Today we will talk about one of the trading strategies on the cryptocurrency market. We will analyze the advantages and disadvantages of scalping.
Scalping is one of the trading strategies, which brings profit to the trader when making a large number of short-term transactions, during which the price has time to change in a predictable direction.
The basis of a scalping strategy
Scalping is a high-speed trading strategy that allows you to open and close transactions with high frequency. With each closed transaction, the trader receives only a small profit. But as a result of all trading operations performed during the day, a good profit is gained.
The popularity of this strategy is directly related to the volatility of the cryptocurrency. The higher the volatility of the currency, the more the trader can earn. You should not trade a cryptocurrency whose price fluctuates within 3% per day. Scalping works well on altcoins, the price of which can fluctuate up to 20% per day and up to 1% per hour.
If we talk about the high frequency of transactions, the scalper cannot have time to analyze the entire chart of the cryptocurrency he trades. Therefore, not all deals are successful. The ratio of successful and losing trades may be 65:35, at best 75:25.
It all depends on the volatility of the cryptocurrency, trading volume, and the cryptocurrency exchange the scalper trades on. Trading currency by scalping method on a crypto exchange, where the commission for trading is 0.2%, will be quite difficult. Often scalpers work on Binance, as it is the only platform where you can trade with 0.05% commission.
For example: the Bitfinex exchange. At 10:30 Bitcoin is trading at $9,275. At 11:30 it is $9,400. A scalper who opened trade at 10:30 and closed it at 11:30 made a 1.35% profit.
If the scalper has $100, he gets $1.35. If $500, then $6.75, respectively.
Scalping strategy: how to earn
Asset volatility is one of the main conditions for successful scalping.
Scalping differs from other strategies in the high percentage of unsuccessful deals.
Trader-scalper does not have enough time to analyze the market for all deals to be profitable. Losses from his mistakes are covered by the profit which he receives as a result of successful trades. Therefore, the percentage of profits from successful trades must exceed the percentage of losses from unsuccessful ones.
The profitability of scalping depends on:
- The ratio of successful and unsuccessful trades.
- The amount that the scalper sells.
- The volatility of assets.
Because of the differences in these parameters, the profitability of the strategy varies greatly from a scalper to a scalper.
For example: if the ratio of successful and unsuccessful trades is 50 to 50, but the asset is very volatile, then the profit from successful trades can be more than 100% - let it be 105-110%. Then the profitability of scalping will be 5-10%. However, in practice such volatility is not typical even for cryptocurrencies, so you should not count on profit-making mistakes in 50% of cases.
Specific numbers can be calculated based on the amount traded by the scalper.
In general, the profit depends on the choice of cryptocurrency, the market activity of this cryptocurrency, and the experience of the scalper. An average scalper who follows basic trading rules usually receives about 25-30% per day, more experienced one - up to 60% per day. There are exceptions up to 80-100% as well.
Scalping methods
Method 1: Pipsing
It is also called "pips" ("pips" means "points" - units of asset fluctuations). Pipsing is considered the fastest and most high-frequency scalping method. Pipsers work within 5 minutes and often within 2-3 minutes, trading as fast as a person on the exchange can work by hand. The number of errors they have is as much as possible within the profit margin. Pipsing is considered one of the riskiest methods. But novice traders often start there because it requires almost no knowledge.
Method 2: Classic
This technique is used by more experienced and cautious traders. It involves superficial technical analysis. Here the trader evaluates supply and demand, looks for trading indicators on the charts, and uses one or two indicators to signal profitable entry points into the market. Indicators in scalping signal minimal price spikes that are irrelevant to the trader's position. On average, traders using this method open positions about once every 6 to 12 minutes.
Why is it worth using a scalping strategy?
There are a lot of scalpers in the cryptocurrency market. The rule of the market also states: if the strategy is common, it is profitable and works. Despite the listed disadvantages, scalping in the cryptocurrency market today is beneficial not only for experienced traders. Certainly, beginners of trading start with it.
Scalping is a great school for beginners. During the first months of trading, newbies can test each trading instrument in practice. Scalping allows beginners to adapt to the cryptocurrency market, learn how to react, and most importantly, learn how to control themselves and develop the strategy that allows them to make quick decisions.
Scalping using the classical method allows beginners to quickly master basic knowledge, observe analysis tools, quickly start to navigate the market, adapt to the market, develop their algorithm of actions and learn to make decisions in seconds.
After "scalping practice" beginners trade much more efficiently using other strategies. It is a course of express trading in harsh conditions.
But at the same time, scalping offers hard trading conditions. So many people are not surprised why scalpers trade so efficiently using calmer strategies and less volatile cryptocurrencies
