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Need a few reliable trading strategies? Read on for the five best scalping strategies used in crypto markets.
What Is the Best Scalping Strategy for Crypto?
Scalping strategies can be highly effective for short-term, incremental trading. They are ideal counters to the high volatility of cryptocurrency markets, and traders who use these strategies can minimize their market exposure through smaller transactions, more frequent trades, and swift decision-making.
When you buy cryptocurrency as a trader, scalping allows you to take advantage of price fluctuations with a minimal amount of risk. You’re entering and exiting up to hundreds of positions throughout the day, and when that’s combined with high leverage and tight stop losses, it’s easy to see why day traders prefer using scalping tactics.
So, which scalping strategy will work best for you? The answer depends on how experienced you are with trading, and how much risk you’re willing to tolerate. Below are the five most popular forms of scalping to help you decide which strategy suits your trading style best.
1. Arbitrage
When cryptocurrencies are priced differently on various trading platforms, traders can profit from the price difference. This is known as arbitrage trading, and several forms of scalping fall under this category.
Most traders incorporate retail arbitrage, statistical arbitrage, and triangular arbitrage into their trading strategies. These are all low-risk forms of trade, mainly due to the fact that you aren’t dealing with future performance as a deciding factor.
Essentially, you’re buying crypto from one market and selling it in another. However, taking advantage of market inefficiency highlights that price gap for other traders, who will attempt to cash in on the loophole. This rectifies the price imbalance before too long, which means that timing is absolutely critical.
2. Bid-ask spreads
If you trade based on a bid-ask spread, your main focus is the difference between the bid price and the asking price. You can open a position on each price point, with the aim being to close at a higher or lower price and gain profit.
In crypto scalp trading, the spread can either be wide or narrow. A wide spread occurs when the asking price is high, and the bid price is low, while a narrow spread has a high bid price and a lower asking price.
This strategy allows traders to remain flexible and is also one of the easiest for novice traders to understand. What’s more, experienced traders can use bid-ask trades to speed up buy-in frequency and alleviate selling pressure.
3. Margin trading
A margin trader uses someone else’s funds to increase the potential profit from buying and selling crypto. Investments from third parties come with added risk in what’s already a volatile market, so you want to ensure that you’ve got trading experience before you attempt this strategy.
Margin trading is directly tied to leverage. In other words, you gain access to significantly more capital and higher leverage ratios. The downside is that if your trade loses money, your losses are compounded twice over.
An alternative option for new traders is a margin fund. Some crypto exchanges offer portfolios of a range of cryptocurrencies. These portfolios offer competitive rates with less of an initial investment, but the potential profit isn’t nearly as high as it would be for an individual margin trader.
4. Price action
Price action is the study of any crypto’s price movement over a certain period of time. It’s more of a mindset than a strategy and can be applied to nearly all crypto scalping strategies. The only thing you need is a willingness to perform due diligence.
Studying price action efficiently requires numerous tools, from data charts and price alerts, to global news and regional inflation. The more sources of information you acquire, the easier it will be to recognize the patterns and trends of price action signals.
There are no downsides to incorporating price action study into your scalping strategy, provided you’re willing to dedicate the time and effort to make it work in your favor. It’s especially useful for traders who want to avoid brokers and execute trades on their own.
5. Range trading
The last of our five strategies is range trading – where you buy and sell crypto within a fixed range and timeframe. The price movement for range trading is relatively consistent, but all transactions have to be made during critical time windows.
When traders use range trading, they can choose to go long and short whenever it suits them, as long as the entry and exit points fall within the predetermined range. For this reason, many traders will place limit orders at a given price point.
The most important aspect of this strategy is risk management. You need pinpoint timing and thorough knowledge of possible highs and lows.
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