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Best Scalping Strategies for Cryptocurrency Trading

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Best Scalping Strategies COVER

In crypto, there is no right or wrong way of trading.

As long as a trader is making money, everything is good.

Diverse and deep as crypto may be, the one thing being floated around is the strategy in play.

Which indicators are the best? Are you a HODLer, an investor, or a trader? A manual or an algo trader? These are also pertinent questions.

Nonetheless, when it comes to crypto trading, depending on the risk profile and the risk management style in place, a trader can integrate all interesting aspects that define trading.

One can opt to be an HODLer on one side, a part investor, and a full-time trader. He/she can also opt for manual trading higher time frames and scalping on the lower time frames using a trading bot.

If anything, (as aforementioned) it doesn’t matter—provided profits stream in.

Therefore, if the strategy is part of the whole, a risk profile can cause a trader to scalp, not hold or swing—which are other trading styles.

What is Cryptocurrency Scalping?

What then is crypto scalping? And what are some of the exciting scalping strategies in play?

To get started, we must define who a scalper is. The good news is that a scalper in trading is universal. So, it won’t matter if it is stocks, Forex, or indices.

A trader who “gets in and out” a trade after a short period is a scalper.

Scalping, as a trading style, is expectedly of high intensity. The primary objective is to take advantage of small price movements, especially in lower time frames.

Even though profits—or losses—may be slow, accumulating them over some time can result in substantial gains.

What’s more? Scalping is a perfect strategy for traders who wish to mitigate the risks of holding one asset for too long.

Therefore, it is only natural to ask:

What then is the best time frame to scalp cryptocurrencies?

Suitable time frames for scalping can be anywhere between one to 30 minutes.

Therefore, the chosen time frames will determine the number of buys and sell signals generated at any point in time.

The optimal time frame opted by scalpers is usually the five minutes chart.

And there is a difference between scalping and day trading, for instance. The scalper will often depend on technical analysis for a signal generation—not fundamental factors.

This means a shrewd scalper will always read a candlestick arrangement and incorporate some of the best cryptocurrency indicators such as the Fibonacci tools or the Bollinger Bands—depending on underlying objectives.

Scalpers can employ their styles in various assets.

However, because of the relatively high volatility, scalping crypto assets like Bitcoin can result in higher profits, especially if the trader is disciplined and patient.

Still, proper risk management ought to be incorporated. In any case, crypto prices are shaped by various factors, including “hype” or sentiment.

Best Scalping Strategies for Crypto

To properly scalp means to understand the various scalping techniques a trader can use thoroughly.

Some of the best crypto scalping strategies are:

Price Action

This is a traditional way of trading that doesn’t involve the use of indicators.

All a trader has to do is pick out resistance and support levels to pick out potential setups, profiting if their prognosis is correct.

Often, chartists use price action (driven by market forces) combined with trading volumes for signal generation.

Take, for example, the BTC/USD price action in the 5-min chart below.

Scalping BTCUSD Price 5min Chart

A trader picks out support and resistance at $34,250 and $34,650, respectively. The resulting bullish breakout marked with a surge in trading volumes confirmed the presence of bulls.

What a scalp trader would do here is to wait for the bull bar to close above the resistance–of which it did, before buying.

Ideally, the stop loss would be at the lows of the preceding bar with a take profit of around 2-3X the stop loss.

Range Trading

Crypto markets are volatile, and prices would fluctuate from time to time.

Based on observations, crypto markets would range 70 percent of the time, only trending on a few occasions.

Therefore, from this information, traders must formulate scalping methods effective in extracting the most from ranging markets.

This is where scalping is useful.

To use this style, all a trader needs to do is identify resistance and support levels.

It should be noted that the price of a crypto asset can either range horizontally or within a descending/ascending channel.

Besides reading reaction levels from the chart, moving averages or Bollinger Band indicators can be used as flexible support and resistance levels.

Once the support and resistance levels are picked out, a trader can buy at support, sell at resistance using defined stop loss or take profits for risk management.

An example can be as below.

On the better part of June 21, 2021, ETH/USD prices were in range.

Scalping ETHUSD Price 5min Chart

A clear resistance had formed at $1,830 while ETH bulls found support at $1,800.

A scalper could have taken advantage by buying on support with a stop loss just below $1,800 while exiting at $1,830. At peaks, the scalper would have sold once more while targeting $1,800 with a stop loss slightly above 1,830.

There are seven (7) scalping opportunities a scalper would have made decent profits before being stopped out in the eighth trade.

Arbitrage

Volatility is the hallmark of cryptocurrencies, making the space attractive.

Since the market is also disparate, asset prices can vary between exchanges.

When this happens, traders can simultaneously buy and sell at one exchange, booking profits.

In crypto trading, there are two types of arbitraging techniques.

One can use Spatial arbitrage to buy and sell the same asset at different exchanges, hedging against price fluctuation.

On the other hand, pairing arbitrage happens when there are price differences of one asset in a single trading platform.

Arbitrage as a scalping technique is best when automated since opportunities fizzle out in seconds.  There are many trading bots watching out for arbitraging chances to make free money.

You can try out several providers such as CryptoHopper and others. The choice is ultimately based on the scalper.

Watch this video here to learn how a crypto arbitrage bot is setup:

RSI Scalping Strategy

The RSI is a momentum indicator useful in identifying oversold or overbought regions.

The technical indicator swings from 0 to 100, with defined overbought and oversold territories lying at 70-100 and 0-30, respectively.

RSI indicator works well in different market conditions with interesting observable results over the long haul.

From the 5-min chart, a scalper can buy at the oversold region and exit once prices are in the overbought zone. The rule of thumb is to buy when crypto prices in the 5-min chart are below 30 and sell once it is over 70.

As an illustration, check out the BNB/USD 5-min chart of June 27.

Scalping BNBUSD Price 5min Chart

There was an opportunity for a trader to turn in a three percent profit by buying when the RSI was oversold and exiting when the RSI closed above 70 level–entering the overbought territory.

Spread Trading

Scalpers can also take advantage of ask-bid spread fluctuation in different exchanges to make money.

But first, what is a spread?

A wide bid-ask spread happens when the bid price is lower while the asking price is higher than usual. It occurs when there is more supply for the currency, signaling weakness.

Conversely, when the bid is higher and the asking price is considerably lower, the spread becomes narrower. In this case, scalpers can look to load the coin until the spread normalizes.

Check out how this is done in this video:

The Pros and Cons of Crypto Scalping

Scalping techniques, admittedly, can be lucrative only if the trader is disciplined, patient, and has the proper risk management practices in place.

Combining them can result in considerable advantages such as:

  • The ability to automate
  • Lower risks since lot sizes are usually small
  • Higher profitability due to the numerous trades entered within a given trading day.

On the lower end, scalping also tags its fair share of troubles. For instance:

  • A trader has to contend that he/she is competing with bots
  • Traders need to be patient, disciplined, and act fast, a reason why some classify scalping as high risk.
  • Possibility of racking up more fees because of the number of trades taken.

How to Set Up for Cryptocurrency Scalping

Weighing the positives and negatives, a trader should be free-willed and try out scalping as a crypto trading strategy.

All a trader has to do is:

  • Identify the suitable pair. The rule here is only to choose the more liquid currency. In that case, the top-20 crypto assets like Bitcoin, Ethereum, and others are preferable.
  • Do your due diligence and pick out a reputable trading platform. Herein, a scalper must note the exchange’s fee structure, trade bot support, and even if leverage is allowed.
  • If satisfied, register and start scalping.

Is Crypto Scalping Illegal?

Absolutely not!

Scalping, after all, is just one of the many tools that can be deployed by any trader. The only time this strategy can be considered illegal is of cryptocurrency trading is outlawed.

Therefore, in countries where Bitcoin and cryptocurrency trading and exchanges are banned, traders won’t have an opportunity to test out this sweet style for profits.

Ordinarily, in other zones where traders can zap in and out of exchanges–CFDs, Futures, and Spot trading–scalping is perfectly normal and can be activated within the confines of law.

Is Crypto Scalping Suitable For Everyone? Is it Profitable

Aforementioned, trading is an art.

Accordingly, several factors merge to determine profitability of a given strategy.

Along with day trading, scalping is more intensive and even stressful if not sufficiently prepared.

This means the best thing a newbie trader ought to do is try out other strategies like swing trading or even medium-term crypto investment before trialing this style.

However, if a trader is confident, he can jump in straight from the deep end and relish the fast-paced nature of crypto trading by manually trading or deploying scalping bots-if possible.

Profitability is a factor of many things of which discipline, appropriate risk management, and market conditions count.

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Passionate about Blockchain, Crypto, Blockchain, and Bitcoin. Excited of what lies ahead. Advocating adoption. HODLer!

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