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The crypto industry brought forth many crypto traders and investors, and they use different investment and trading strategies to get the most out of their assets, one of which is scalping. This article will discuss scalp trading in crypto: what it is and how it works.
This article is best for newbies who want to know the basics of this crypto trading strategy, as we will be discussing it at the beginner level.
What is Scalp Trading in Crypto?
Scalping is a trading strategy whereby traders make little profits from slight crypto price changes in a day. This is a type of short-term crypto trading strategy.
We are all aware of the volatile nature of the crypto market, which makes this strategy quite popular. It is an excellent way to profit in a single trading day, even though it is little.
Scalp trading is a type of Day Trading strategy, and it is best for fast-paced traders who want to go in and out as quick as possible.
Although it is not as easy as it sounds, for successful scalping, you must have good technical skills and be able to reach the trade charts accurately.
Scalping does not only work in the crypto industry. Instead, it is also used in other trading industries such as Forex and Stocks.
Crypto scalp traders are not really looking at the big goal of hitting large profits. Instead, they are more focused on making small profits with the little crypto price changes in the market.
How Does Scalp Trading Work in Crypto?
Scalpers use spreads to differentiate between two value centres by buying at the bid price and selling at the asking price.
Crypto scalp traders endeavour to hold their positions for a short period, lowering the threat associated with the strategy.
Scalp trading requires a short duration. Therefore, traders depend primarily on technical analysis to develop trade ideas.
Fundamental events mostly happen over a longer duration, and crypto scalp traders will hardly ever bother themselves with fundamental analysis.
Although, fundamental narratives can make a considerable distinction when deciding what asset to trade. In response to news or fundamental events that increase interest in stocks or coins, they will rise in price and generally have high volume and good liquidity for some time. It is at the point where crypto scalpers generate their profit due to the increase in volatility.
Types of Crypto Scalp Trading Strategies
1. Bid-Ask Spread:
As mentioned earlier, crypto scalpers use spreads to differentiate between two value centres by purchasing at the bid price and then selling off at the asking price. The main motive of this strategy is to let scalp traders open a position at the bid or ask price and then close it as quick as they can— a few points higher or lower— to gain profit.
2. Price Action:
Using this strategy, traders must study the movement in the prices of the crypto coin(s). The trader is required to study and interpret it.
3. Crypto Range Trading:
According to IG.com, a trading range occurs when a market constantly moves between two prices or levels for a particular period. Crypto range trading can be seen in all time frames, from short-term five-minute charts to long-term daily and monthly charts.
Crypto traders must firstly pinpoint the range that is to be traded. Prices usually need to bounce back from support zones and resistance zones at least twice, or they might just be creating higher lows and higher highs in an uptrend or lower highs and lower lows in a downtrend.
4. Margin Trading:
In this type of scalp trading strategy, a trader makes use of a third party’s funds to increase potential profits. By using this strategy, traders can trade with a higher amount which will result in an even higher yield.
Scalp trading in crypto is a day trading strategy and is best for traders who want to make quick but little profit in a single trading day.
There are various scalp trading strategies to implement, and they all have advantages and risks.
To pick the one best for you, study them well and choose the one that will suit you and your end goals the most.