The cryptocurrency sector offers many opportunities for individuals. But the truth is that you must always have strategies and ways of approaching the market to succeed.
One of the strategies that a few crypto traders turn to is that of scalping.
But what is scalping, and how does it work?
The answer to that question is quite simple; the concept revolves around earning money from incremental price changes. That means that the trader or investor is not looking for large price movements but rather slight movements such as from $1 to $2.
Veteran investors will notice that this situation takes place when a trade occurs and is feasible.
Let us take a closer look at this particular strategy and how we can benefit from employing it within our cryptocurrency trading regimen.
The Inner Workings of the Scalping Strategy
The act of scalping takes place when a speculator imposes more regulated moves. For instance, the trader will note that they can only risk so much capital and will want to leave a trade as soon as it moves upward.
That means that the trader will only earn small portions per trade but will be able to add that up over time. These earnings can accumulate and turn into something rather large, yielding a massively profitable year.
But there’s one crucial point to make here; the trader must make sure to stay quite careful as one big downward move can wipe away the many small gains causing capital impairment. The frustrating part is that substantial losses can easily remove days or months of work and bring about real anguish.
That is why utmost caution is necessary when pursuing this strategy and in general when speculating with this particular approach.
Those who utilize this particular concept in their speculative processes must turn to the proper tools and systems to execute it carefully and diligently. It also calls for the right level of energy to make a plethora of buys and sells for a wonderful harvest of yield.
If one were to automate the strategy it would be more about automation and the right inputs in effective environments as opposed to manual execution.
How Scalping Works
The concept derives from the stock market, where many people expect an asset to go in a specific direction, but they may not know where it will go after.
That means if there are several steps that an asset will take, the investor must correctly predict each step or face losses. A few equity units will follow a pattern, while others will not move forward in that direction.
As you can see, there is a bit of uncertainty present in the markets and investors who are very risk averse will want to shy away from more complex trades.
These uncertain crypto investors may turn to the scalping strategy to ease their worries and minimize their concerns of losses.
Now, a scalper does not seek large profits but instead small gains frequently. These individuals do not subscribe to the ideology of letting profits go wild and continue to climb.
When you think about these cryptocurrency traders, think frequency, not size of the trades.
See, some speculators will let their profits ride for a while and continue to watch as it grows but scalpers think that it is best to bet on frequent small wins.
If a trader is able to make a great deal of trades with small risk and become smarter and learn from them every time, they can certainly obtain remarkable gains by only being right over fifty percent of the time. The idea is simple, make more great decisions.
One who follows this strategy will ensure to have a higher number of wins and increase the value of their portfolio through positive volume.
The idea here is to make sure that you are thinking about the long-term and setting a further horizon for yourself when turning to this approach.
Small Addition in Frequency Is Equal to a Large Sum
Here is what you must know about the primary concepts of this strategy.
The crucial points that speculators will utilize when tinkering with this approach are present below:
- Low rate of risk exposure. If you are getting in and out of the market as quickly as possible, then you are minimizing your overall risks.
- Tiny actions are simple yet effective. A collection of individuals must find interest in a digital asset to push it up a large percentage. But you only need a minor movement when you are using this strategy. For example, if a digital asset goes up by ten cents, or a few dollars, that would be the right time to take profits and get out.
- Smaller patterns take place regularly during volatile and calmer situations. There are ample opportunities to take action and seize the opportunities present.
Many individuals turn to this as the exclusive approach while others will look at it like another option.
The Exclusive Approach
The individual who keeps it simple and exclusive will only stick with this pure bid-spread approach. This is one investor that will be making several transactions per day in the digital asset realm.
Further, one investor will utilize very granular charts; they will not look at daily charts but even more detailed charts as they seek to have a small period of holdings.
They are interested in minute to minute changes instead of daily or monthly changes. Their inputs will be quicker as they seek to move in and out of the market fairly quickly.
Those who seek to delve into this exclusively will want to make sure they have up-to-date information and live information, in addition to the specific system that will provide immediate execution.
The Secondary Option
Others will only use this style as the secondary option as some may want to use this as a second option instead of their primary option. For instance, there are those who are interested in holding digital assets for longer and will go with it as the secondary option.
Those who are using this as a complimentary choice will go forth and implement this when markets are relatively slim and sanguine. Those who don’t see a clear long-trend path will have to stick with the short term and find opportunities in the near term to conduct scalp-related activities.
There is a way to optimize for the long-term while making short term movements. For instance, a speculator can purchase a unit of digital currency and then take positions all throughout while the trend heads in a specific direction. Suppose you think bitcoin will go to $80,000 and so you go and purchase 1 bitcoin at the present price of $10,000. Then you will sell as it goes up and buy some more and sell as it trends up with daily actions. You are still in it for the long-term in one setup while scalping in the other setup.
This approach’s beauty is that it is flexible, and one can integrate this into any trading style.
One can look to this as a comprehensive way to mitigate risks present within speculation. Speculators can obtain profit when risk and reward are at the same level. Suppose you enter into a position within your scalp approach at $40 and set a stop at $39.80; you will risk a maximum of twenty cents.
The risk and reward will hit when it is at 40.20.
Remember that it is possible to implement this option when you are going long the market and when you are betting against the market.
Variations of This Approach
The more common approach in this style is that of market-making. This is where an individual will conduct a simple buy and sell and earn on the difference. This is valuable in sleepy markets with feasible volume.
But even though this is fairly simple, it is not so easy to conduct.
But why is that? The answer lies in the fact that there are entities that conduct this activity for a living. That means those entities are more professional and with more resources. There is intense competition in making offers and creating general liquidity.
Remember that gains are minuscule, so if the digital asset were to move against the individual, then it would destroy portfolio value.
The other two types require a more active market where the unit prices will fluctuate regularly. It will necessitate a good read on the market and an optimal stratagem to produce the necessary returns.
One can also participate in the market by acquiring a significant portion of units and divest these assets after a small move upward.
Individuals with this massive approach will buy more than a thousand shares and then see if prices move up a couple of cents and then divest the assets. They only want to see marginal movement to accumulate tiny gains over time.
Of course, this means that the asset must have a large portion of liquidity so that one can step in and step out as quickly as possible.
The Gains In Minor Capture Vs. Regular Value Capture
When investors make allocations with this minor but frequent profit strategy, investors seek to watch like a hawk or have their machines watch with great due diligence and take profit as quickly as possible.
The simple concept to pay attention to is the bid-ask difference, the price at which the buyer wants it, and that at which the seller seeks to sell it.
It is essential to notice that this type of trader wants to have slimmer differences in the spreads. Those who use this strategy do so because they can take advantage of the regular momentum present within the market.
The regular ebbs and flows of the market mean that they can collect regular tiny gains over the long-term. These people appreciate it because of the stability and regularity of the profits one can earn with this approach. It is important to note that the variance or the spread is what matters and that it will stay consistent.
Remember that in most times, volatility is not a huge factor and stability rules the day.
What To Do If You Are Starting Scalping
It is easy to speculate, and so many will ensure to take a dive into the world of cryptocurrency trading. But remember that just because you can do something doesn’t mean that you should do something.
More people will continue to step into these markets and try different approaches like the one we are talking about right now and then leave.
Those who are merely starting out must ensure setting goals and understanding the targets they seek to meet. Then they must go ahead and understand what the strategy and option for their scalping approach is.
Whatever option and style they choose, they should stick around for the long term and never give up. Those who continue to take a more systematic approach will notice that they are learning, increasing the value of their portfolio, and succeeding.
Remember that many people give up, and that is when they lose out on this approach, but it is up to you to invest and set stop losses at the right levels.
It is about making simple but fast decisions or utilizing a scalping bot that can make these decisions and capture value. The goal is to notice the openings, seize them, and generate further gains regularly.
Those who are starting out should practice awareness and improve their mindset to come back and apply their learnings day in and day out. You must continue to practice a sense of getting in and stepping out once you secure quick gains.
One core value here is to look for more small and short term setups so you can improve your value and multiply value quickly but frequently.
But that is why many experts would suggest those who are starting to stay away from this approach. Because it takes time, and one can easily mess up when taking this tactic.
There is a lot that one must learn about the process, understand fills, or lack liquidity and volume before applying these options. Lack of liquidity does not work at all for these trades. The processing of orders counts a great deal within this situation.
That is the main point you should realize when going with this approach. As always, have fun and good luck!