Crypto Scalping: What is it, Strategies and How to

Scalping is a trading technique where you navigate charts following a specific strategy. When it comes to cryptocurrency scalping, it’s all about applying this trading method to cryptocurrency charts – in other words, trading with cryptocurrencies.

To put it in simpler terms, scalping originates from the term “scalp,” which used to be a trophy in place of a severed head. It makes sense when you think about how challenging it would be to transport all those heads…

In trading terms, “scalping” can be translated as “skimming the surface.” I’ve coined it as “skimming a few ticks.”

Now, you’ll find it easier to grasp.

What is cryptocurrency scalping

Scalping is an advanced strategy used in cryptocurrency trading. The name might sound peculiar, but in essence, it involves capitalizing on swift price movements in cryptocurrencies over a very short time frame.

Imagine capturing small profit chunks while the market moves at lightning speed.

The idea is to enter and exit positions in the blink of an eye, just before prices change.

By doing this, we aim to accumulate numerous small trades throughout the day, which can add up to significant gains over time. However, caution is essential because, while it can be profitable, it can also be quite risky if not executed properly – it requires experience and knowledge.

What Do You Need for Crypto Scalping?

To apply scalping, we need to be in tune with markets that exhibit rapid and consistent price movements. Not all cryptocurrencies or markets are suitable for this strategy, so we select those that fit best. Additionally, we use technical analysis tools to understand market conditions and make informed decisions within seconds.

Advantages of Scalping:

1. Quick Profits: Executing numerous trades in a short period means that even small price variations can accumulate into substantial cumulative profits.
2. Ample Opportunities: Scalping takes advantage of intraday volatility, which is price fluctuation within the same day. This volatility can provide frequent opportunities to enter and exit the market profitably.

Disadvantages of Scalping:

1. Fees: With so many transactions, transaction costs can accumulate rapidly. Trading fees and bid-ask spreads can significantly reduce profits.
2. Stress and Emotional Pressure: Scalping demands quick thinking and constant decision-making, leading to increased stress and emotional pressure. Over time, this can result in impulsive or careless decisions.
3. Time and Dedication: As you can imagine, it requires intensive dedication, with plenty of screen time.

Best Cryptocurrencies for Scalping

When considering which cryptocurrencies are most suitable for scalping, it’s crucial to account for certain factors that can influence the strategy’s effectiveness. Here, I explain the best cryptocurrencies for scalping and why they are ideal:

1. Bitcoin (BTC): As a leading cryptocurrency with high liquidity, Bitcoin offers consistent price movements and volatility – essential for effective scalping, which requires significant price fluctuations in a short time.
2. Ethereum (ETH): Like Bitcoin, Ethereum is widely traded and exhibits sufficient volatility for scalping. Additionally, Ethereum is home to many DeFi and NFT tokens, which can lead to rapid price movements.
3. Binance Coin (BNB): Binance Coin is the native token of one of the world’s largest exchanges, ensuring high liquidity and significant trading volume.
4. Cardano (ADA): Cardano has gradually gained popularity. Its volatility and community interest can create scalping opportunities.
5. Ripple (XRP): Known for its use in cross-border payment solutions, Ripple’s ties to financial institutions and partnership announcements can drive price movements.
6. Litecoin (LTC): Being one of the earliest altcoins, Litecoin boasts a user base and active community, resulting in price movements favorable for scalping.
7. Solana (SOL): Solana has garnered attention due to its rapid processing capability and scalability, leading to swift price movements ideal for scalping.

Your choice of cryptocurrency for scalping also depends on your knowledge and familiarity with it. Understanding price patterns, relevant news, and market behavior is crucial. Additionally, consider market volatility and liquidity in your chosen trading arena.

Is Scalping Right for You?

It’s essential to highlight that scalping isn’t suitable for everyone. It requires a disciplined mindset, as you must be prepared to close trades swiftly, even if they don’t yield substantial profits.

You must also be aware of the risks and know when to step back to avoid significant losses.

Scalping is right for you if you have a high-risk profile, years of trading experience, and a solid knowledge base.

How to Scalp Cryptocurrencies

The goal of scalping cryptocurrencies is to achieve quick profits by capitalizing on small price movements. Here’s a step-by-step guide:

1. Select Your Cryptocurrency: Start by choosing a cryptocurrency with high liquidity and volatility. Volatility is crucial for significant price movements.
2. Timeframe: Opt for short timeframes, such as 1-minute or 5-minute charts.
3. Technical Analysis: Utilize technical indicators and analysis tools to identify price trends or patterns. Some traders use moving averages, RSI, MACD, among others.
4. Entry: Wait for the right moment to enter the market. This could be when you identify a reversal pattern on candlestick charts or a breakout of resistance on line charts.
5. Profit Target: Set a small but realistic profit target. For instance, if the price rises by $10, aim for a $5 profit. The objective is to take profits before the market reverses.
6. Stop Loss: Place a tight stop loss to limit losses if the market moves against you. This is crucial since scalping involves rapid trades, and you wouldn’t want substantial accumulated losses. Typically, it’s around double your profit target.
7. Exit: As soon as you reach your profit target or notice the market moving against you, close the position. Remember that scalping profits accumulate over time.

Example of Scalping with Cryptocurrencies:

Let’s assume you’re trading Bitcoin (BTC) and observe that the price has been moving within a narrow range. Using technical analysis, you notice the price is near a crucial resistance level. You decide to enter the market by buying BTC at $40,000.

You set a profit target of $20 and a stop loss of $10 below your entry point. The price quickly rises to $40,020, reaching your profit target. You close the position and pocket a $20 profit.

In this example, you’ve executed a successful scalping trade by capitalizing on a small price movement within a short time frame.

Scalping strategy example

I’m going to provide you with an example of a scalping operation conducted with Bitcoin on a 1-minute chart.

Let me set the scene for you. The orange rectangle represents the price support zone that has been breached. In the blue line, I illustrate what I believe the price should do, which is, after breaking the support zone, it attacks those who protected themselves with stop-loss orders just below. The price retraces slightly (our pullback), and we initiate a trade upon seeing a strong red rejection candle downward.

In this case, my entry for a sell is the blue rectangle, my stop is the red, and my target is the green.

This trade lasted approximately 9 minutes, and we achieved a Risk/Reward ratio of 1.5, meaning for every euro you risked, you gained 1.5.

Scalping vs. Day Trading

“Scalping” and “day trading” are two trading strategies that share similarities but also have key differences. While scalping focuses on executing numerous quick trades for small profits in extremely short periods, day trading spans throughout the day.

What these two strategies have in common is the need for strong risk management and a deep understanding of technical analysis.

Learning Scalping

If you want to learn scalping, I recommend mastering other types of trading first, such as swing trading. You can adapt these methods to the short and medium term.

Jumping straight into scalping is like opening a window and throwing your savings, cold wallet, or credit card out – in other words, it’s a gamble.

To make money in the markets, you need education, and for that purpose, this trading course is the best I know.