Anyone familiar with the cryptocurrency market knows how volatile it can be. It fluctuates so much it could cause a mass panic if it happened on the stock market. Nonetheless, this provides a fertile space for scalping trading.
Find out if this trading strategy is for you in this scalp trading guide.
Table of contents
- Scalping Trading Explained
- How Profitable Is Scalping Trading?
- Is Crypto Scalping Better Than Day Trading?
- Top Five Demo Accounts for Scalping Training
- Best Crypto Scalping Trading Strategies
- Pros and Cons of Scalping Crypto
Scalping Trading Explained
Scalping trading is all about taking advantage of cryptos’ daily price movements.
Such a short-term trading strategy requires multiple interventions during the day to gain small profits, adding up over time. Scalping crypto is perfectly legal.
Scalp traders have to be dedicated and cool-headed to achieve a sustainable scalp trading performance.
One should aim for a minimum of 1.0 GtPR — Gain-to-Pain Ratio — above 2.0 GtPR is considered excellent, while above 3.0 is exceptional.
Calculate your GtPR by simply dividing the cumulative total of all monthly RORs (Rate Of Return) by the absolute value of cumulative negative monthly RORs.
Both cryptocurrency and forex markets are ideally suited for scalp trading because they involve assets that generate such minuscule price moves. A good crypto scalper will have to react to price moves measured in minutes, or even seconds to reap gains consistently.
Therefore, scalp trading revolves around three critical elements:
- Chart reading skills
With these three skills honed, scalpers have to choose currency pairs that exhibit higher volatility for the tiny price moves to be profitable.
Unlike day trading popularized by Dave Portnoy, leveraging relatively minor price differentials between token pairs poses low risks and immediate rewards.
How Profitable Is Scalping Trading?
There are over 5000 altcoins to choose from.
This leaves scalping crypto traders with a huge range of token pairs to leverage their volatility. Accordingly, every scalper develops their own unique strategy over time.
With that said, scalping still relies on the foundations of financial ventures:
- Technical analysis (TA) – Needing to be conducted in real-time, this asset assessment takes into account its current volume, past prices, and market activity. It depends on reading charts, indicators, and patterns to figure out which way the price will go. One of the most common tools it uses is the Japanese Candlesticks chart, price support and resistance levels, moving averages, Relative Strength Index (RSI), Fibonacci retracements, and Bollinger Bands.
- Fundamental analysis (FA) – Although still important, for scalp trading, it reserves minimal attention given the reaction time needed. This metric deals with an asset’s value proposition within the wider economic context. For example, does it make sense to invest in GameStop (GME) if it uses a similar business model that had previously failed other brick & mortar retail chains?
With these core sets of tools in hand, scalp traders respond to market movements, usually within 5-minute (M5) intervals.
Otherwise, one would have little time for a proper TA. When the time frame is under M5, this is called intuitive scalping, relying on a trader’s accrued experience instead.
As you can see from the candlestick chart above, the intervals for profits range from 5 to 30 minutes. When traders open a position — enter the market — then rely on their predictions when to exit.
The accuracy of these educated predictions and how long an open position is held determines the rewards.
Accordingly, for this high-frequency trading strategy to be profitable, it requires great focus and discipline. With that in mind, either commit to it as your primary trading strategy, or you risk underperforming below 1.0 GtPR.
Is Crypto Scalping Better Than Day Trading?
The main difference between day trading (also called swing trading) and crypto scalping is the time frame.
Although both are intra-day trading — occurring within a single day — many retail traders abhor going to sleep on opened positions.
If you fall into this category, scalping trading would fit you more than day trading.
However, if you don’t like to be glued to the screen half a day, opening and closing dozens or hundreds of positions, then day trading is for you.
On the other hand, you may get addicted to closing positions whenever it becomes even slightly profitable. After all, the dopamine reward system is a powerful behavior modifier that may turn against you.
This was recently confirmed by the FCA study conducted on 517 self-described investors.
A worrying 38% of participants indicated they don’t have a rational reason for engaging in trades. Instead, the emotional thrill of trading and social signaling took priority. Obviously, the worst scenario for traders is the merger of over-confidence with the lack of skills.
To make sure you base your investment decisions on rational factors rather than emotional, the key is to practice scalping without a risk! This is the purpose of demo accounts on various crypto exchanges and market trackers.
Top Five Demo Accounts for Scalping Training
This trading platform specializes in leveraging, allowing for up to x100 leverages on crypto derivatives. Not only does it have a modern and user-friendly design, but it offers scalpers a powerful set of indicators and charts to train with. With ByBit, you can set up a testnet, making it easy to start training your high-frequency craft.
A testnet is the ideal solution for learning to read charts and indicators because it shows actual crypto prices instead of a simulation. This is invaluable because there is no better alternative to act on price movements than reading real market data. However, it will take some time to set up your testnet properly.
Known for its copy-trading feature, eToro is poised to replace Robinhood in the United States, after it had secured $10 billion funding to go public. It already has 20 million users worldwide, compared to Robinhood’s 13 million. When you first open an account, you have access to $100,000 virtual funds to trade with.
These can be used to virtually invest in stocks, cryptos, commodities, forex, indices, or ETFs. So far, eToro supports 16 cryptocurrencies.
Most importantly, eToro is all about integrating social networking into your trades. Investors all over the world can copy each other’s strategies, share chart analysis, and spot market trends. Likewise, eToro has a comprehensive set of guides to get you started. Those blogs, to prove to be most useful, gain the most upvotes.
TradingView has become the staple for market analysis in the crypto space. Even with a free account, it offers unmatched customizability and ease of use.
Entirely cloud-based, you can access it from any device and web browser. Its demo account gives you a sophisticated set of indicators and charts, but it takes some time to take advantage of all of its numerous options.
Similar to eToro, TradingView has a social network with frequent blog posts giving traders valuable insight and new trading strategies. If there is a relevant altcoin to be considered, TradingView has it with over 100 supported cryptocurrencies. Most importantly, it feeds you real market data for practice trading.
As one of the world’s largest P2P trading platforms founded in 2014, BitMEX may seem a bit old-school, but it is still in wide use. Like ByBit, it’s somewhat complicated to set up a testnet platform. Currently, it is restricted to US traders, but still offers anonymity, and it has the highest liquidity on the market.
Alongside Bitcoin, it supports seven major altcoins. The platform’s order types are extensive, perfectly suited for scalping trading such as fill or kill, good till cancel, immediate or cancel, trailing stop orders, stop limit, take profit, limit, and hidden order.
Likewise, BitMEX has a comprehensive set of tools to chart your way toward margin gains, allowing you to easily change time periods, graph types, and add market indicators.
Its demo account faithfully mimics real account experience, including live customizable price charts, crypto pairs, indicators, patterns, trend lines, and wallet balances.
If you have multiple monitors, the modern and sleek StormGain interface is great for setting up specific price indicators on full screen. Unfortunately, this futuristic, user-oriented platform offers only six cryptocurrencies at press time.
Best Crypto Scalping Trading Strategies
As previously noted, each crypto scalper ends up developing their own trading style and strategy, in order to best align with their lifestyle and level of experience. Bitcoin’s volatility, in particular, presents an excellent opportunity to pair with a number of currencies.
Here are some of the most popular scalping strategies, but don’t forget to search for “scalping” on the TradingView platform. There are always new interesting tweaks to proven formulas.
1.) Bid-Ask Spread Method
Self-explanatory, bid-ask is the difference between the trader’s bid price (buying) and their opposing ask price (selling). Any time there is a substantial, profitable difference between the two, you can jump in and reap gains.
In most cases, using bid-ask spreads is commonplace when there are more buyers than sellers. If you are familiar with the law of supply and demand, you know this causes the price to rise. Such a wide bid-ask spread then offers crypto scalpers the opportunity to sell.
In a similar fashion, but in the opposite direction, a narrow bid-ask spread occurs when there are more buyers than sellers. In such a scenario, the ask price drops, giving you the chance to engage in a short shopping spree.
2.) Range Trading
If you’ve read so far, you’ve encountered the terms “support” and “resistance”. The former represents a low price level, indicating a buying opportunity. In turn, resistance represents a high price level, indicating that one should sell. In other words, support marks a market entry, while resistance marks a market exit.
Range trading focuses on monitoring the price movements between the two levels. If price frequency goes against either support or resistance, this indicates a breaking point should occur soon.
This is commonly called a breakout. When it happens, a scalper will use a stop-loss order to make profits. This is why candlestick charts are so widely in use for scalp trading. They track both support and resistance levels (S/R), which should be used in conjunction with moving averages.
3.) Automated Trading
When you see factory workers nowadays, the first thought that often comes to mind is, ‘why is this tedious work not automated’? Usually, the answer comes as — greater expenses vs. paying wages. Thankfully, automating trading is not limited by the cost of physical externalities but by the cleverness of coding.
High-frequency trading is a lot like factory work — fast, intense, and exhausting. For this reason alone, scalping bots have been developed to detect a variety of patterns to timely open and close positions. There are thousands of scalping bots on the market, rarely under $100.
Moreover, due to the high demand for effective scalping bots, the market is crawling with scams. The obvious problem lies in the fact that a new bot has to be thoroughly tested across numerous market conditions and users. In the meantime, the scammer counts on people’s greed to sell defunct software products.
To counter that, make sure to buy a scalping bot that has been thoroughly vetted from multiple independent sources. As of date, Expert Advisor (EA) bot seems to yield consistent results.
Pros and Cons of Scalping Crypto
- Can be automated, relieving the scalper of major downsides — emotional highs and lows and exorbitant time investment which negatively affects social and family life.
- Very short positions don’t pose a big risk if you miss the shot, thus representing a low-risk strategy trading.
- Consistency repays in profits. Set a daily goal, $30 daily profit to start with, and work toward achieving that threshold.
- Lack of confidence results in missed trading shots, which accumulates losses.
- Requires a significant expenditure on trading fees, as scalping inherently relies on hundreds of trades.
- You may be mostly trading against the best scalping bots, not people. This puts you at a disadvantage unless you too invest heavily into buying a scalping bot service.
The key to becoming a successful crypto scalper relies on education and training. For both, a demo account becomes a necessity. Invest at least 30 hours in virtual scalping trading before committing with real funds.
Because unassisted scalping requires an intimate understanding of dozens of chart types, patterns, and indicators, they must become your second nature in order to quickly react to the market’s price moves.