What comes to your mind when you hear the word scalping? No, it is not the gruesome punishment you imagine in which people rip a piece of human scalp from the head, hair attached, as a prize, as is common in wartime. We're not talking to a long-ago practice among some aboriginal Americans, in which they scalped the skin of defeated enemies.
The term scalping in trading came about because, as the literal meaning, it is a highly intricate process that impatient people may find painful to do. In this article, we will talk about a unique type of scalping approach. It is pretty basic, and it is frequent in forex trading. Of course, we can utilise it to trade cryptocurrencies. Let's start with the tools we'll need to put this strategy into action.
Only two indicators will get demonstrated here: the 200 Exponential Moving Average and the Stochastic indicators. Instead of stochastic, we can use another indicator like RSI. It's entirely up to you. Our time frame will be 5 minutes because this method is for scalping.
Let's start with the 200 Exponential Moving Average, the first indicator required for this method. You might be wondering, why use 200 EMA? Long-term traders, as we all know, use it to see the big picture of the market. However, we can also use it in a shorter time frame. The reason we will use this is to see how the market is trending. The market is in an uptrend when the price is above the 200 EMA. At this point, we buy or put a long stake. On the other hand, the market is in a downtrend when the price is below the 200 EMA. We can either sell or put a short position here.
Let's talk about the second tool we'll need: stochastic. Stochastic is a type of oscillator that helps determine if the market is oversold or overbought and whether now is a good moment to buy or sell. According to Investopedia, it is a momentum indicator that compares a security's closing price to a range of its prices over time. By altering the time period or taking a moving average of the result, the oscillator's susceptibility to market changes can be reduced.
To enter a long position, we must first confirm that the candlestick is running above the 200 EMA. This situation is a sign that the market is moving upwards. Then we will wait for the pricing to level off a little. It usually bounces back to the 200 EMA, which acts as support. But even if it does not reach the level of 200 EMA, we can expect the price to bounce further up as it enters oversold territory in the stochastic.
We will only sell part of a position or take a short position if the market is on a downtrend. When the candlestick is below the 200 EMA, we do it. Furthermore, stochastic should have surpassed the 80-region. We must ensure that the stochastic position is falling. We can put a short position after this situation comes into place.
Remember that before we start investing in crypto trading, we must first determine our profit target and stop loss. If a trader is not seeking a higher profit, some experts recommend using a tight stop loss in this time frame. Make sure you only utilise this method in trending markets; it will not work in range markets.
Why is it the case? Because only sideways movements occur in a ranging market. We may see a lot of false signals in that circumstance. And that's something we don't want to happen. If the market is trending in that direction, such a plan will not be profitable. It is preferable to employ alternative tactics or seek for a different asset to trade.
This strategy is so simple but profitable if you know how to execute it properly. Always follow the rules of this strategy. And don't expect that it would work 100 per cent of the time. No trading strategy works all the time. Mixing it with other methods you know on top of your trading experience is a good idea. For newbie traders who find trading strategies overwhelming, consulting crypto trading experts is a smart move. Crypto professionals may be helpful given that they have years of experience in the field. To know more, visit Bitcoin Era.