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Applying Forex Scalping Strategies to a Cryptocurrency Trading Scenario

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Cryptocurrencies came to bring sweeping changes to the traditional finance ecosystem. However, despite their revolutionary tag, they had to interface with trading strategies from the other world in a bid to fuel adoption. One of the trading approaches fished directly from the traditional world, forex to be precise, is scalping.

What Is Forex Scalping?

Those without a forex trading background may wonder what is forex scalping. They may even think it’s a forex-only thing. Forex scalping is a profit-pumping method used by traders to conduct a quick trade to increase the profit margin.

A scalper is keen on small profits. As such, they open and close multiple positions within 24 hours with a single trade lasting between seconds or a few minutes.

Scalping positions can be leveraged, allowing a trader to enter a larger position using small funds. In addition, the strategies used can be automatic or manually induced. Note that going down the manual lane requires a trader to manually interact with technical signals and be physically present throughout the trading period. With automatically-conducted strategies, a trader specifies the parameters and leaves the software to handle trading complete with entry and exit points.

Advantages of Forex Scalping

  • Leveraged positions amplify the profits.
  • There are fewer risks due to the short entry and exit points.
  • Automatic trading saves a scalper’s time.

Disadvantages

  • The scalper has to address risks such as slippage and those associated with leverage. For instance, with leverage comes liquidation.
  • A standard forex account isn’t ideal, forcing them to use specialized versions called ECNs (electronic communication networks).
  • As much as leveraged trading enhances the profits, it also increases the losses.

Forex Scalping Strategies

Even though the trades last a few seconds or minutes, a strategy is needed. Fortunately, the scalping world’s full of scalping plans. If divided into groups, they make up the trend, countertrend, range, and statistical techniques.

  • Trend-based scalping strategies follow the wave. For example, if a currency pair’s value is projected to rise, these strategies are designed to take profits along the upward trajectory. On the other hand, countertrend approaches go against the wind. Basically, it’s the opposite of scalp trading on a trend. For instance, if the trading signals indicate a currency pair’s rising in value, counter-trend strategies bet on the price decreasing and take profits along the downward movement.
  • Counter-trend strategies are mostly applied when the scalpers believe the tide will abandon its current trajectory and take a dip. Note that the strategy’s applicable to both sides of the wave. When the value is dropping, scalpers bet on profits in the opposite direction.
  • On the other hand, range trading strategies are based on a range defined by values around the support and resistance levels. Support areas are levels where the price finds support when in a downward movement. The resistance region is a level where the price loses strength when moving upwards.
    Therefore, in a range strategy, a scalper buys at support and sells at resistance levels.
  • Then there are statistical-based strategies. This group of scalp traders analyzes data for patterns that manifest in a particular time of day provided that the market is predisposed to certain conditions. Therefore, statistical scalping techniques take into account the signs from a chart, a currency pair’s price, the time of day, and day of the week.

How to Use That Knowledge for Crypto Scalping

If you’re asking whether scalping strategies in forex can apply in the cryptocurrency field, the answer is a big yes. Before we get on the how, let’s look at the why. From our previous discussion, we’ve come across many features that we can relate to, especially in the strategies.

For example, in the currency space, just like in forex, prices have an upward and downward movement. In addition, crypto prices have a resistance area, a support level, and there’s data for statistical-tabulation to reveal patterns based on day, price, time of day, among factors.

So, how do we shift scalping strategies in forex to become scalping strategies in crypto? Well, it’s easy and effective. However, since the practice is ideal for use in high liquidity markets, it makes sense to apply it to Bitcoin trading since the king crypto has the highest liquidity in the cryptocurrency market. Ethereum is another virtual asset that’s second in liquidity and a second-best bet for crypto scalpers.

Assuming that Bitcoin and Ethereum are within your reach and you want to dive into scalping, the journey takes five hops.

  • First, select an exchange or platform that you prefer or has the highest liquidity.
  • Second, choose your trading pairs. For BTC, it can be BTC/USD, BTC/USDT, BTC/ETH or any other pair with deep liquidity.
  • Thirdly, to get acquainted with trading instruments, use a demo account and try to place you first order
  • The last step is when you are ready to dive into the real trading journey, set up a connection to your exchange account and try your hand.

The risks experienced when using scalping strategies in forex are imported to virtual currencies. However, the plan is advantageous in the crypto scene because it’s low-risk, and when the right process is automated, it effortlessly earns profits for the crypto scalper.

Closing Thoughts

Although forex scalping strategies are applicable in crypto, it’s not for everyone. New traders may find the process so complicated that they prefer holding (buy and hold investment). The trading approach is NOT for:

  • New crypto enthusiasts without a solid trading background.
  • Traders with low-risk appetites.
  • Those with poor micro-risks management qualities.
  • Those without trading software.
  • Traders without time to strategize and test different plans.
  • Non-technical individuals lacking the know-how to read charts and trading signals.

But, if you have all the above qualities, it’s high time to try out or perfect your cryptocurrency scalping skills.

BitTrade is a professional cryptocurrency scalping terminal for traders and investors.
The tool is available as a beta version at the moment.

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