Beginner’s Guide to Trading Crypto. Part 8

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The Scalping Strategy: A Penny Saved Is A Penny Earned

Benjamin Franklin, one of the founding fathers of the United States of America, a prominent politician and diplomat, is said to be the author of the world famous aphorism “Time is money” and the statement “A penny saved is a penny earned.” This imperative formed the basis for a whole range of financial and trading strategies, including exchange-based ones.

Scalping is a trading style that has formed on the market in conditions of low volatility, when every penny earned counts. The scalping method involves opening a large number of orders in an extremely short timeframe and closing the transaction immediately after it becomes profitable. And now, when intensive growth on the cryptocurrency market has reached a trough, it is time to tackle the tactics and advantages of the scalping strategy.

Trading Against The Trend

Scalping on pullbacks is working in the short-term movement area opposite to the trend, when the prevailing bear pressure on the market weakens, thus giving the bulls an opportunity to win back a few points, or vice versa.

The volume of trades and the points of intersection of the moving averages with the graph signal that the market has reached the next minimum or maximum point and is preparing to rest in its downward movement. Another widely used indicator for trading on kickbacks are the Bollinger bands. They are calculated based on the standard deviation from the simple moving average and show the normal range of price movement. The exit price from the corridor gives a signal to open or close a position.

Scalping During Lateral Movement

Flat or lateral movement does not allow trend strategies to unleash their full potential. However, this is not a reason to shut down the trading terminal and return to everyday chores. One of the possible tactics of trading during lateral movement is channel trading. Determining the levels of support and resistance helps us understand the probabilistic points of a trend change and build on them when trading in the short term. The rules are simple: buy when the price touches the lower boundary of the channel, and sell when the price reaches the upper limit. In this case, stop orders are set at several points from the edge of the channel to hedge risks.

The Remedy For Market Inertia

The main advantages of the scalping strategy are the possibility of its use in a situation of low volatility. However, any novice trader must first learn to find the levels of support and resistance, place stop-loss and take-profit orders in accordance with these levels and immediately monitor price behavior patterns. Traders can gain real experience with levels and different types of orders using paper trading.

Scalping involves a small gain from each order, but good results can be achieved by opening a large number of orders or by trading large amounts of money. Traders can also increase profits on a competent scalping strategy by trading with leverage.

Scalping is often used to hedge risks. Scalping on pullbacks will allow covering part of the losses when a trader has a long-term position on an asset and the price is moving in the direction opposite to the forecast.

“There is a way to make a lot of money in the market; unfortunately it is the same way to lose a lot of money in the market.”
American economists
Peter Passel and Leonard Rose

A scalping strategy that is understandable and effective at first glance carries substantial risks. This approach is one of the most time consuming and emotionally costly. Sometimes, decisions have to be made instantly and this often leads to mistakes.

MoonTrader will allow traders to automate the process of placing and monitoring a large number of orders.

Some exchanges prohibit the use of scalping, since the basis of the strategy is the opening of a large number of transactions, which leads to heavy server loads.

However, Binance servers are quite productive and can withstand a large load, and MoonTrader’s tick chart will allow traders to instantly respond to market movements.

Trading large amounts of money is the story of big profits and comparable losses. Thus, scalping is not an approach for newbies. It assumes very tough market control and does not tolerate mistakes. However, it allows to effectively trade in situations where no good comes from other strategies.

Trade wisely and always correctly assess the risks. Follow our educational series on our Telegram channel, as well as our social networks, and stay tuned for the latest news following the development of our platform. We are always delighted to welcome new readers!

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