such an express trading course in harsh conditions.
The main thing here for beginners is not to scalp with substantial amounts. Part of the money is guaranteed to be lost before a person masters and his profit starts to grow.
Many scalping traders do not switch to calmer strategies because their temperament is scalping. They achieve remarkable success, as a rule, by combining methods and approaches.
For example, using pipsing or bots, when the market is moderately volatile and relatively predictable, and a more conservative approach is when the market fluctuates dramatically.
Experienced traders have a very good knowledge of trading tools, the ability to control them. The ability to grasp the picture of the market and make surface forecasts in a split second. All this ensures the success of scalping even with moderate asset volatility and fairly high commissions.