There are numerous ways you can trade and invest in cryptocurrencies.
Without a doubt, you can buy and hold or day-trade to get the day’s highs and lows. However, what about going past all of that? What about using the same strategies traders from other markets use?
It’s time to understand a bit more about forex scalping and how you may be able to use it to your trading strategy in the crypto markets.
What Is Forex Scalping?
If you have ever tried forex trading, odds are you will probably have come across the term scalping.
In forex trading, scalping (also known as scalp trading) is the term used when a trader makes a lot of small transactions in the aim to profit off small price fluctuations throughout the day.
By creating dozens if not hundreds of short-term trades a day, successful scalp traders can produce large daily profits. And they can do this despite the fact that they are basically engaging in a relatively low-risk trading strategy in an unstable market.
To execute this sort of strategy, traders generally use a system that provides them with trading signals. These are often based on technical indicators that they use to make their buying and selling decisions.
Since machines can complete technical indicator-based trades quicker than humans, most seasoned forex traders use trading bots to assist them to complete their scalp trading strategy effectively.
Furthermore, traders use leverage to enhance their potential profits, allowing them to put a relatively small amount of their own capital into each trade they make.
Risk management is another key factor for scalp traders.
To complete this style of trading strategy, traders put narrow stop-loss and price targets limits in place to guarantee that no trade ends up losing too much money.
Experienced traders will use trading software that automatically sets stop-loss and price targets limits, effectively removing human emotion out of the situation.
Can Crypto Traders Scalp Trade Too?
Because of the similarities between conventional fiat markets and the cryptocurrency market, there is currently a large number of crypto traders out there who use scalping strategies. What's more crypto trading bots have become so advanced that similar types of theories can be easily applied by bitcoin (BTC) traders.
However, the reason why scalp trading is so widely used in the foreign exchange markets stems from the fact that it is a multi-trillion dollar market with substantial liquidity in its major trading pairs.
In comparison, the crypto markets only have a daily exchange trading volume of around 100 billion USD, and a major piece of that is taken up by bitcoin.
That means apart from BTC/USD and BTC/TUSD (TrueUSD) pairings, there are very few crypto trading pairs available that let you effectively execute an automated scalp trading strategy using leverage.
So yes, you can scalp trade bitcoin and perhaps Ethereum (ETH). However, you can’t simply pick any coin and begin scalping. Especially when that coin lacks liquidity.
How to Set up a Crypto Scalping Trading Strategy.
If you think that crypto scalping is for you, on paper, getting started is very simple. You can start by following these steps:
- Chose the trading pairs you want to scalp.
2. Use a trading platform that has high liquidity for your selected trading pairs.
3. Use a trading bot that allows you to complete a wide range of technical indicator-based trading strategies.
4. Create and test the scalping strategies until you discover one that works.
5. Live-test your trading strategies and make sure all risk management measures work.
6. Happy scalping!
Pros and Cons of Crypto Scalping.
Like all crypto trading strategies, there are numerous advantages and disadvantages involved with crypto scalping. Here are just some of them:
Pros
- It is generally a low-risk trading strategy that can be automatically completed using trading bots.
- When you have discovered the right indicators and bot settings for you, you can make regular trading profits without getting knee-deep in the micro-detail.
Cons
- Without trading software, it is hard to effectively complete this strategy.
- Discovering the right indicators can involve a large amount of testing, which can be time-consuming.
- Although scalping is commonly viewed to be a relatively low-risk trading strategy, you can still lose your capital.
- Trading fees can add up and over time can eat into your profits.
Is it for Everyone?
Scalping is one of many ways to trade the markets.
In any case, it isn’t for everybody. Remember that unless you are a seasoned trader, it might pay to buy and HODL the crypto that you believe will increase in value over time. In any case, if scalping sounds like the right strategy for you, why not give it a go?
