Even if you are a complete beginner in trading, you will have most likely come across the term "scalping" at some point.
You will learn in this article the answer to ‘what is scalping in crypto’, how it works and how to choose your own scalping trading system. Furthermore, will also take a look at scalping strategies, focusing in particular on the popular 1 minute scalping strategy.
What Is Scalping in Crypto?
Scalping is a method of trading crypto based on real time technical analysis. When it comes to crypto, a scalping trading system requires making a large number of trades that each target small profits. Rather than holding a position for several hours, days or weeks, the goal of scalping is to make a profit in minutes, or even seconds, just a few pips at a time.
The market is the largest, most liquid and one of the most volatile financial markets in the world. Scalpers try to squeeze every possible opportunity out of these fluctuations in foreign exchange quotes, by opening and closing trades with just a few cents of profit.
So, scalping in the market is essentially taking advantage of minor changes in price over a short period of time.
Crypto scalping is quite a popular style for many traders, as, thanks to the volatility of the market, there are usually ample trading opportunities throughout the course of the day.
During the scalping process, a trader usually does not expect to gain or to lose more per trade, including the spread. Therefore, in order for those gains to add up to a substantial profit, scalping is usually performed with high volumes.
The Best Time Frame for Scalping
In general, most traders scalp currency pairs using a time frame between 1 and 15 minutes. Whilst there is not really a "best" time frame for scalping, the 15-minute timeframe does tend to be the least popular with most scalping strategies.
Both 1-minute and 5-minute timeframes are the most common.
Your acceptable profit or loss per trade will depend on the time frame that you are using. With 1 minute scalping, you would probably be looking for a profit of around 5 cents per trade, whereas a 5-minute scalp could probably provide you with a realistic target of 10 cents per trade.
The Best Pairs for Scalping
When it comes to selecting the currency pairs for the best scalping strategy, it is vital to pick up a pair that is volatile, so that you are more likely to see a high number of moves.
That being said, volatility should not be the only thing you are looking at when choosing a currency pair. You should also look for a pair that is cheap to trade, in other words, the one that will provide you with the lowest possible spread. For a successful scalper, the spread will take between 10% to 30% of their income. Therefore, it goes without saying that you want this value to be as low as possible.
Scalping Trading System
You will need to develop a scalping trading system based on scalping indicators. After this, once you see an entry signal, you have to go for the trade, and if you see an exit signal, or you have come to an acceptable level of profit, you can close your trade.
Stop-loss (SL) and take-profit (TP) management is also important in scalping. Whilst it is usually always recommended to use an SL and TP when trading, scalping may be an exception to this rule.
The reason is simple - you cannot waste time executing your trades because every second matters. You may, of course, set SL and TP levels after you have opened a trade, yet many traders will scalp manually, meaning they will close trades when they hit the maximum acceptable loss or the desired profit, rather than setting automated SL or TP levels.
Execution Speeds
Another important aspect of being a successful scalper is to choose the best execution system. 'Execution' refers to when the trades that you place are actually fulfilled by your broker.
In other words, the speed at which, once you say you want to enter a trade, the trade is actually opened on the live market. In volatile markets, prices can change very quickly, which means your trade might open at a different price to what you had originally planned. When you are relying on the tiny profits of scalping, this can make a big difference.
This is why it can be hard to be successful with a scalping strategy. If there is a dealing desk involved, you may find a perfect entry to the market, but you could get your order refused by the broker. The situation may get even worse when you try to close your trade and the broker does not allow it, which can sometimes be deadly for your trading account.
Buy (Long) Entry Point
Now you have applied the Forex scalping indicators to your chart, you need to wait for an entry signal.
The signal for a long order is as follows:
Any time the red 50-EMA indicator surpasses the blue 100-EMA indicator, be ready to open a long order.
Make sure the price is close to the EMA indicators, and when the Stochastic rises above the 20 level, open a long position.
Sell (Short) Entry Point
The signal for a short order is as follows:
To determine when to make a short order, use the opposite of the buy strategy conditions
The red 50-EMA indicator should be below green 100-EMA, and the price should be close to these lines.
The Stochastic Oscillator must be crossing below the 80 level.
Risk Management
As profits from scalping strategies tend to be small, almost all scalping methods use larger than normal leverage. While leverage can amplify profits, it can also amplify losses, leading to higher risk. Therefore, risk management is key. For scalpers who use a stop-loss as part of their trading strategy, a higher leverage ratio may be acceptable.
Using high leverage is particularly risky during news or economic releases, where in wide spreads can occur, and the stop-loss might not be triggered. To prevent this, it is advisable to use an appropriate leverage ratio when scalping during periods of high unpredictability.
A profitable scalping strategy requires an understanding of market conditions and trading risks. Traders always have to keep in mind that they should never trade more than they can afford to lose.
Trading beyond your safety limits may lead to financially damaging outcomes. Be careful not to take an enormous risk, and be sure to exercise risk management in your trading, whether scalping crypto or otherwise.
