Crypto trading: What is scalping?
Crypto trading: What is scalping?

Crypto trading: What is scalping?

By Fabio Lugano - 17 Mar 2019

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Crypto trading: what is Scalping?

For anyone trading and making it a significant source of income, not just entertainment, it is important to have strategies that allow making profits regardless of market trends. In this case, it may be interesting to consider scalping.

This term refers to a strategy in which one takes advantage of small changes in price, hence they are based on a market exit strategy, which is very rigid because a single strong loss could cancel out the small gains made.

Since scalping requires a very fast execution strategy, it is very well suited to the cryptocurrency market.

Let’s look at a case:

In this case, after a positive trend, the asset appears stabilised in a horizontal movement that is nevertheless oscillatory. Scalping draws utility from these oscillations and looks for the small profits that amount to significant numbers, however, it demands a careful and continuous presence on the market.

Moreover, in a strategy that involves more assets, scalping is opposed to the so-called “Let Your Profits Run”, in which the operator abandons the assets with lower growths to concentrate on those with higher profits.

If a trader is scalping, they prefer to act continuously on all assets, as long as they have significant and interesting fluctuations.

Scalping requires a continuous trading presence and can, therefore, be time-consuming if one does not rely on algorithmic systems which, however, can be dangerous. A scalping trader can easily make over 100 transactions per asset.

In addition, transaction costs are an element that must always be considered and that appears relevant.

A scalping strategy cannot be exempted from a series of basic knowledge of technical analysis like the RSI (relative strength index) indicator, which indicates whether a virtual currency is over or undervalued, buying it only in the second case.

Another useful indicator is the so-called “Bollinger Bands”, in which a channel is built on the basis of a central moving average around which moves another channel whose amplitude depends on volatility, calculated as standard deviation.

A wide channel corresponds to a situation of strong volatility, while a narrow channel corresponds to a more contained volatility. When the quotation is above the moving average it is in a situation of overvaluation and therefore it is better not to buy. The suitable moment for scalping is when the limit of the channel is touched.

This is a strategy that can allow significant gains, but it requires technical knowledge and a lot of dedication. For these reasons, it would be useful to follow ad hoc courses before trying it, because the “do-it-yourself” can be disappointing both for the time spent and for the possible losses.

Fabio Lugano

Graduated with honors from Bocconi University, Fabio is a consultant for companies and wounded shareholders of the Banche Venete. He is also the author of "Scenari Economici", and lecturer and analyst of cryptocurrencies since 2016.

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