What is scalping in Cryptocurrency?
A trading strategy involving scalping is one in which small price movements are exploited to generate profits. Scalp traders don’t aim to make huge profits. Their strategy is to take advantage of small price shifts repeatedly to reap gains.
Consequently, scalpers may make many trades over short periods, focusing on market inefficiencies and small price movements. Through stacking and compounding small gains, profits will accumulate over time to a considerable amount.
To generate trade ideas, scalpers heavily rely on technical analysis due to the short time frames involved. Scalp traders rarely concern themselves with fundamental analysis since fundamental events generally take a long time to play out. Nevertheless, fundamental narratives sometimes play a significant role in asset selection. After news or fundamental events increase the interest in stocks or coins, these stocks or coins should continue to have a good volume and liquidity for a period of time. Profits can be generated by scalpers when volatility increases.
How Does Scalping Work?
Scalpers typically prefer to profit from small price moves in stocks rather than taking the risk of large price moves. Consequently, you will need to set tight timeframes and trading windows.
Scalping entails the loss of opportunity and discipline, as it leads to the loss of bigger gains. In contrast to waiting to earn more, scalpers exit a trade when their profit target has been achieved. A trader will exit a trade when a target loss level has been hit, rather than observing if the trade reverses.
2 Types of scalp Traders
Discretionary:
When traders are faced with a market opportunity, they decide what to do “on the spot.”. It is unclear how they determine the timing of entering or exiting, but they base their decision on the conditions at the time. Also known as discretionary traders, these traders consider various factors, but they do not use strict rules, so their approach is more intuitive.
Systematic:
The approach taken by traders is different. There is a clearly defined trading system that acts as an entry and exit point for them. Their rules determine whether they enter or exit a trade if certain conditions are met. In contrast to discretionary trading, systematic trading is more data-driven. The idea of systemic trading is to rely on algorithms and data as opposed to intuition.
Difference between Scalping and Day Trading
There is a similarity, but not a similarity, between day trading and scalping. There are many forms of day trading, but not all of them involve scalping.
Scalping:
Trades always on a day-to-day basis
The time between positions is often measured in seconds, rather than in hours
Systematic trading is often automated through the use of robots
Day Trading:
Scalping tactics may or may not be used
During a day when the markets are open, you can hold positions
Trading strategies may either be systematic or discretionary
When You want to start scalp trading:
It depends entirely on what style of trading you prefer. Some traders prefer not to leave positions open while they are sleeping, so they opt for short-term trading strategies. Short-term traders and day traders may fall into this category.
Long-term traders, on the other hand, prefer to elaborate on their decisions for a longer period and don’t mind holding positions for months. A trader can simply enter and exit a trade, target the profit, and stop-loss, and monitor it occasionally. Traders who swing trade can be placed in this category.
If you are contemplating scalping, you should think about what trading style is most suitable for you. To profitably apply your trading strategies, you’ll also have to ensure that they match your personality and risk profile.
You can most certainly experiment with various strategies and find out what works and doesn’t. You could test them out on the Binance Futures testnet if you trade papers. Thus, you can test scalping strategies without risking real money.
SUMMARY
Trading on the short-term side of things is called scalping, which involves profiting from small price changes. To be successful at this technique, you must have excellent discipline, have knowledge of the markets, and be able to make quick decisions.
What is your opinion of scalping as a trading strategy? When you’re a beginner, you may want to consider swing trading and buy-and-hold strategies. You might find scalp trading more suitable if you’re experienced. It’s still important to think about risk management principles, such as using a stop loss and sizing your positions, regardless of what you do within the financial markets.
