Scalping in Cryptocurrency: Optimal Ranges and the Right Ways to Successfully Use the Technique

"Scalping has become one of the most prevalent strategies for creating regular income through crypto trading, but to be a successful scalper in the cryptocurrency markets one must possess an excellent understanding of micro market movements as well as a high level of precision and discipline."

What is Scalping and Why is it Being Used as an Investment Strategy in Cryptocurrency?

Scalping allows traders moments of price movements in order to create a series of small profit from opening and closing trades in literally seconds or minutes. The volatility and liquidity of the digital currency market make scalping one of the primary methods used by traders to build fortune from their trades.

In contrast to longer-term strategies, scalpers must keep a close watch on the market to seize on every price change as it occurs. A scalper looks for markets and trades based on the principles of technical analysis and real-time information for every transaction they enter into and they take advantage of small daily price changes rather than relying on larger price changes or trends.

Advantages of Scalping:

• Ability to compound small profits on multiple trades.

• Opportunity to profit from the extremely high volatility and/or liquidity of cryptocurrencies.

• Limited exposure to a volatile market, thus minimizing potential loss due to large unanticipated price changes.

Disadvantages of Scalping:

• Scalping can be very risky as the trade fee incurred from making a very large number of trades can be in significant amounts and also a very high percentage of scalpers fail to execute their trades with perfect timing.

• Scalpers also capitalise on very small price changes (or "wiggles") in the crypto market, which is the very reason the crypto markets have such high volatility.

Comparing Scalping with Swing Trading and Long-Term Investing

Market Dynamics & Price Considerations

Cryptocurrency trades all day, every day, which is different than most investment vehicles. High volatility combined with unpredictable liquidity are very important in determining success when scalping.

• Volatility: Creates plenty of price fluctuation which allows frequent profitable trades for traders.

• Liquidity: Provides a fast execution time with very little slippage.

• Drivers: Volatility may come from news, sentiment or technical triggers.

Trading on a 24/7 basis with high volatility and liquidity means this is the most favorable environment for traders who want to execute many trades / scalp on a daily basis.

The Role of Volatility in Scalping

Volatility is a measurement based on how much prices move over a specific period of time. Thus, volatility represents both an opportunity and a challenge for traders who want to scalp. Due to the number of times that an individual trader may be able to scalp profitably, volatility is considered to be the scalpers playground; however, excessive volatility creates uncertain market conditions such as widening of bid/ask spreads which then creates uncertainty and increases the risk. Consequently, determining how much volatility is optimal for managing risk is essential for successful scalpers. One way for traders to evaluate whether a market is either highly turbulent or not is by observing the Average True Range (ATR) technical indicator.

Finding the Optimal Conditions for Successful Scalping

Each trade you execute when scalping is small in size but you are executing quite a few trades on a daily basis which typically range between 12 to 34 trades per day depending on how volatile the market is. Even though your trades executed are small in volume, because you are executing many trades, therefore your relative risk of losing money on these trades due to trading fees are minimized. Having too much leverage in your trades can quickly wipe out your entire account balance.

While costs and expenses can vary, scalping usually incurs multiple trades within a minute, this creates significant cost through commissions or fees, the swapping costs from trading and slippage will all take up a significant portion of potential profits. Choosing a trading platform with the least amount of cost associated with them will help ensure you keep a good level of margins.

Tips for Successful Scalping

• Be Focused: Trade only in a few highly liquid cryptocurrencies in order to minimise slippage.

• Adjust Your Indicators: Adapt all applicable indicators to fit your own trading style.

• Be Disciplined: Adhere strictly to your exit strategy for every trade, each and every time.

• Minimise Trading During Off-Peak Hours: Avoid trading at times of extremely low liquidity or during off-peak hours in order to eliminate market noise.

How to Begin Scalping: A Step-by-Step Guide

1. Learn the Basics: Get a general understanding of everything relating to digital assets, how exchanges work, and the fundamentals behind trading.

2. Choose the Right Platform: Use trading platforms that have been recommended for low costs and fast executions.

3. Prepare Your Trading Tools: Create charts and set up indicators that will be tailored to facilitate scalping.

4. Test Your Strategy: Use demo accounts with virtual funds to test your scalping strategy.

5. Implement Risk Control Measures: Set up a pre-defined stop-loss level and pre-determine how much risk you wish to assume on each trade.

6. Scale Up: If you are new to scalping, start with very little actual money initially until you gain the experience you need.

7. Continue to Analyse Your Trades: Keep a log and analyse your trades to improve your scalping strategy.

Commonly Asked Questions Regarding Scalping

• Is Scalping Suitable for New Traders? With caution. Scalping requires tremendous amounts of discipline and reflexes, therefore a new trader should learn or understand trading concepts via a simulation account before she or he attempts to scalp.

• What are Good Cryptocurrencies to Scalp Trade? High volume pairs such as BTC/USDT and ETH/USDT, and many higher volume alt-coins, will all be good to scalp trade.

• Do You Need Large Capital for Scalping? No. A trader can effectively scalp trade with a small amount of capital if the trader has a defined plan in place for risk management and commission levels.

Importance of Data and Technology in Scalping

In order to successfully trade the financial markets, it is imperative to be able to identify extreme volatility in the financial market in an efficient manner. Extreme volatility spikes often occur due to a major news announcement. It is critical to be able to analyse in real-time market price movements and aggregate market sentiment to make well-informed trading decisions. Trading platforms like ASCN.AI provide scalping traders with access to aggregate on-chain transaction data, market prices and volume from reliable mobile apps and exchanges, thereby enabling a high frequency trader to better position themselves for imminent market moving news events.

Using Trading Technology

• Trading Bots: Provide traders' instant reactions to changes in the market at lightning fast speeds.

• Algorithmic Trading: Completely removes human error and emotional bias from the traders' decision making process.

• ASCN.AI: An automated trading application, which offers automated market analysis of real-time data streams and suggestions for the best trade opportunities to pursue.

By using advanced trading tools, such as the ASCN.AI trading application, traders have the ability to reduce the amount of time it takes to complete a trade and increase the overall accuracy of the executed trades by up to 90% depending on the time of day and fluctuating market conditions.

Trade Case Study: A Trader using ASCN.AI

A trader utilised ASCN.AI tools to successfully identify and take advantage of a significant spike in price volatility in favour of traders trading Ethereum. The trader was able to successfully execute 25 trades (scalping) in a three-hour period resulting in an overall 7% increase in his/her daily income level whilst adhering to strict risk management parameters.

Conclusion

Ultimately, scalping presents an ideal opportunity for traders who successfully learn to integrate speed, risk management and discipline across virtually all aspects of their trading strategy. The ability to time entries, manage volume and market price of each trade along with the most sophisticated trading analysis tools will dramatically improve the odds of success for all of your trades. Utilising ASCN.AI will provide you with additional options for intelligent trading execution and reducing your trading risk.

Optimal Trading Parameters

"Displaying consistency in successful trade results will be achieved by showing discipline and adherence to your scalping strategy over time."