Even though cryptocurrencies are known for being very volatile, traders have many ways to keep and reinvest their profits. Scalp trading is a strategy for trading crypto that allows traders to take risks and make the most of price changes by watching how prices move.
While many people use the phrases ‘crypto coin’, ‘crypto token,’ and ‘cryptocurrency’ interchangeably, they’re not the same thing; though coins and tokens use distributed ledger technology (also known as blockchain technology), there are some significant differences between a coin and a token.
This article will talk about what "scalping" is, how it works in cryptocurrency, the pros and cons of "scalping" in cryptocurrency, if it's hard and how much money you need to do it.
What does "scalping" mean?
Crypto scalpers try to make small profits by making a lot of trades in a short amount of time. This can lead to a large return from small profits.
Scalpers buy assets that are very liquid and have a lot of volumes when the news makes people more interested in them. Even though scalping is a short-term trading strategy, you still need to know how the market works.
Scalpers use a spread, which is when they buy at the bid price and sell at the asking price, to take advantage of the difference between supply and demand.
If traders are willing to accept market prices, this method lets them make money even if they don't change their orders or sales.
How does trading "on the tick" work?
The main things that make scalping possible are charts, speed, and consistency. Scalpers, for example, use technical analysis and the different gaps in value caused by bid-ask spreads and request streams.
Scalpers usually make money by making a spread, which means that they buy at the bid price and sell at the asking price so that there is a difference in value between the two price centers. Scalpers try to hold their positions for a short time, which lowers the risk of the strategy.
Also, traders who use scalping techniques must act quickly to take advantage of small price changes that happen every few minutes or even seconds. In this way, scalpers can continue to make money over time. How do they make money, though?
Cryptocurrency scalpers use tools like leverage, range trading, and the bid-ask spread to make money, as explained below:
- Leverage: Leverage shows how much money traders have to pay out of their own pockets to increase their margin. Some scalpers use this strategy to make their position bigger.
- Range trading: Scalp traders who do range trading look for trades to end within a range of prices that they have set. Some scalpers, for example, use a stop-limit order, which makes the trade happen at a future market price.
- Bid-ask spread: This is a way for scalpers to take advantage of the big difference in price between the highest bid and the lowest ask.
- Arbitrage: Arbitrage scalpers profit from the price difference when they buy and sell the same asset in different places.
How to set up a trading plan for crypto "scalping"?
Follow the simple steps below to set up a crypto scalp trading strategy:
- Choose the trading pairs. Considering how volatile and liquid crypto assets are, choose a trading pair that fits your risk-return investment profile.
- Choose a place to trade: When choosing a trading platform that offers the trading pair you want, think about things like fees, the interface, customer service, and so on.
- If you want scalper bots: Scalping is based on speed, so traders who use software are always ahead. Also, managing an investment portfolio by hand usually takes a lot of time and is prone to mistakes.
- Try out different ways to trade: Before you start scalping, make sure you know your strategy well by trying out different ways to trade, as described above.
What are the pros and cons of scalp trading?
Scalping is just like any other trading strategy in that it has both pros and cons. For example, the risk of scalping is low because the size of the positions is small.
Also, crypto scalpers don't try to make money off of big price changes. Instead, they try hard to make the most of small changes that happen often.
But since the profits from each trade are so small, scalpers look for more liquid markets to increase the number of trades they make.
Economists say that being optimistic about scalping might not be a good thing. For example, there isn't a single tried-and-true method for scalp trading that will guarantee success in at least 90% of situations.
Also, if something seems too good to be true, it probably is, especially when it comes to trading cryptocurrencies.
Also, scalping often requires a high level of analytical skill, but traders don't have to be patient with prices that change all the time.
Also, keep in mind that trading fees, which can be high depending on how much you trade, are to be paid.
Is it worth it to scalp crypto?
To become a good crypto scalper, you need to improve your ability to read charts and learn more about the different ways to trade crypto.
In general, scalp trading can be aggressive and hard, and it can be very tiring for people who haven't done it before. Because the profit from each trade is too small, you need a lot of money to get results that matter.
And, of course, since there is no "one-size-fits-all" crypto trading strategy, each trader should use the methods that fit their risk-reward portfolio the best. If you don't trust your skills when dealing with risky assets, it may not work out in the long run.
Risk management is likely the most important thing for scalpers to learn. Choosing how to manage risk can have a much bigger effect on how well an investment portfolio does financially than choosing when to buy and sell.