Discover the most important aspects of scalping with cryptocurrencies, from its advantages and risks to the trader profile most compatible with this accelerated investment technique.
What is scalping?
Scalping is an investment technique that is carried out in very short periods of time. Therefore, if you are scalping cryptocurrencies, it is important to keep in mind that this type of trading is done at a fast pace, without holding positions for more than a few minutes at a time.
The main objective of this type of trading is to get small amounts of points or pips numerous times throughout the day. We explore the most relevant details of the cryptocurrency scalping strategy and some examples that will serve as a basis for you.
What is cryptocurrency scalping strategy?
Scalping is defined as an investment methodology that is based on speculation with very short investment timeframes and aims to make a quick profit by buying and/or investing in an investment product.
Scalping with cryptocurrencies basically involves applying this investment methodology of multiple operations in search of quick returns in short periods of time, but using any of the available cryptocurrencies, such as Bitcoin, as the underlying product.
To find out if this type of trading is really compatible with your profile, it is important to know what characteristics an investor should have and when to discard this type of operation.
Characteristics that a scalper should have:
- You like action and fast trading.
- You have time and don’t mind spending several hours watching the charts.
- You don’t like to wait for the time needed for long term trades.
- You think and act fast.
- You should not be a scalper if:
- You suffer from emotional stress in the face of rapid market movements.
- You cannot pay several hours of attention to the charts.
- You would like to make few trades with large profits each.
- You like to take your time when analysing the market to determine the general trend.
Advantages and disadvantages of scalping:
Eventual smaller losses. However, profits will also be smaller in volume.
Multiple opportunities to make profits each day.
You need to be very clear about when to enter and exit a trade.
Without the right profile, this investment system may not work as you would like it to, and can affect or be affected by emotions. You can find out how emotions interfere with trading by learning more about how psychology works in trading.
How to put cryptocurrency trading into practice?
Cryptocurrency trading can be done in two ways:
Through a virtual simulator that allows you to create test positions without using real money. This can be done through a demo account.
To start investing with real money, profits and potential risk, you can do it directly by opening a free real account.
If you finally opt for this type of strategy in your trading plan, it is important that you know what spreads are. This concept means that you will start to profit on a trade once the price has gone in your favour by a number equal to or greater than the number of pips difference between the bid price and the offer price. From that moment on, the spread between the bid price and the offer price (the commission charged by the broker) will have been exceeded and you will start to make a profit.
On which cryptocurrencies can you use this strategy?
Scalping can be done on practically all cryptocurrencies, but on this occasion we are going to discuss the main ones.
Bitcoin: it was the first cryptocurrency to be created and, being the most important of them all, it is the most dominant currency in the market and continues to be the main medium of exchange in the “Exchanges” towards FIAT currencies. Its currency mass is 21 million and it is the protagonist of between 3 and 6 transactions per second. The minimum contract to trade is 0.01 USD profit or loss for each point moved.
Ether: it is a different currency to Bitcoin, as it is a programmable currency through which decentralised applications are developed. It has no monetary mass limit and is characterised by the development of smart contracts in which virtual robots automatically execute a previously established contract. There are 15 transactions per second and the minimum contract, as in the case of Bitcoin, is 0.01 USD profit or loss for each point moved.
Ripple: this is a currency that, unlike the previous two, does not use Blockchain, so it is a centralised cryptocurrency. Created for sending money between banks, it can carry out up to 1,500 transactions per second at really low costs. Although it is true that the fact that it is centralised makes it more vulnerable to possible hacker attacks, it has a monetary mass of almost 100 billion and the minimum trading contract is USD 1 profit or loss for each point that the contract moves.
Bitcoin Cash: it arises from a fork of Bitcoin, so it uses the same algorithm, although it allows a greater number of transactions than Bitcoin and faster, because it has a block capacity of 8 MB when Bitcoin only has 1 MB. Its monetary mass is 21 million and its minimum contract is 0.5 USD profit or loss for each point that the contract moves.
EOS: a cryptocurrency similar to Ether, but faster and more scalable. Users can create decentralised applications more efficiently through open source software. It allows millions of transactions per second and has a minimum contract size of USD 1 profit or loss for every point the contract moves.
Stellar: it arises from the separation of the founders of Ripple, so it is similar. In this case they differ in that Ripple focuses on providing solutions to banks, while Stellar facilitates payments between individuals. Its token provides an anti-spam function and is a bridge between different currencies. The cryptocurrency uses the Stellar Consensus Protocol (SCP). It has a money supply of 100 billion and has a minimum contract size of USD 1 profit or loss for every point the contract moves.
Litecoin: inspired by Bitcoin, but with a larger currency mass of 84 million instead of 21 million and blocks four times faster than Bitcoin, with much cheaper transactions. Its minimum contract is USD 0.5 profit or loss for every point the contract moves.
NEO: these are smart contracts that are stored on the Blockchain. It is executed exactly based on the terms of the trade agreement. It allows any real asset to be digitised, which can be divided and distributed in turn among the owners as if it were a clearing house. Its monetary mass is unlimited and its minimum contract is USD 1 profit or loss for each point the contract moves.
Bitcoin Gold: this is another fork of Bitcoin, although in this case the algorithm changes with the aim of decentralising mining and creating a fully decentralised network. The capacity of the block is the same as that of Bitcoin, 1 MB, and its monetary mass is also the same, 21 million. Its minimum contract is 1 USD profit or loss for every point the contract moves.
Examples of cryptocurrency scalping strategies
Triangle breakout
Firstly, we can use the triangle breakout strategy. A triangle is a very common figure in technical analysis. This figure gives us a bullish signal that usually has a high probability of being composed of a zigzag zone in which rising lows are formed and whose maximums are maintained in the same price zone, which are forming a resistance simultaneously.
The operation would consist of waiting for an overcoming after the closing of a candle (for short term scalping strategies) and once overcome, enter in favour of the trend. The exit target of the trade with profits is calculated by measuring the height of the triangle and extending it above the overcome resistance.
Price Action
Another possible strategy that we can carry out, based on Price Action, would consist of marking on the chart the levels of support and resistance and, once the resistance is overcome with a candle closing above, entering long with the objective of achieving the extension of the previous movement.
It can also occur if, once the support has been overcome with a candlestick closing below, a bearish entry is made with this extension as the downside target. In this case, we can rely on the Pivot Points indicator that we have available on the platform, as well as the intermediate levels of possible targets to materialize gains.
When it comes to investing in the stock market or cryptocurrencies, anyone who wants to start this activity must decide what type of trader they want to be. To do this, it is important to anticipate the goals we want to set for our investments, as well as the amount of capital available to reach the target.
Before starting to invest our money, we must be clear about the steps we are going to take at all times, that is, we must have a trading plan and follow it. A good way is to put it in writing. Through a well-designed trading plan and used methodically, the chances of achieving returns in scalping with cryptocurrencies are increased.
