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How to use a crypto scalping trading strategy

crypto scalping trade bot

Crypto Scalping with Trading Bots

Those familiar with foreign exchange (forex) trading will know the term “scalping.” Also called “scalp trading,” the practice has been adopted by cryptocurrency traders. Proponents of scalp trading say it can turn a profit quickly, but how exactly does it work when trading digital currencies like Bitcoin?

We’ll define scalping in more detail for those who aren’t familiar with the trading method, then go into some ways crypto traders can use it to their advantage when working with cryptocurrencies.

What is Scalp Trading?

Scalp trading is a lower-risk, short-term form of trading that makes smaller profits with less risk. Scalp traders make this happen by initiating a group of small trades very quickly. Over the course of a trading day, the profits from these trades can add up to pretty substantial numbers.

Speed and focus are needed to pull this off consistently, however, this is why experienced traders utilize cryptocurrency trading software designed to identify patterns and execute specific trades when using scalp trading bots.

Scalp traders will monitor the price of an asset, say Bitcoin or Ethereum, and take advantage of price fluctuation to make a small profit from the trade. When the price goes up, they take advantage of the higher trading volume for that asset to turn over a bunch of trades at once, never actually holding the digital asset. Then, they get out when the asset peaks and stop trading.

One very important thing to keep in mind for executing this strategy are the trading and exchange fees. Since they’ll be making many trades back-to-back and most exchanges charge at least a small fee per trade, it is essential that a trader has the risk capital to cover the trading fees they’ll incur using a scalping strategy.

Exchanges that promote liquidity typically offer incentives to reduce trading fees for those traders. Those incentives are often associated with an exchange specific token that can be used to further reduce fees, like the trading fee, often times more than 25%. 

Bitcoin Scalping vs. Altcoin Scalping

Relative to other cryptocurrencies, Bitcoin tends to be less volatile. That means less profit per trade, but also more reliability for your crypto scalping trading strategy, as predicted with technical analysis that Bitcoin will hold its value over the course of the trading session. This makes Bitcoin scalping a pretty popular form of scalp trading in the crypto market.

Altcoins, on the other hand, can have enormous differences in price, especially if they’re smaller coins not backed by a reputable company. Something could go wrong, or the coin could be delisted, along with any profit you’ll have made on those trades. If the coin isn’t worth much, the price you pay in trading fees could be more than you make from trading.

Whichever cryptocurrency you decide to try scalp trading with, patience and focus are key. Don’t get frustrated and give up right away if you don’t turn a profit in the first few minutes. It takes time to familiarize yourself with trade automation software and even manually executing scalp trading.

When Is a Good Time to Scalp Trade Crypto?

If you know what to look out for, with time and practice you can see whether or not the market favors a scalp trading strategy.

Three market factors that experienced traders watch are:

  • Relative Strength Index (RSI): This is a momentum indicator calculated by looking at recent price changes. The RSI evaluates whether an asset like Litecoin is overbought or oversold, and is displayed as a line graph. It can have a value between 0 and 100. An RSI of 70 and above usually indicates an asset is being overbought or overvalued, thus it’s a good time to sell. An RSI of 30 or below indicates the opposite: it’s undervalued, primed for a price increase, and therefore its a good time to buy.
  • Support and Resistance Levels: An asset’s support and resistance levels will change as it increases or decreases in price. That change can cause an asset to experience a concentration in demand and trend downward (support), or an increase in demand as price drops (resistance).
  • The Moving Average: Traders use this to get an idea of where the price of an asset is headed, using past data to extrapolate what it will sell for in the future.

Some traders use charts to track these indicators manually, but using trade automation software can help you analyze and act on the same data much more quickly.

Pros and Cons of Cryptocurrency Scalp Trading

Scalp trading allows for the opportunity for lots of small profits taken from batches of small trades that build up quickly. However, those profits can be wiped out if trading fees exceed the value generated from those trades. One large loss can also negate the profits from a scalp trading session. As such, it’s very important that the trader has a stop-loss strategy in place to minimize or mitigate their profit losses if the market conditions are changing in a way that negatively impacts the active trading strategy.

Trading with bots lets you make trades based on signals from exchange and market data. The trader’s emotions are taken out of the picture, as they aren’t watching the value of their assets rise and fall, or seeing huge changes in the market while trying to evaluate their trade.

However, you can suffer losses if you set a trade bot to trade and market conditions change, rendering your initial strategy useless. If you’re not around to course-correct, you could wind up with more losses than you otherwise would have. Oftentimes, the first strategy a trader comes up with ends up being wrong. If you’re using trading bots, make sure you check-in on them every so often to make sure your strategy is still performing soundly.

Best Practices for Crypto Scalping

As with anything else, becoming a skillful investor takes time and practice, especially in a market as relatively new as cryptocurrency trading. However, there are a few tips traders can follow to help themselves do better right out of the gate when scalp trading:

  • Avoid altcoins with low volume; you may not be able to trade enough of them to turn a profit
  • Know your plan beforehand and stick to it, leaving room for adaptation
  • Have a good exit strategy
  • Don’t put all your assets into a single trade, a good rule of thumb is no more than 2%
  • Remember to account for fees and make sure you can cover them. Use HaasBot safeties and insurances to automate 
  • Follow the proper technical indicators (discussed above)

Also, if you decide to use crypto trading bots, remember to check-in on them regularly as they execute trades to account for changes in the market.

HaasOnline’s crypto trading bots give user’s privacy, don’t charge trade fees, and have no trade volume restrictions. They also allow traders backtest or simulate their trading strategies with historical and real-time exchange data, giving you a better picture of the market and allowing for a more informed decision.