Benjamin Franklin, one of the founding fathers of the United States of America and a prominent politician and diplomat, is said to have coined the world-famous aphorism “Time is money” and the statement “A penny saved is a penny earned.” This imperative has formed the basis of a whole range of financial and trading strategies, including exchange-based ones.
What is scalping and how to scalp trade
Scalping is a trading style that has formed 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 transactions immediately after they become profitable. And now, when the intensive growth on the cryptocurrency market has reached a trough, it’s time to tackle the tactics and advantages of the scalping strategy.
Trading Against the Trend: Bollinger Bands Scalping Strategy
Scalping on pullbacks works in short-term movements 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 trading volume and the points of intersection of the moving averages on 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 is the Bollinger bands, which 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 constitutes 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 possible tactic for trading during lateral movement is channel trading. Determining the levels of support and resistance helps you 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 can be set at several points from the edge of the channel to hedge risks.
The Remedy for Market Inertia: Scalping vs Day and Swing Trading
The main advantage of the trading scalping techniques is the possibility to use it in situations 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 valuable experience with the levels and different types of orders through paper trading.
The Xena Exchange terminal provides buy and sell signals based on data from the MACD indicator, divergence, intersections with the moving average, and a number of other factors. Traders can independently set up the indicators displayed in the terminal and use them to hone their skills and determine trading strategies.
Scalping involves a small gain from each order, but significant results can be achieved by opening a large number of orders or by trading large amounts of money. Traders can also increase the profits of a competent scalping strategy by trading with leverage.
Xena Listed Perpetuals derivative contracts provide an opportunity to trade with leverage up to x100. In this case, Xena Exchange minimizes the ability to manipulate the price and eliminate the positions of other players through established price bars and mechanisms to protect against accidental liquidation.
Scalping is often used to hedge risks. Scalping on pullbacks allows a trader to cover part of the loss when they have a long-term position on an asset and the price moves in the opposite direction of the forecast.
The Endless Exchange Sprint
“There’s a way to make a lot of money in the market; unfortunately, it’s 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, which often leads to mistakes. Many traders prefer working with the assistance of scalping trading bots to optimize the process and reduce stress.
Xena Exchange supports work with trade bots, which 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 consists of opening a large number of transactions, which leads to heavy server loads.
Xena Exchange servers are quite productive and can withstand a large load, and the fast trading engine allows traders to instantly respond to market movements.
Trading large amounts of money generates 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 traders to effectively trade in situations where other strategies are ineffective.