Scalping, often known as scalp trading, refers to short-term trading methods. It is a trading strategy in which a trader executes several trades in a single day, resulting in little profit. The reasoning is that it is a matter of “quantity or quality,” as the expression goes. The small but consistent profit will add up to a sizable sum at the end of the day. Of course, the trader conducts preliminary due diligence to ensure that the transaction is legal.
Scalpers must respond quickly to market movements since they do not hold positions for more than a few seconds. Because scalping necessitates a high amount of volatility in the chosen currency pair, crypto scalpers rely heavily on technical analysis when selecting their target for trade. Traders use technical analysis to examine charts and trends and make predictions based on price behaviour.
Hence, these traders earn by taking advantage of brief bursts of volatility. To understand this process better, it could be advisable to go experience it live. This can be done on several platforms on the internet, although it is advisable that you can confirm the legitimacy of whatever platform you intend to try out. An example is the Immediate Experience platform where reviews across the web show many scalping success stories.
A successful stock scalper will have a significantly higher winning trade ratio than losing trades, with earnings about equal to or slightly larger than losses. The idea behind scalping is that most stocks will finish the first stage of a trend. Some stocks stop rising after that early stage, while others continue to rise.
Crypto Scalping vs Forex Scalping
- Supply and demand: The price of any currency, whether crypto or fiat, is determined by this factor.
- Digital platforms: Both cryptocurrency and forex allow for electronic trading over the Internet, giving traders access to a wide range of currencies.
- Bots: Because technology has only advanced, it is impossible for automated trading to thrive utilizing internet bots and artificial intelligence.
- Volatility: Cryptocurrencies are significantly more volatile than fiat money. A scalper must be able to swiftly comprehend the crypto market in order to recognize changes.
- Intermediaries: Also known as “middlemen,” they are persons who help forex dealers. They impose fees, which raises the cost of trading for the individual. Such companies are not required in cryptocurrency trading, resulting in lower transaction costs.
- Time: Unlike the foreign exchange markets, which are only open during regular business hours, the cryptocurrency market is open 24 hours a day, seven days a week.
- Regulation: At the moment, only a few countries recognize bitcoin as a legal currency, making it risky and unpredictable. Meanwhile, the currency market has been around for a long time, and it is governed by law and supported by the government.
Types of Crypto Scalping Strategies
- Range Trading
Monitoring the price movement between the high and low levels within a given period is a common scalping method. The bottom of the range will serve as an improvised support level, while the top will serve as a resistance level. As long as a price range is not violated, a trader can work inside it. This may be quite profitable for skilled scalpers, but there is no assurance that it will succeed for everyone.
A price level at which demand is strong enough to keep stock or other investments from dropping any further is known as support. Meanwhile, resistance is when the supply is insufficient, and a stock’s upward movement is halted. Scalpers purchase at support and sell at resistance in a range trading strategy.
- Bid-Ask Spread
The bid-ask spread is the difference between the highest price offered by the seller (bid price) and the lowest price paid by the buyer (ask price). A security with a narrow bid-ask spread is likely to be in strong demand. A security with a large bid-ask spread may indicate a low level of demand, affecting its price.
The bid-ask spread measures the supply and demand for a certain item. Some high-frequency traders and market makers try to profit from fluctuations in the spread. If fewer players issue limit orders to buy an asset (resulting in lower bid prices) or fewer sellers put limits, the spread might widen considerably.