What is scalping

> 3 min. read
What is scalping

Scalping is a trading strategy where traders look for small and quick profits. They are not looking for long term investment and big profits, instead they try to make as much as they can through in and out trading type. The idea behind all this is that over time small profits will add to some nice amount.

Scalpers will largely rely on technical analysis to develop trade ideas due to the short time periods involved. Scalp traders will rarely use fundamental analysis because most fundamental events take place over a longer period of time. Still, when picking which asset to trade, fundamental themes can make a major impact. Coins that have gained in popularity as a result of some news or fundamental event will typically have high volume and good liquidity - at least for a while. This is when scalpers can take advantage of the increased volatility and profit. So, in short, they will take advantage of short-term volatility.

To be able to succeed in scalping strategy – however it is not guarantee, trader needs to know basic technical analysis as well as usage of some indicators – moving average, Bollinger bands, etc. This strategy is mostly about finding small opportunity on the market, often followed on 1 minute chart, and use it.

There are multiple different types of scalping strategies:

Discretionary traders execute trades depending on how the market develops in front of them. They may or may not have a set of rules for when to enter or exit, but their decisions are dependent on the current circumstances. To put it another way, discretionary traders evaluate a wide range of criteria, but the regulations are less rigid, and they rely more on intuition and gut instinct.

Another scalping strategy is to take advantage of the bid-ask spread. Scalpers can benefit if there is a significant discrepancy between the highest bid and the lowest ask. As a result, this method is better suited to algorithmic or quantitative trading. Why? Humans, on the other hand, aren't as good as machines in spotting small market inefficiencies. As a result, there are a lot of trading bots on the market. As a result, humans who desire to use this method will almost always face competition from algorithms.

Traders that use a systematic technique adopt a different strategy. They have a well-defined trading methodology that effectively determines when they should enter and exit the market. They enter or leave a trade if specific requirements in their ruleset are met. Discretionary trading is substantially less data-driven than systematic trading. Systematic traders rely on data and algorithms rather than intuition.

Range trading is a tactic used by some scalpers. They wait for a price range to emerge before trading within it. The concept is that until the range is broken, the range's bottom will act as support and the range's top will act as resistance. Of course, there's no such thing as a guarantee, but it's still a viable scalping strategy. Good scalp traders, on the other hand, will set a stop-loss in anticipation of a breakout from the range.

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