What is crypto scalping and how to profit from it?

What is Scalping?

Scalping is the most popular form of intraday trading, which involves opening many short trades: one trade can last just a minute. 

Often, traders allocate a portion of their deposit for scalping. The logic here is simple: if the trader is professional, they have medium-term trades (up to a month) and long-term trades (up to six months). They may also have funds simply invested in certain assets, which they diversify and refinance quarterly or more frequently. 

To avoid standing idle when all relatively large trades are not ready to close, traders allocate a percentage of their deposit for scalping. 

The goal of this approach is not to achieve large income. Consider this: if a trade can last a minute, what kind of super profit can we talk about? Of course, if you catch an uptrend or it's another meme token on a pump, the earnings can be tremendous and instantaneous. But if we are talking about, for example, assets from the TOP-50 cryptocurrencies by capitalization and a stable market situation – super profits from scalping should not be expected. 

Here, the emphasis is on consistently earning small profits. For example: a trade is opened, the profit is 0.5% of the funds allocated to the trade, 0.1% is taken by the exchange for opening the trade. The result is 0.4% profit, but not on the deposit, but on the funds that were allocated to the trade, which could be 1/100 of the deposit, it all depends on the trader's risk management.  

How to Make Money on Scalping?

Scalpers consider many technical factors when determining their trading positions. Mainly, attention is paid to characteristics such as trading volume, price dynamics, support and resistance levels, as well as candlestick chart patterns. Often used are popular technical indicators, including moving averages, Relative Strength Index (RSI), Bollinger Bands, VWAP, and Fibonacci correction levels.

Some traders also analyze the order book in real-time, volume profile, open interest, and other complex indicators. To gain a competitive advantage in the market, individual scalpers develop their own indicators.

Scalping is usually focused on small time intervals, such as intraday charts: hourly, fifteen-minute, five-minute, and even one-minute charts. Some traders may work with charts reflecting price movements of less than a minute.

However, on such low timeframes, competition with high-frequency trading algorithms (HFT) becomes practically impossible for a human, as computers process large volumes of data much faster. Nevertheless, many scalpers prefer to rely on signals and levels from higher timeframes, as they are considered more reliable. This approach allows you to first determine key levels on large timeframes and then proceed to a more detailed analysis for scalping. This makes accounting for the market structure on large timeframes useful even for short-term operations.

Scalping Strategies

As a rule, scalpers do not focus on a single strategy when trading intraday. Instead, they use several, which are applicable in different market situations. Three main scalping strategies can be identified:

1. News Trading. Although old-school traders say that you cannot trade during news due to the volatility of the asset or market, scalpers use this opportunity to make a profit. For example, data on how much funds BTC-ETFs have attracted over the past day is published daily. Based on this data, traders form a picture: if the inflow is significant and has been sustained for several days, it is a signal to open a trade on BTC. A similar picture could be observed from November 4 to 13, 2024, when Trump won the election, BTC set a new ATH, and investors poured money into BTC-ETF, which drove up the price of bitcoin;

2. Technical Analysis Trading. In this case, if you do not have the necessary knowledge, you will need to find it in educational videos, articles, or books. Technical analysis came to the crypto market from traditional markets; it has existed for more than a decade, so there is plenty of information available online. For example: a trader notices that a cryptocurrency has been moving within a narrowing channel for a long time. In the morning, their attention was drawn to the price of the asset approaching the upper boundary of this figure. Since the price had already bounced off this line several times before, it can be assumed that upon another touch, it will again move downward. Thus, the scalper determines profitable entry points within the day;
   
   

3. Order Book Trading. The simplest way of scalping, where the trader looks at which orders predominate in the asset: if there are more bids to buy, then in the short term, the price will go up; if there are more sell orders, then the opposite.

Pros and Cons of Scalping

Of course, like any trading strategy, scalping has its advantages and disadvantages. 

Pros of Scalping: 

• Quick Earning Opportunity. Since the trading is intraday, and in some moments the trade time does not exceed a few minutes, the profit can be accumulated much faster compared to traditional trading; 

• Less Dependence on Market Trend. If we are talking about standard trading, it often occurs according to the trend, i.e., the trade is opened in the direction of the price movement. In the case of scalping, it does not matter whether you are trading with the trend or against it, even in a sideways market – profit is extracted from small price movements;

• Develops Self-Control and Discipline. These skills are developed in the scalper, as if they do not observe clear entry and exit points from the trade, then it is unlikely that they will be able to make a profit. 

Cons of Scalping:

• High Commissions. The exchange takes a commission for each trade opened, and if there are many of them during the day, the payment will be significant. Given the essence of scalping (to constantly earn a small profit), the commission can "eat up" a significant part of your profit; 

• Impact of Slippage. Slippage occurs when the execution price of an order differs from the expected price due to changes in market conditions or the volume of the order itself. In markets with rapid changes, this phenomenon can lead to losses, which negatively affects a significant portion of the profit; 

• Psychological Pressure. The trader must maintain constant vigilance and quickly adjust their trading plans. The need for continuous market monitoring and transaction execution can lead to mental exhaustion, provoking stress and burnout.

Scalping vs. Arbitrage – What is More Profitable?

Now let's compare cryptocurrency arbitrage with scalping:

• Today, arbitrage is the most effective way to earn on cryptocurrencies, as a variety of opportunities and strategies open up for traders. Scalping, on the other hand, implies a limited number of strategies, and the ability to trade intraday is not suitable for everyone;

• The tools provided by Arbitragescanner allow you to find profitable arbitrage links at the moment they appear. Scalping involves monitoring charts in real-time to find a suitable entry point; 

• Arbitrage traders today can earn several percent per deposit per day: all thanks to advanced tools and the variety of trading platforms. Scalping, at best, allows you to earn about 1% per deposit;

• In cryptocurrency arbitrage, you independently control the risks, whereas in scalping, you depend on other market participants.  

Conclusion 

Scalping is a popular and dynamic intraday trading strategy that attracts traders with its ability to quickly profit from small price movements. It requires a high level of self-discipline, knowledge of technical analysis, and constant market monitoring, making it suitable for experienced participants. 

Compared to arbitrage, scalping has a limited set of strategies and requires the trader's active involvement at every step, while arbitrage offers more predictable risk management and a variety of tools, making it a more flexible and less stressful approach. Ultimately, the choice between scalping and arbitrage depends on the trader's style and willingness to handle high workloads.

In case you decide to choose cryptocurrency arbitrage, your reliable assistant will be Arbitragescanner, providing a wide range of tools for earning on cryptocurrency arbitrage and on-chain analysis!