Scalping is a term referred to piecemeal and small trading done where the aim is to make profits out of small price differences and fluctuations. It is used in the traditional forex trading by the seasoned traders. Though there are numerous ways to trade and invest in cryptocurrencies, this one is much sought after. This is done by creating hundreds of short term trade which in turn produces large daily profits. This is comparably a low-risk strategy in a volatile market.
In executing the strategy, traders utilize a system that gives them trading signals based on technical indices. This lets them to ease out the buying and selling decisions. The traders use the trading bots that can finish the technical data based trades quickly without much human intervention.
There is also the strategy of risk management involved in scalp trading where there is the utilization of trading software that provides stop-loss and price target limits. This protects against the loss of too much money.
If scalping could be deployed in the crypto market
Because of the reasonable similarities between the cryptocurrency market and the conventional financial markets, there is the usage of scalp trading in the crypto market too. There is a reason why scalping is used on a large scale in the conventional fiat markets compared to crypto markets. The conventional financial market is a multi-trillion dollar market with foremost liquidity in its major trading pairs. The crypto market pales in comparison to that where the daily exchange trading is worth around 100 billion dollars where the major chunk is taken up by bitcoin.
There are also constraints involved in the variety of pairing available in the crypto market- where apart from the bitcoin/USD and bitcoin/TUSD pairings there are a few trading pairs that are available for the successful execution of an automated scalping strategy using leverage. This brings home the point that you can do scalping with bitcoin and ethereum. However, this cannot be done with every other coin that doesn’t have liquidity.
Advantages and disadvantages of scalping in the crypto market
Just like every other trading strategies, scalping too has its advantages and disadvantages for the crypto market.
It is a low-risk trading strategy that can be automatically completed using trading bots. Once you have the right indices and relevant bot setting, there is an opportunity to make regular trading profits without delving too deep in the details.
It also has disadvantages such as the requirement of trading software is a must without which it is difficult to execute this strategy. Trading fees can be increased that could consume your profits over time. Also, to find the right indicators one needs to dive into micro details and do the required testing. This involves spending a lot of time.
Moreover, though scalping looks like a low-risk trading strategy, it cannot be denied that there are good chances that you will lose money and capital.
In the end, it could be said that scalping is not for everybody but only for those inured traders that have the overall experience of this strategy. You have to be a seasoned trader to make the strategy pay for you and your profits. But if the process sounds like something you are itching to get involved in then it doesn’t do much harm to try it.