What is scalping trading? The complete guide

Scalping is one of the most well-known and widely used strategies in cryptocurrency trading. This technique can be highly profitable, provided that you have a solid understanding of it. Let’s explore what scalping entails and how you can significantly increase your profits using this strategy.

What is Scalping Trading?

Scalping is a trading technique that involves opening and closing positions within a very short timeframe. A person who practices scalping is known as a “scalper.”

With this strategy, a position typically lasts only a few minutes. The trader makes their daily profits by executing a large number of such transactions through scalping.

The goal of the scalper is to capitalize on small, short-term market fluctuations. To achieve this, they primarily use technical analysis for their trades, while other traders often combine technical and fundamental analysis.

To maximize profits, scalpers sometimes use high leverage.

Scalping requires an in-depth knowledge of technical analysis in trading, as well as an understanding of short-term market variations. This is why beginners often opt for less risky strategies, such as swing trading or HODL (holding) for cryptocurrencies.

How to Practice Scalping

Here’s how you can engage in scalping:

• Choose a Trading Platform: Sign up with a reliable online broker. Major cryptocurrency exchanges like Binance, Coinbase, or Kraken are among the best choices for cryptocurrency trading.
• Select a Market: Opt for a liquid market, such as Forex, indices, cryptocurrencies, or futures contracts.
• Choose an Asset: If you’ve chosen the cryptocurrency market, some of the most traded assets include Bitcoin, Ethereum, or XRP.
• Use Short-Interval Charts: (1 to 5 minutes).
• Identify a Trend or Range: Take positions in the direction of the trend. In a ranging market, buy low and sell high.
• Set Targets: Define profit targets for each position.
• Get it done: Execute a Large Number of Small Trades.
• Stay Informed: It’s essential to keep up with news, as scalping can be very risky if major market-impacting news breaks.

It’s important to note that this strategy aims to grow your capital through small price fluctuations, requiring significant skill and sustained concentration.

Why Engage in Scalping?

Traders choose scalping for its potential advantages, but they must also be aware of its downsides. Here’s a more detailed list of reasons why some people choose to scalp.

What are Effective Scalping Strategies

Scalping is a very short-term trading technique that relies on the rapid execution of numerous transactions to capture small price movements. To succeed in scalping, it’s essential to implement effective strategies. Let’s explore some commonly used approaches.

1. Trend-Following Scalping

This strategy involves taking positions that follow the direction of a very short-term trend and closing them during correction phases.

Here’s how you can use this short-term trading strategy:

• Identify a short-term direction (on a 15-minute chart);
• Draw a trendline;
• Take positions at support or resistance in the direction of the movement;
• Sell at potential correction points, usually at support or resistance

Here is an example on the bitcoin chart:

You can see that this upward movement offered us 10 trading opportunities in a single day.

Trend-following scalping is very practical provided that the market initiates a clear upward or downward movement.

2. Range Scalping

This strategy is applied to markets that do not show a clear trend. It involves buying low and selling high. The cryptocurrency market, known for its high volatility, is an ideal option for applying this range scalping strategy.

Here’s how you can take advantage of this technique:

• Identify a range market: choose an asset whose value is not impacted by significant news. For a cryptocurrency, check news sites and on-chain analysis platforms;
• Find key levels where the price might react;
• Draw a support and resistance line;
• Buy low and sell high.

Here is an example illustrated on the ethereum chart:

It is important to note that when a support is crossed by the price, it becomes a resistance and vice versa. Similarly, when resistance is breached, it becomes support for the price.

3. Scalping with Technical Indicators

Some scalpers also use technical indicators to identify entry and exit points. Here are some of the most commonly used technical indicators for scalping:

• Ichimoku: You can take a buy position when the asset price crosses the Kijun line upward. A sell position can be taken when the price breaks this line downward.
• RSI: When this indicator diverges from the price (RSI Divergence), it generally suggests a change in the asset’s direction. For example, if Bitcoin’s price shows increasingly lower lows while the RSI shows increasingly higher lows, this suggests a potential rise in BTC’s price.

In summary, cryptocurrency scalping is a short-term strategy aimed at profiting from minor price fluctuations. This approach offers the potential for quick gains but requires technical expertise, high responsiveness, and comes with high transaction costs and increased risk. Before opting for this strategy, you should carefully assess your level of experience and risk tolerance. While it can be lucrative, it is not suitable for beginners.