What Is Scalp Trading And How Can I Make Money From It
We explain the concept of scalping as a trading technique and how it can be applied on crypto trading
We have constantly been receiving emails from our readers where they have been asking us to write about ways to make money on crypto. We will be writing articles on this topic at least once a week from now on.
One thing you need to keep in mind is that there might be tools or techniques which we might be referring to, in order to explain those processes, but you should keep in mind that we do not endorse any specific product just because we mention it, unless we clearly say that this is an endorsement or some sort of promotional ad.
One thing we have learned so far is that trading is a very sensitive topic as there are so many “gurus” out there that make lot of money selling you trading courses when in fact all the money they make is from selling their course and not from the actual trading. Be smart and promise yourself to never buy a course on trading, even we promote anything along those lines. You have YouTube University and almost anything else you want to learn, you are one click away from finding it for free on Google.
Now that we got that out of the way, let’s talk about today’s topic, scalping, which is an alternative that crypto traders are using lately while trying (keep in mind, trying ≠ making) to make money.
We want to be upfront that it can be dangerous technique where you might lose a lot of money if you do not know what you are doing. Even if you know what you are doing, you might still lose money from it. Be cautious, start with something small and try it out only with a low amount of money which even if you lose it all, it won’t ruin your mood for that day.
What is Scalping?
Scalp trading is a trading strategy where traders buy and sell multiple times within a few hours with the hope to make small profits. It is different from day trading in a sense that day traders might be holding a security/crypto for a few hours while in scalping it can be as short as few seconds. The goal with scalping is to make small profits quick and then jump to the next trade, probably 10–100 trades a day on average.
While supporters of scalping considering it as a less risky method in a sense that you’ll be selling quickly and somehow you’ll limit your loses, it can actually be quite dangerous strategy depending on the exposure you might have on that particular crypto/security. Most of the scalpers trade on specific cryptos which have a lot of volatility, a quick move against your direction can drain your wallet pretty quickly.
What skills should I have to trade crypto using Scalping strategy?
- Ideally you should have previous experience with trading, even if that’s with stocks. The initial concept of scalping came from securities trading so same techniques will be applied in the crypto space as well.
- Although fundamental analysis are really important when valuing a project, there is not much use in the scalp trading. Having some background on technical analysis and algorithmic trading would certainly be helpful.
- You need speed and accuracy. Keep in mind that you need to be quick with your moves. Finding the right platform where you can trade will definitely be helpful as it will make the process easier.
- You need to be familiar with Bid/Ask movements and Order Book, if you do not understand those terms, then probably it is a good time for you to take a step back and learn about Level 2 and Level 3 trading (real-time bid/ask price, quote size, price of the last trade, size of the last trade etc..). In terms of platforms that offers Order Book, I know that Binance offers it but I would expect all other major crypto exchanges should offer it, do a little research on that and you’ll find the platform you like. Ideally it would be a platform which offers shortcuts as well because you will be able to do things faster.
Tips and tricks on Scalp trading for crypto
- Make sure you are trading only cryptocurrencies which are “hot”, meaning they have a lot of trading activity in the last 24hrs. More trading volume means you can enter/exit quickly and also there are more price fluctuations. If you are trying to use this technique with crypto which do not have a lot of trading volume, the ability to exit position might be more challenging as you will need a buyer on the other side who is willing to buy it.
- You can start with something small, just to practice this trading technique. You can use any trading simulator just to practice and see how you would perform if you were trading with actual money. Now, trading with actual money is a completely different beast as there are emotions involved, you might end up making irrational decisions which you’ll regret few seconds later, but all of that is a process of learning about this trading strategy. While I am not going to mention any specific simulator, just google “Crypto trading simulator” and anything you find for FREE, will do the trick.
- Don’t bee too greedy because that might hurt your profits. If you are in profit, make sure to lock those profits as quickly as you can. Yes, holding it for longer could’ve gained you more but you should learn how to be happy with small profits. Keep in mind, small profits are key as long as you are selling in profit more than selling in a loss. If you trade something where you have gained small profits, but then your day is ruining because you are thinking how much you would’ve made if you held longer, then scalping is not really your thing.
- Realize that it is not the same trading with 0.1ETH as it is with 10ETH. Behavioral finance is a big topic in the finance world, mainly because lot of traders, especially beginners fall for stupid stuff. Educate yourself on the psychology of trading, read a book maybe on that just to understand the principles and whenever you are facing a similar situation, you know how to act.
- You need breaks more often than you think. Lot of traders get so buys trading that they start losing sense of what they are doing. If you are having a rough day and you get a couple of Ls (losses) within a short period of time, take a break, you can always come back later. Get yourself a dog if you don’t have one, or get yourself a GF bruh (doubt there is any female readers). One of the things that happens very often with traders is that after incurring continuous losses, they keep going at it with the hope to recover, which can be extremely dangerous because then there are emotions involved (which is why you need to read a book on behavioral finance), and those emotions will make you take irrational decisions and get frustrated.
- Read a couple of books on trading, it can be books in securities trading, same concepts apply in the crypto space as well. Listen to podcasts on trading as usually podcasts offer lot of value as they are incentivized to keep their listeners engaged. And remember, do not buy courses on trading, no matter what. 99.9% are ways for them to make money by selling courses.
Bottom line is that you should be engaging in such trading techniques only when you feel like you really understand what you are doing. Even when you understand what you are doing, then make sure to start small and luckily with the profits you get to re-invest them and grow your portfolio slow and steadily.
The effect of compounding can be astonishing. If you took a single penny and doubled it everyday, by day 30, you would have $5,368,709.12.
This was meant to serve as an article which presents you with the concept of scalping. If any of you would like us to expand on this and provide more details about platforms and what exactly should be done to be able to use this technique, do let us know in comment’s section or reach out at newsletter@web3lunch.com with specific requests on what you would like to learn more.
Cheers!
