If scalping crypto was so easy, everybody would be doing it. The reality is way more complicated and hard. Institutions are fighting for the big pie, but you are the scalper trying to get all these little crumbs, because, for you, it makes a difference. Keep reading to find out how to scalp crypto by choosing the best indicators and strategies.
What is scalping?
Scalping is the most aggressive form of trading right after HFT (High-frequency trading). A scalper takes positions that last a few seconds to a few minutes maximum. It is a more advanced version of day trading.
By scalping, the trader is looking to accumulate a big amount of tiny profits. Think about it this way. Let’s say that you make about 0.1% per trade net of fees and commissions. And let’s say that you take 100 trades in a session of about 1h. You find yourself with a net 10% profit. Repeat that multiple times in a single day, and you can say goodbye to having to buy and HODL dogecoin waiting for daddy Must to drop its name on Twitter!
How to scalp crypto?
In order to scalp crypto, you need to drop on small timeframes. If this was the CME futures markets, it would make sense to use tick charts adapted to each of the indexes. But, in cryptos, and in our experience, tick chart trading is complicated because:
- No matter how much you pay for TradingView, it will never show you ticks.
- In the CME futures, you really only scalp one of the 4 indexes, so it’s easy to fine-tune the tick count to your index. In crypto, you will most likely be scalping different assets every time depending on which one is most volatile, so adapting ticks charts would become a problem
So, the best is to stick to a 1 min chart, combine it with a technical indicator you are comfy with and take trades over and over again!
Pros & cons of crypto scalping?
- It can be fun but also addictive. Seeing the furious movement of a candle is a pleasant sight
- It can be very profitable because you accumulate large profits.
- It is a fantastic tool to sharpen your skills. You will see patterns and setups over and over again at the speed of light. This will let you learn faster than any seasoned hedge fund manager who got lucky on a single multi-year bet.
- Scalping is like going to war behind enemy lines without air support and reconnaissance. You have to be a warrior and fight hard because your life depends on it. You can literally blow an account over a single badly managed scalp turned into an investment.
- You will make money yes, but on the condition of showing up day in, day out. At some point that can be very draining, and normal life events can greatly impact your mental and emotions, and as a result, your performance.
- Fees and commissions could be a problem if you pick the wrong asset.
- You risk doing ‘boredom’ trades if the market is not moving as fast as you want. If that is the case, just go away. Watch some Netflix!
Best crypto scalping indicators?
Scalping, day trading, and swing trading all use the same indicators. The market has a fractal nature meaning that things repeat no matter the time frame used. However, the internals of the market when looking at a 1 min chart can lead to unusual events like a pump or dump on a coin, or a short squeeze. Such movements can be insanely lucrative if you are on the right side of the trade, but also devastating if you are on the wrong one.
Some of the most popular scalping indicators are:
- The good old Relative Strength Index (RSI).
- The MACD
- Any volume indicator like the OBV, or Level2 Indicators
Best crypto scalping strategies?
Here are some of the most popular scalping strategies:
- Buy or sell when the coin touches the outer edge of a Bollinger band
- Buy the mean reversion using a moving average
- Bet on a reversal after an RSI divergence
You can also explore non-technical analysis strategies such as arbitraging in the form of cash and carry between a crypto future and the underlying spot. Or, you can arbitrage between 2 exchanges having the same pair.
But what matters more than the strategy is your risk management and trade execution. Or, you can simply copy some of the most popular strategies on Vestinda’s marketplace 😉
How do scalpers make money?
A scalper makes money primarily by accumulating a great number of winners. But, you can also try to make money from market-making. Indeed, some crypto exchanges offer rebates in particular on derivative products like futures or options. You can do this on bybit, FTX, bitmex, or deribit.
However, be advised that while you could make money on limit orders, they usually charge higher fees on market orders. This can also become a challenge when setting up Stop loss and Take profit orders. Some exchanges also have funding fees for their perpetual futures contracts. If you happen to be on the right side of the trade, you could earn funding fees.
Crypto scalping tips
Here are some of our favorite scalping tips:
- Discipline, discipline, discipline. It doesn’t matter if you make 10 times 0.1% if you break your plan and lose 10% on a single trade
- Try and become a market maker by watching for what the swing traders and investors are waiting for on the 4h, and then provide liquidity at their levels
- As a human scalping can be very hard, so why not explore the usage of automation with tools like Vestinda?