Scalping (Scalp Trading)

Scalping is a trading strategy that takes advantage of short-term price movements to make small, consistent returns.

What Is Scalping in Crypto?

Scalping, also known as scalp trading, is a crypto trading technique focusing on making quick profits from relatively small price variations. It is a common day trading strategy that prioritizes executing a high volume of trades to capitalize on minimal price fluctuations. In other words, scalping maximizes brief bursts of market volatility rather than large price swings.

As such, scalpers (traders specializing in scalp trading) don’t often seek massive profit margins. Instead, they accumulate profits from market inefficiencies and slight price swings over short periods. 

This approach is based on the rationale that consistently accumulating and compounding small gains can eventually lead to significant profits over time. Importantly, while the gains tend to be small, this technique also keeps losses at a minimum.

How Does It Work?

This trading strategy sacrifices the potential for larger individual profits for more consistent, smaller gains. Thus, it involves opening and closing trading positions swiftly. This entails buying crypto assets at the bid price and reselling them at the asking price within a few minutes or even seconds.

Due to the low timeframes involved, scalp trading requires quick decision-making, an understanding of technical analysis (TA), and scalp trading tools, such as leverage, bid-ask spread, and arbitrage.

Scalp traders can be of two different kinds –  discretionary and systematic scalpers.

• Discretionary – These traders base their entry and exit strategies on their instincts and gut feeling, rather than based on specific rules. They make trading decisions on the spot based on the immediate market conditions as they unfold.
• Systematic – Systematic scalp trading is heavily data-driven, leveraging a set of well-defined rules for entering and exiting a position. This means that systematic scalpers only enter or exit a trade when certain conditions or rules are met.

Generally, scalp trading assumes that small price swings are comparatively easier to predict and attain. For instance, it is easier for the Bitcoin price to change by $1 than by $100. In addition, small price swings occur more frequently than larger ones, even during stable market conditions.