In this Strategy:
Definition of Scalping Crypto
Scalping is a trading technique of capitalizing on small price changes. Scalping crypto means to scalp spot or derivative crypto markets.
Scalping positions are typically closed as soon as they become profitable, earning a profit in the neighborhood of 2%.
The best market structure for scalping
Flat, sideways market that does not trend is the best market type for scalping.
Regarding bitcoin, the year 2017 was the year to buy your crypto in January and hold. Then, maybe, if you felt like it, to trade the reaccumulation ranges and sell the right bounce to rebuy lower and carry on the Mr Bones’ wild ride.
That was swing trading. In a trending market, swing trading is the method with which you extract most of the available profits from the market.
With the end of the post-halving bull, the profitability of this trading style it came to an end too.
All through 2018 and in 2019, the first most obvious thing crypto investors noticed is that everyone’s long-term stacks keep losing their dollar value.
The best crypto for scalping
A cryptocurrency with markets deep enough to go properly sideways is the best crypto for scalping.
(See sideways in the glossary)
If you are an altcoin trader who likes to speculate on smaller, new cryptocurrencies, you will miss most of your profits if you try to scalp those markets.
Small-cap altcoins are trending as long as they are quite new. After the inevitable hype period, they will most often go bust.
The bottom period there is where you could, in theory, scalp them as the market is flat.
Practically though that will not go well because nobody is trading failed alts. The market will be too thin to take your orders and it will be hard to get your orders filled.
For these reasons it is best to stick to large-cap cryptos like BTC or ETH for your scalping.
Crypto Scalping Tools
We have a 101 guide on how to start automated trading crypto, including crypto scalping automation. There are platforms that do not require any coding knowledge. Read here.
Crypto scalping charting
Scalping requires a 5M or shorter timeframe chart. Footprint type of charts like Tensorcharts work extremely well.
On the chart, you will need indicators that work well on such short timeframes.
Bitcoin scalping indicators that work well
- oscillators like StochRSI
- inverse Fisher of RSI (also an oscillator)
- Bollinger Bands^TM
- basic support and resistance
Technical indicators that do not work well on short timeframes are Ichimoku cloud and divergences. These are indicators that work with trends and do not provide good information for the timespan of minutes.
Trading platforms for crypto scalping
Your requirements for trading platform good for scalping is stable web interface or API and reliable stop loss.
Any scalping strategy relies on collecting a large number of small profits. For this reason, a single losing trade can wipe out months of your work if your stop loss fails. In scalping, losers need to be cut quickly with a discipline.
If you are comfortable trading crypto options on Deribit, there are ways to use options instead of a stop loss.
Exchanges that generally do not crash during heavy load
- Bitfinex (spot, leveraged spot, derivatives)
- Deribit (options, futures)
- Phemex (new spot and derivative exchange - not properly put through the FOMO fire yet)
Crypto scalping bots
There is a couple of dedicated bots for scalping crypto in 2021, as well as platforms that let you build your own strategy with no coding knowledge required.
And there’s a reason for it. Scalping is not for everybody. Most traders are most comfortable with swing trading, the quick switching of sides that scalping requires is heavy on your mind.
Crypto bots and alerts useful for scalping strategies
- Shrimpy (needs some coding knowledge, but has plenty tutorials and a dev community on Telegram)
- Coinrule (zero coding knowledge required)
- Tensorcharts (has programmable interface for custom alerts - helpful for manual scalping)
Crypto Scalping Strategy - Scalping Setup Examples
As mentioned in the scalping bots section, the typical crypto scalping strategy is straightforward on paper but hard to pull off psychologically.
Traders who are not used to taking losses are the best candidates for headaches from scalping.
Losses are something that on the crypto markets can be pretty much avoided, as long as you stick to trading the big swings.
Your scalping profit comes from large number of quick trades. Taking small losses is inevitable, but you must make sure the losses are really cut when they are still small. Otherwise months of your work can be wiped out at once.
Example 1: Basic Support/Resistance Scalping Setup
- Chart with 30M and 5M support and resistance
Long Set Up:
- Find 30M support level.
- Post a long position at a the support level.
- Find nearest resistance level to the upside.
- Post a take-profit and stop-loss in the 1:1 ratio (or better), aiming for a 1-2% profit
- Follow the market at 5M chart to confirm the price action is slowing down around your order.
- If order triggers, follow the market on 5M and move your stop loss up as you gain unrealized profit.
- Let your take-profit or stop-loss trigger.
Short set up for this scalping strategy is equivalent.
- Use Bollinger bands as boundaries for support and resistance
- Use volume profile or VPVR to find support and resistance
- Use TensorCharts orderbook heatmap to find support and resistance
Example 2: Scalping a bull flag
- Chart of 5M market that is making new (intermittent) highs.
- Best starting position is high-volume break through (short-term) resistance level.
Bull flag scalping set up:
- Find a break through a resistance or a similar high-probability short term bullish point.
- Work out the nearest resistance to the north. If this is an all-time high, use a fib extension.
- Open a long. You may need to use an instant market order if the market is running away.
- Set up your stop loss at the ratio of 1:1 or better compared to your expected resistance.
- Move your stop loss up as the price moves up.
- As the price approaches resistance, move your stop loss closer to the price: The middle of the previous candle. Keep moving the stop loss as new candles are generated.
- Let your stop loss trigger.
- Open a short.
- Work out a support level for the retracement. Fibs are a good tool for that.
- Set up your stop loss at the ratio of 1:1 or better.
- Move your stop loss down as the price moves down.
- As the price approaches support, move your stop loss closer to the price: The middle of the previous candle. Keep moving the stop loss as new candles are generated.
- Let your stop loss trigger.
Typically, a bull flag will have two bottoms. You can trade the first bounce the same way.
Experiment with the stop-loss levels, on different markets different levels will be appropriate. It might seem like a way to minimise your risk by setting stop loss to the previous candle right from the start. The reason it’s kept loose like this is the notorious stop hunts on most crypto markets.
Using Tensorcharts as your cryptocurrency scalping tool
So far the best charting app for short-term crypto trades is TensorCharts.
The information you get when watching TensorCharts is far more complete than the averaged-out information you get from the standard candlesticks charts, and in scalping that matters a lot.
TensorCharts Tools for Scalping
- Order flow, or “Colored candles” - See at which price level of the candle happened the largest buying or selling activity.
- Orderbook heatmap - See where traders put their orders, and if they mean to spoof them or let them execute.
- Book counter and trades counter - At which side of the orderbook is currently the most pressure.
The disadvantage of TensorCharts is the learning curve. You will need to take some time and learn to use TensorCharts. Once you’ve done that, you will have a powerful tool at your hands and quite an edge - because not too many other traders will bother.
Why scalping crypto matters?
Most traders will stop trading during sideways and negative price actions.
Your typical crypto trader will get frustrated as the price keeps going down and he “cannot do anything” (?), he’ll lose sleep, obsess over looking for the bounce and eventually sells the bottom.
As a result, even the biggest crypto markets get thinner and easier to shake.
This also invites the trolls and shills to shout around that cryptocurrencies are dying for real this time which can easily spiral into more panic.
Good thing that all this is also a trading opportunity for everyone who wants to take it.
There is still money on the table, why not collect it then?