Scalping Trading Strategy Techniques

Intro

Making fast profits in the crypto market is possible by developing a scalping strategy. This method of trading is based on high-frequency trading, which means it aims to execute several trades in shorter periods capitalizing on small profits.

Strategies based on scalping requires high skill, focus, and psychological strength to deal with stress and rapid executions. In this article, we will be discussing some techniques for effective scalping.

Understanding Scalping

Scalping is a strategy characterized by a fast approach when executing trades, aiming to capitalize on very short-term movements.

Scalping is essentially a high-skill trading style demanding advanced techniques on several aspects like emotional strength, psychological control, risk, and capital management.

This trading style can take advantage of different market formations like trends, ranges, breakouts, triangles, and other chart patterns. Also, scalping can be profitable in volatile conditions and pursues sharp price movements.

However, Scalping is not exempt from risks. The high frequency of trades associated with scalping amplifies the impact on emotions. Excitement during winning seasons can lead to overtrading, while fear of losing trades can damage the execution of a well-defined strategy. 

The hardest task for scalpers is to remain objective and disciplined in their trading plan regardless of external pressures.

Advantages and Disadvantages of Scalping

Scalping is a good strategy capable of being applied to several markets with fast returns. This fast and versatile approach carries some positive and negative aspects to be aware of.

Advantages

Fast Profits: Traders can capitalize on very short price swings, aiming for rapid profits. By opening and closing positions rapidly, scalpers can accumulate little returns and conclude with a satisfactory profit at the end of their sessions.

Less Exposure: Scalpers do not need to spend much time in the market like long-term trading methods. Scalping minimizes exposure time per trade, and traders can exit positions, avoiding overnight market risks.

Simplicity: Traders aiming to learn scalping can develop a simple focus that does not require extensive trading concepts or technical tools. Novice traders can learn the necessary skills without much effort.

Disadvantages

• High Costs: Commissions during frequent trades can lead to increased transaction costs, affecting overall profitability.
• High Stress: Scalping can be severely stressful and demands constant attention and discipline. Traders must maintain intense focus and constantly monitor charts while executing trades effectively.
• Volatility Risks: When the current trade price differs from the expected price due to market volatility, it is called slippage. Rapid executions can result in slippage.

Benefits of Scalping Cryptos

The crypto market has unique characteristics that make it attractive for scalpers. As this market is driven by high liquidity, volatility, and novices trying to make a profit, those who can master the art of scalping will enjoy substantial price movements in short periods.

Leverage is a crucial concept in this trading style. Unlike traditional asset exchanges, crypto exchanges offer high leverage options which make these markets highly liquid, causing notable fast price movements.

Techniques Of Scalping

Scalping techniques rely on price action principles, which let you adopt versatile and simple focuses to enter trades. These are based on candle patterns and combining timeframes primarily. However, using indicators like moving averages can be very useful, while others like RSI can be a secondary help.

Candle Patterns and Price Action Scalping

Scalpers can develop sophisticated methods to detect candle patterns and enter trades during the formation of those candles. The concepts of price action offer the base for the application of this technique.

Popular patterns used by scalpers to enter trades:

• The Hammer: This is a bullish pattern, and the price action behind suggests a reversal move as a consequence of bears losing control while bulls are gaining control.
• The Morning Star: This is a bullish pattern, and the price action behind indicates sellers have lost strength. Typically, scalpers expect the bullish candle to surpass the previous bearish candle, executing a trade entry right at that moment.
• The Shooting Star: This is a bearish pattern indicating a downside move. Scalpers can enter trades during the next candle after detecting the pattern, the next candle should close below the body of the shooting star.
• The Evening Star: Similar to the morning start, this is the bearish version indicating a downside price action.

Scalping Setup.

Combining Different Timeframes

Using various time frames as window references is a typical technique for scalping. It is based on looking at 5-minute or 10-minute charts while looking for opportunities on 3-minute and 1-minute charts. Patterns like the Morning Star can emerge in higher time frames and be tradeable from a shorter time frame viewpoint.

Indicators Suitable for Scalping

Moving Averages: The EMA-20 and SMA-20 are popular among scalpers to follow and predict short-term trending movements in the 1-minute and 3-minute charts.

Relative Strength Index (RSI): Scalpers can use RSI to detect overbought/oversold conditions for reversals as well as divergences. Take into consideration that RSI can give misleading signals in short time frames.

Stochastic Oscillator: Similar to RSI, Stochastic helps identify overbought/oversold levels. Scalpers could use a combination of RSI with Stochastic to get better signals.

Bollinger Bands: Scalpers could use the upper and lower bands of this indicator to detect opportunities during range-bound markets.

Emotional and Psychological Techniques For Scalping

Since scalping can generate stressful times for traders, practicing some routines to balance emotions and strengthen psychological functions can lead to better performances and acceptance of losing streaks without breaking trading strategies.

Scalpers can practice:

• Meditation.
• Journaling trades.
• Avoiding revenge during losing trades.
• Avoiding excitement during winning trades.

Management For Scalping

Given the fast approach of scalping, managing trades should consider rapid entry and exit techniques. 

Scalping is based on exiting a trade position at the moment it is winning regardless of how much is doing, what matters is to make a fast profit and get out of the market safely.

Scalpers try to reach that goal by:

• Using stop-market or limit orders.
• Pre-defining stop-loss orders.
• Pre-defining position sizing.

Conclusion

Scalping offers a rapid way to capitalize on small price fluctuations in the crypto market by executing frequent entry trades and quick exits from them. This approach is simple but involves risks mostly associated with the traders performance, like emotional trading and overtrading behaviors. In this article, we discussed some techniques that traders of any level can start applying in Altrady by signing up for a free trial account with paper trading and smart trading features.