Scalping Techniques

Written by Edward Gonzales

April 16, 2021

When it comes to trading cryptocurrencies there are many different strategies and techniques. We have previously discussed the different types of traders and respective trading strategies in another blog. Scalping is a specific strategy that targets very small profit margins. Oftentimes scalping targets will be between .15-.20% for scalp traders, sometimes even smaller. A scalp trader can close trades much faster than day traders and swing traders. While a day trader may have one or two trades completed each day, a scalp trader may make one or two trades each hour. The scalp trader is able to do this because the market movements are much easier to manipulate when you are targeting such small movements. 

While it is always recommended to use multiple time frame analysis to be more precise in your trades, a scalping strategy will focus on the smaller time frames such as the one-minute and three-minute time frames. Usually when I am planning a scalp trade I will observe the three-minute time frame. It is in this time frame that I will do my technical analysis and draw my trend lines. When you are trading larger time frames, you can use a lot of different indicators to confirm or deny your ideas. When you are trading the smaller time frames, however, you must rely heavily on candlestick information to guide your trades. If you are unfamiliar with candlestick analysis, it is suggested you learn about them before attempting any scalp trades. The combination of candlestick analysis alongside valid trend lines is a potent combination. It’s not exactly “simple” for one to become a scalp master but it’s not extremely difficult either. 

Here we see an example of using trend lines to plot our trades. 

In this photo we can see BTC/USDT forming a wedge on an uptrend channel . We have a larger ascending channel that seems to have been breached. However, candlesticks find support along a second lower dynamic support line. We find that as the wedge draws closer to an outbreak there is a short term support as well forming a second wedge. 

Here is the same photo now with the ascending wedge in green, the dynamic support as purple, the wedge line as red and the short term support as yellow. These lines are respected multiple times so can be considered valid trend lines. It is along these trend lines you would find the most optimal entries. You take long positions on the bottom of uptrend and downtrend lines. You take short positions along the top of uptrend or downtrend lines.

Looking at the information before us, you could take a long or short position. To show an example of how to long scalp this, I will use technical analysis.

After finding valid trend lines on the three-minute time frame, I would open the one-minute time frame to find my optimal entry and to identify my take profit and stop loss target.

Then I would map a risk/reward ratio I am comfortable taking (considering leverage if using leverage).

Then finally I would plot my take profit targets along previous areas of support/resistance. I would set them with very little space between each one to increase my chances of getting something filled. 

If you set just one TP target the chances of it getting hit are less likely. Price could revert and change direction and hit your stop loss for a loss. If you instead pay attention to your scalp trades once you hit TP1 you can move your stop loss up to your entry to ensure you do not lose anything as you have already gained a small percentage of profits. Now, as the price moves up towards and reaches your TP2 goal, you move your stop loss up to your previous TP1 and now you will ensure you get stopped out for profits. You continue this process until you reach your final take profit goal OR you get stopped out by your adjusted stop loss for profits. This process of adjusting targets in a live trade is known as dynamic trading. You can maximize scalping profits with this technique. If you were truly scalping this without a dynamic trading strategy, your first TP1 goal would have been your only TP target and could ultimately make you miss out on potential profits. 

Now on the same note if you do not think you can adjust targets in a live trade, then you may prefer to set just one very small take profit goal and really hunker down on that position by using a lot of funds or even by using leverage. Here’s something to consider about scalping: the take profit targets are very minuscule. In the photo above the initial target was .94% but after charting other goals moved the final goal up to 1.19%. 

If you were just doing this on a spot exchange you would have to use a lot of capital to make reasonable profits with a scalping strategy. Trading a futures exchange however will give you the option to apply leverage to your trades. Using 10x leverage would amplify that return to just over 10%. Get this – using the example trade above if you used $1,000 with 10x leverage you would get approximately $100 back from the trade. It would be the same return as using $10,000 on spot with no leverage. Now do you see how leverage can be beneficial to scalping? 

By viewing any material or using the information within this publication you understand that this is general education material and you can not hold any person or entity responsible for loss or damages resulting from the content or general advice provided here. Trading cryptocurrency has potential rewards, but also potential risks. You must be aware of the risks and be willing to accept them in order to invest in the markets. Only trade with funds you can afford to lose. This publication is neither a solicitation nor an offer to buy/sell cryptocurrency or other financial assets. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in any material on this website. The past performance of any trading system or methodology is not necessarily indicative of future results.

Written by Edward Gonzales © Crypto University 2021

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