Crypto scalping strategies to consider in 2024

Crypto scalping trading strategy to consider in 2024

In trading, strategy is king, be it day trading or long-term investing. Crypto intraday trading involves buying and selling crypto assets within the same day to benefit from price volatility. Crypto traders use various trading techniques like scalping trading strategy, swing trading, and narrative-based trading to maximize profits. 

Scalping trading and swing trading are trading strategies based on technical analysis, while narrative-based trading is based on news and fundamental analysis. In this blog, we will discuss scalping trading strategy in detail and the best indicators for scalping. Let’s dig in to learn more. 

What is scalp trading in crypto, and how does it work?

Scalping trading strategy is a popular day trading tool where a trader will execute multiple trades to benefit from small price fluctuations. Here, the trader will exit a trade once it becomes profitable. While all trading strategies require discipline, scalping trading demands extra diligence and stringent risk management as the number of trades is large and the gains from individual trades are small. Scalp traders must stick to their trading system to avoid large losses that can wipe out profits and erode their capital. 

Scalping trading strategies rely on low exposure as the time in the market for each trade is low, ranging from a few minutes to hours. The small trade duration reduces the risks arising from big market fluctuations. To be sure, scalping tends to capitalize on small movements, increasing the likelihood of profitability. 

How to scalp trade in crypto

Scalp trading is a trading style that relies on high-frequency trading, with each trade making wafer-thin profits. But profits add up as a scalp trader will make multiple trades to capitalize on market volatility. Here is how you can scalp trade in cryptos: 

Volatility and liquidity

Scalping trading strategies rely on quick trade execution in a short time frame. Thus, high volatility and sufficient liquidity are important criteria in selecting the trading asset. Therefore, scalp traders should prioritize selecting volatile cryptos with high liquidity, as this will facilitate ease of entry and exit from positions without price slippages.  

Timeframe selection

Trading frequency is the baseline of the scalping trading strategy. Therefore, timeframe selection is crucial for the effectiveness of the scalping strategy. Traders can choose timeframes like 1-minute, 5-minute, or 15-minute charts for technical analysis to identify price movements suitable for scalping. The timeframes can be tailored to match the trader’s risk preferences. 

Quick trades

Trading speed is crucial to any scalp trading strategy. A scalp trader aims to enter and exit positions swiftly, seizing opportunities in the liquid crypto market. A scalp trading strategy will leverage market volume and momentary price volatility. 

Small profit margins

Profit margins in scalping per trade are low. But profit accumulates, thanks to trading frequency. This is because a scalp trader will place multiple trades, prioritizing quantity over large individual gains. 

Risk management

Scalp trades place multiple trades, each executed to harvest the small market movements in a particular crypto asset. The frequency and quantity of trades pose significant risks; thus, risk management should be an integral part of a scalp trading strategy. Traders often use tools like stop-loss orders, limit orders, and a fixed risk-reward ratio to limit their downside risk. 

Technical analysis & indicators

Scalping trading strategies rely on technical analysis. Scalp traders will base their trades on indicators such as moving averages, relative strength, Bollinger bands, etc.

High speed & focus

Scalping is a high-speed game. A scalp trader would need to make quick decisions and adopt a disciplined approach to trading, in addition to a razor-sharp focus on leveraging small price changes in the market. 

Best scalp trading strategies

Scalp trading relies heavily on technical analysis. Here are some of the top scalping indicators used by scalp traders: 

1. Stochastic oscillator strategy

The Stochastic Oscillator is a momentum indicator that helps identify potential trend reversal points by comparing the current price to its recent range. It also aims to indicate the overbought or oversold market conditions.  The indicator consists of two lines: %K and %D.

●        %K Line: This is the main line calculated as 100 times the current closing price minus the lowest low over the same period, divided by the highest high minus the lowest low over the same period. 

●       %D Line: The 3-day simple moving average of the %K line.

Execution:

In a bullish market, traders typically seek entry points when the %K line crosses above the %D line. This signals a buying opportunity. Conversely, traders consider short positions during a downward trend when the %K line falls below the %D line, indicating a selling opportunity. The Stochastic oscillator strategy uses levels of 80 and above to signal overbought conditions, while a reading below 20 would indicate oversold conditions.  

2. Moving average strategy

Moving Averages (MA) are used to identify the direction of market momentum for a specific time frame. The strategy uses short-term and long-term moving averages to define market trends and potential entry and exit levels. 

Execution: 

Scalp traders identify buy signals when the shorter-term MA crosses the longer-term MA during an upward trend. Selling or short positions are considered in a downtrend when the shorter-term MA falls below the longer-term MA. Traders also apply variations such as the crossover of three moving averages of 5,10, and 20. 

3. Parabolic SAR indicator strategy

Technical traders use the Parabolic SAR (Stop and Reverse) indicator to spot trends and reversals. The trend and reversals provide the entry and exit points for scalp traders. 

The Parabolic indicator utilizes a system of dots superimposed onto a price chart. A flip in dots signals a reversal, but a reversal signal in the SAR does not mean a price reversal. A PSAR reversal means that the price and the indicator have crossed. 

Execution: 

When utilizing PSAR, scalp traders consider long positions when the prices remain above the SAR and short positions when the price falls below the SAR dots. 

Traders consider long positions when the price remains above the SAR dots and short positions when the price falls below the SAR dots. A change in dot position suggests a possible shift in the trend’s direction, signaling traders about potential entry or exit points.

4. RSI strategy

The Relative Strength Index (RSI) measures the magnitude or strength of recent price changes and ascertains the overbought or oversold market conditions. 

Execution

In a bullish market, the scalp trader will look for buying opportunities when the RSI drops below 30, indicating a possible undervaluation. On the other hand, selling positions are considered in a downtrend when the RSI crosses above 70, indicating potential overvaluation. 

Pros & cons of crypto scalping

No trading strategy is foolproof. Here are the pros and cons of scalp trading strategies: 

Pros: 

  • Quick profit opportunities: Scalp trading capitalizes short-term price movements, allowing traders to profit from short-term trends. 
  • Minimizes overnight risk: Scalp traders operate in a very short time frame. This reduces the risk of market volatility, especially in the crypto market that is always on. 
  • Requires only small capital: Scalp traders can start training with less capital and build capital as they earn money from their trades. 
  • Enhances trading discipline: Scalp trading calls for traders to be disciplined in their trading approach as it is a high-speed game. 

Cons: 

  • Very stressful: Rapid decision-making leads to high stress levels in scalp traders. 
  • Time-consuming: High-frequency trading that seeks to capitalize on small market movements requires constant monitoring, which demands time. 
  • Increased costs: The quantum of trades can lead to higher fees and trading costs can eat into profits.
  • Prone to sudden trend reversals: Scalp trades are vulnerable to sudden market reversals.  

Scalp trading vs. swing trading in crypto

We have discussed how to scalp trade, scalping trading strategies, scalping technical indicators, and the pros and cons of scalp trading. However, it is important to differentiate between scalp trading and swing trading as both capitalize on market momentum. 

The key difference between scalp training and swing trading is in the time frame. We have listed the key differences between the two here:  

AspectScalp TradingSwing Trading
Time HorizonUltra short term. Ranging from a few minutes to hours. Longer-term. Ranging from several days to weeks.
Trade FrequencyHigh trading frequency. Multiple trades per day. Lower trading frequency compared to scalp trading. 
Holding PeriodHolding time is very low minimizing time in the market.Positions are held for comparatively longer duration. 
ProfitsSmall profits from minor price movements. Profits add up with high trading frequency. Large profits as positions are held for a long time to benefit from the market trend. 
Risk ManagementRapid decision-making requires strict risk management for each trade. Comprehensive risk management focused on managing risk for the entire portfolio.
Stress LevelsHigh stress levels due to constant monitoring.Lower stress due to less frequent trades.
Market AnalysisTechnical analysis focusing on immediate price action. The analysis involves token-specific analysis as well as overall price movements.

Conclusion 

Scalp trading strategies rely on several technical indicators to profit from short-term market movements. We have discussed trading strategies that scalp traders can use to make the most of the crypto market volatility. As always, research thoroughly and adopt a trading strategy that aligns with your risk tolerance level.

Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered investment/financial advice from CoinSwitch. Any action taken upon the information shall be at the user’s risk.

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