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Crypto Price Action Scalping: Techniques & Tools for Success
Price Action Scalping in Modern Markets: Techniques, Tools, and Temperaments for Success
What is Scalping?
Trading markets under scalping concepts may be a challenging task. A fast-paced activity like that requires high levels of focus and quick decision-making processes from traders.
Techniques include technical indicators, trading volume, chart patterns, journaling trades, and order book reading.
On the side of the trader's performance, psychological and emotional techniques include meditation, discipline improvements, regular trading lectures, and sticking to a trading plan.
Scalping was born out of the desire to profit from shorter moves in prices in financial markets. These moves are expected to be fast and directional. A market is liquid when it has notable amounts of money flowing through orders in real time; the more liquid the market is, the faster the price moves.
Spotting key levels of liquidity in a price chart will give traders a probabilistic advantage over those zones.
Key Characteristics of Scalping
This method of trading is, unlike others, like day trading or swing trading, a high-frequency strategy. We say it that way because a scalper will execute several entries over a session. In the same way, the trader can execute sophisticated programs of algorithmic trading to achieve more entries in a faster entry-and-exit performance.
A key and powerful characteristic of scalping strategies is the small risk-reward ratio it aims for since it also aims to deploy several orders in a market. A profit margin in this mode varies from 1:1 to 1:2.
Liquid markets move the price fast, so a trader should aim to develop skills that guarantee quick decision-making based on an advanced readiness of technical indicators like volume and its variants.
Why Volume Matters: The Role of Volume in Scalping
Volume is an indicator that measures the cash flow and transactions entered into the market during a period. The more money is into the market, the more this indicator increases its value, spotting that a big player (also known as “whales”) is coming into the game or, in another case, that a large amount of retail and small account traders are coming into the market massively.
When volume begins to increase, suggesting there is money flowing, the price will go to relevant zones of support and resistance and will break ranges, seeking other relevant supply and demand zones.
This is done to fill the orders exposed in the market for different purposes:
- In a first look, professional traders could be buying or selling because of fundamental reasons.
- In other cases, the goals are merely speculative to generate gains in the short term. In this scenario it is common for less experienced traders to get caught in losing positions.
These same traders who are in losing positions are the ones who form the following liquidity zones.
How Volume Enhances Scalping
The volume indicator, in combination with other technical indicators like moving averages, is a great aid in spotting the beginning of a trend or the ending.
Also, identifying divergences could anticipate a reversal trend. Conversely, a convergence with a volume increase could be telling of a fast price move about to happen.
Confirming these divergences/convergences or any price signal will require practicing the identification of upcoming price movement through the fast interpretation of volume peaks.
A rapid increment in the volume with relevant price action on key levels will be a rejection signal of that zone and that large limit orders are being filled.
A reversal may be spotted with the help of chart pattern formations like:
- Double bottom.
- Double top.
- Triangle breaks.
In any of the previous cases, a volume increment during those formations will be for sure a signal of reversal movement coming.
Strategies for Scalping with Volume
The most important thing to be successful in price action trading and this includes scaling as well is the art of understanding how the markets move and why.
That's because markets’ ups and downs are based on price action which are moved thanks to the imbalances of the buyers and sellers for a particular price range.
Let's clarify what that means. First of all the market is moved by supply and demand levels and here one of them is always a winner: the buyers or sellers.
What we want to see on the chart is where the imbalances occur and where the money is.
Let me share an example
If you see a consolidation level which is a huge fight between buyers and sellers to see which way the market will go then you have to look closely because that will tell you which way to trade.
Let's break it down.
If there is a consolidation (fight) and the price breaks up then the buyers won the fight and therefore as soon as the price gets back (retracement) to that level then you have a 95% chance to get a successful trade
The same case is for the Selling opportunities
Let's recap.
- Find consolidation levels;
- See a real break up/down;
- At least, double the size of the consolidation high and low.
For example, if the consolidation level is between $10 to $12 that means that your consolidation level difference is $2. To validate your level, the price rally should be at least $4 and preferably $6.
Based on this explanation, your best buying opportunity would be once it breaks from $12 and reaches $18 and then retraces to 12 again. That's where you should buy it.
And vice versa which means it should drop the price from $10 to $6 and then go up to $10 that you sell.
This example can be used proportionally for cents as well on 1 min charts. But it is always recommended to check for the bigger timeframes, get the trend verified, and then scalp the trend.
Managing Risk
Risk management in scalping will require a detailed trading plan and a disciplined implementation. Risk-reward guidelines should consider the nature of scalping strategies: the catch of fast movement of prices.
The risk management in this case should place special emphasis on emotional and psychological strengths, detailing rules on how to overcome losses and turn those losing scenarios into winners.
Behaviors like adding more to a losing position, or increasing the size of further entries after a losing one, should be avoided by any trader who pretends to succeed.
The bad but common practice among traders to try scalping without stop-loss barriers will kill any account in record time. Stop-losses are very important in fast-driven environments of trading like scalping.
Take-profit targets are also important if a trader does not want to miss a winning position if it reverses. Stop-loss and take-profit will help the smart trading approach of any scalper.
Conclusion
Volume and scalping are two concepts intrinsically related to each other.
Scalping is a method of trading implemented in a fast environment, having a trading plan will help disperse contrary effects detrimental to the capital.
Scalping demands emotional and psychological strength guidelines to guarantee successful execution.
Volume in combination with other technical tools will ensure entry and exit points.
Strategies developed with volume considerations will ease the identification of divergences, convergences, trends, and reversals.
Volume is a clear signal of when is the right moment to trade and when it is not.
Catalin is the co-founder of Altrady. With a background in Marketing, Business Development & Software Development. With more than 15 years of experience working in Startups or large corporations.