The cryptocurrency market is famed for its high volatility levels. Though this introduces a considerable amount of risk when trading these assets, it also presents risk-tolerant investors with numerous opportunities for profit within the trading day. This has popularized a popular trading style known as scalping, which has been in use for years across various traditional financial markets. Let’s look at what scalping in crypto entails.
About scalping in crypto
This is a short-term trading approach that aims at profiting from small price movements. Usually, scalpers will not be looking to obtain huge profits from a single trade. Instead, they enter numerous trades within a day, accumulating small profits from each of them. They do this with the hope that these profits will amount to a substantial sum in the long run.
Scalp trades are typically short-lived in nature. For that reason, scalpers will mostly utilize technical analysis to help identify these trading opportunities. Since the effects of fundamental events usually manifest in the long term, most scalpers tend to avoid this type of analysis. However, some fundamental news can help inform their choice of a coin to trade. For instance, if news of a coin piques increased interest from investors, its price charts might display unusually high volatility, which scalpers can then take advantage of for profit.
How it works
There is no specific set-in-stone formula for scalping, as each trader employs their own techniques and strategies for maximum profit. However, no matter how personalized their strategies are, some common trading principles are shared amongst scalpers. For example, as aforementioned, they mostly rely on chart patterns and technical indicators.
Usually, scalp traders will enter positions every once in 10 minutes, on average. The most commonly used timeframe is the 5-minute chart, though some scalpers prefer shorter timeframes, some even less than a minute. However, when we get to such low timeframes, we’re basically competing with high-frequency trading bots. Since these bots can process data much faster than humans, they have better rates of success than traders manually analyzing 30-second charts or lower timeframes.
What’s more, scalpers could benefit from utilizing longer timeframes before doubling down on the short timeframe for trade entry. This enables them to identify major levels and prevailing trends, which can provide them with a trading bias.
Types of scalping strategies
Due to the short timeframes involved, some scalpers trade on instinct, making their decisions on the fly as the market unfolds. These are called discretionary traders. They may or may not have specific rigid rules to qualify trading opportunities, but their decision-making parameters vary depending on the prevailing market conditions. Systematic traders, on the other hand, will have well-defined requirements that must be met before a trade is opened or closed.
Scalping can also be used to trade periods of consolidation. In such instances, prices tend to fluctuate within a range, which is why this strategy is aptly named range trading. Such traders will aim to go long at support and sell at resistance. Stop losses are vital for such traders so as to prevent losses from breakouts.
Another class of scalper is those that take advantage of bid-ask differences. If the difference between the highest bid and lowest ask is considerably large, these traders can take advantage of that for profit.
Sometimes, prices of the same asset may differ between different exchanges. This gives rise to a class of scalper called arbitrage traders. These traders buy at the cheaper exchange, then immediately sell to the costlier exchange at a profit.
Notably, because of the small profits involved, scalpers often utilize leverage to multiply their gains. However, margin trading can amplify one’s losses just as easily as it can multiply their profits. Therefore, if you choose to trade on margin, beware of slippage costs.
How to create a scalping bot without coding
To create a scalper trading bot without coding, one will need On Bitsgap, one can create a trading bot of any kind in just a few simple steps. For the scalping bot, first, click on the orange “Start new bot” button at the top of their Bots page. This should appear as below.
Clicking the button will open a pop-up menu listing all available bot types. Click on Scalper bot. Note that your bot will only be compatible with the KuCoin exchange.
Next, you will need to choose a crypto pair to trade with. This will then prompt you to enter the amount of your account balance you’d like your bot to trade with. Once this is selected, the system will automatically choose the ideal settings for your grid step, trailing features, and high and low prices. Unfortunately, you cannot customize these, as they depend on the prevailing market conditions.
Before completing the process, click on the “Start” button to check whether all your settings are in order. This will open the preview tab, where you can make sure all your ducks are in a row before creating the bot. This should appear as below:
If all is as should be, click “Confirm.” This will initiate the bot creation process. If there are any issues preventing the bot’s creation, the system will highlight them. Otherwise, your bot should be up and running in a few minutes.
Scalping is a trading style that was in use in traditional markets long before it was adopted by crypto traders. The characteristic volatility of the digital assets market makes it the most suitable for this approach. It involves opening several trades within the day, aiming to profit from small price movements. Though each of these trades will ideally only yield a small amount in profit, after a while, these profits are compounded into a significant amount. There are different methods through which you can scalp crypto, including range trading, arbitrage, and taking advantage of bid-ask differences.