Scalping is a trading method that is used in the financial markets, but also in cryptocurrencies. The individual who uses such a strategy is called a scalper and the trading operation that is performed via this method is called a scalp.
Scalping is something that is easy to explain, but requires good knowledge and a lot of work to use it correctly. In the context of this article, we will simply explain to you briefly what this strategy consists of.
Can you make big profits on a scalp?
Scalping makes it possible to make profits based on very small market amplitudes. To do this, we generally open a position and close it very quickly as soon as we have managed to generate the expected profit. The profits that it is possible to obtain thanks to a scalp are never very high, ranging from a few tenths of a percent to 1 or 2%.
The whole point of scalping is being able to place many different trades in a day. By adding up all these small profits, we can then make interesting gains. However, good market conditions must be met to achieve a successful scalp. Here is a small example of crypto scalping:
· Trading fees are 0.05%;
· We enter a crypto at the price of 500 satoshis;
· We resell the crypto at 502 satoshis;
· The gross profit is 2 satoshis, from which we must subtract 0.25 satoshis when buying and 0.251 satoshis when reselling. The profit is therefore 1,499 satoshis on the scalp.
As can be seen, the profits are not large. However, it is possible to perform this operation in just a few minutes and to repeat it dozens of times throughout the day. Considering failed scalps, a good scalper can in this situation make 1 satoshi average profit per scalp to be multiplied by around thirty operations over the day, i.e. 30 satoshis, which must also be multiplied by the number of cryptos purchased on the same operation.
Are the risks taken by scalpers significant?
As we saw in the example in the previous paragraph, profits are very low on a scalp. As a result, the losses that can be incurred are also relatively low. The risks are therefore ultimately quite low because the sums involved are relatively small.
Of course, it is necessary to master the scalping strategy well. You have to know when to come in and when to go out. If you come in at the wrong time, prices are likely to fall, which will lead to losses. In addition, even having bought at a good price, you have to know how to sell when the situation is right or manage to cut your losses quickly if something unexpected happens.
If you are a beginner, you have to be especially careful when doing scalps. Although it is difficult to make big losses all at once, it is possible to accumulate a whole bunch of small losses, which can ultimately add up to quite a large amount. It is therefore important to train in play money when possible and to start with small amounts when starting out with real money.
The differences between scalping, swing trading and trend following
As we have just seen, scalping allows you to make (very) small profits over a period of a few minutes. However, many people regularly confuse scalping with swing trading and trend following. We are going to explain to you what these other two trading methods consist of.
Swing trading is a strategy that involves anticipating a price movement over the short term, usually over a few days at most. We can then position ourselves up or down depending on our anticipation. If we compare it to a scalp which is a high frequency trading, we can consider swing trading as medium frequency.
Trend following uses a concept quite similar to swing trading, but over much longer periods of time. In French, this is called trend following. Sometimes it is possible to keep a position open for several weeks or even months. This time we are talking about low frequency trading.
Conclusion on scalping
We hope you now have a better understanding of the concept of scalping. As this is quite a complex strategy to master, unfortunately we were unable to tell you how to become a scalper in this article.
If the subject of scalping interests you, we advise you to approach it seriously and rigorously. Even if the profits generated with each scalp seem ridiculously low, put together, they can be very interesting and represent large sums of money.
Back to glossary
Receive a digest of news in the world of cryptocurrencies by subscribing to our new daily and weekly newsletter service so you don’t miss any of the essential Cointribune!
I discovered the world of cryptocurrencies in January 2018. Arrived at the worst time to invest, I have never stopped training since then and now share my knowledge in order to facilitate the adoption of cryptos.