There are scores of ways you can trade and invest in cryptocurrencies.
Sure, you can buy and HODL or frantically day-trade to catch the day’s highs and lows. But how about going beyond all that? How about using the techniques traders in other markets apply when they invest?
It’s time to learn a little more about forex scalping – and how you might be able to apply it to your own trading strategy in the crypto markets.
What Is Forex Scalping?
If you have ever dabbled in forex trading, chances are you will probably have come across the term scalping.
In currency trading, scalping (also known as scalp trading) refers to when a trader makes a large number of small transactions to profit off small price movements throughout the day.
By generating dozens (or even hundreds) of short-term trades a day, successful scalp traders can generate sizable daily trading profits. And they can do this despite the fact that they are essentially engaging in a relatively low-risk trading strategy in a volatile market.
To execute this type of strategy, traders usually deploy a system that provides them with trading signals – often based on technical indicators – that they use to make buying and selling decisions.
Because machines can execute technical indicator-based trades faster than humans, most experienced forex traders use trading bots to help them execute their scalp trading strategy effectively.
Additionally, traders use leverage to amplify their potential trading profits, to allow them to put only a small amount of capital into each trade they make.
Risk management is another important factor for scalp traders.
To execute this type of trading strategy, traders put tight stop-loss limits and price targets in place to ensure that no trade ends up losing too much money.
Seasoned traders will use trading software that executes stop-loss limits and price targets automatically – effectively taking emotion out of the equation.
Can Crypto Traders Scalp Trade Too?
Due to the similarities between traditional fiat markets and the cryptocurrency market, there is already a large number of crypto traders out there who use scalping strategies. And crypto trading bots have become so advanced that the same sort of theories can easily be applied by bitcoin (BTC) traders.
However, the reason why scalp trading is so popular in the foreign exchange market comes down to the fact that it is a multi-trillion dollar market with ample liquidity in its largest trading pairs.
The crypto markets, on the other hand, only have a daily exchange trading volume of around USD 100 billion, and a big chunk of that is taken up by bitcoin.
That means – aside from BTC/USD and BTC/TUSD (TrueUSD) pairings – there aren’t many crypto trading pairs available that let you successfully execute an automated scalp trading strategy using leverage.
So yes, you can scalp trade bitcoin and maybe ethereum (ETH). But you can’t just pick any coin and start scalping. Especially when that coin lacks liquidity.
How to Set up a Crypto Scalping Trading Strategy
If you do decide that crypto scalping is for you, on paper, getting started is actually quite easy. You could start by following the steps below:
- Decide on the trading pairs you want to scalp.
- Sign up to a trading platform that provides high liquidity in your chosen trading pairs.
- Get a trading bot that allows you to execute a wide range of technical indicator-based trading strategies.
- Develop and backtest scalping strategies until you find one that works.
- Live-test the trading strategies and make sure all risk management measures work in the live markets.
- Start scalping!
Pros and Cons of Crypto Scalping
Like all crypto trading strategies, there are plenty of advantages and disadvantages involved with crypto scalping. Here are a few:
- It is a relatively low-risk trading strategy that can be automatically executed using trading bots.
- Once you have found the right indicators and bot settings for you, you can generate regular trading profits without really needing to get involved on a micro level.
- Without trading software, it is difficult to successfully execute this strategy.
- Finding the right indicators can involve conducting a substantial amount of backtesting, which can be time-consuming.
- Although scalping is usually considered to be a relatively low-risk trading strategy, you can still lose your trading capital.
- Trading fees do tend to add up and could eat into your profits.
Scalping: Is it for Everyone?
Scalping is just one of many ways to trade the markets.
However, it isn’t for everyone. Remember that unless you are an experienced trader, it may pay to buy and HODL the tokens that you believe will increase in value over time. But if scalping sounds like your thing, why not give it a try?