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What is Scalping?

Learn more about scalping, and how you can use Cryptowatch to do it. *This article is informational and should not be considered trading advice.

How does Scalping work?

Scalping (or scalp trading) involves making frequent trades over a short period of time to profit from small changes in an asset's price. Letting your profits "run" is not the name of the game here — scalpers enter, exit, and enter the market again at the next opportunity very rapidly.

Scalping involves making many frequent trades over a short period of time.

Trades are closed as soon as they become profitable, or at an acceptable level of loss — scalpers typically use stop losses to protect the gains they have made, since a large loss can quickly reverse a day’s work (or more).

Is This Style for Me?

Scalping might prove more difficult for novice traders, since it requires quick analysis and accurate on-the-fly predictions. Scalping requires you to commit a lot of your time to trading and analysis — this is why some traders choose to use scalping only as a supplementary style to their trading plan.

Trading requires a great deal of discipline. Scalping is no different; the ability to quickly forget the last trade, win or lose, and move on to the next is the only way to sustain this method of short term trading over a long term career.

Check your exchange's fee structure — to profit from scalping, your trades need to make more than you pay in fees. Kraken.com has a competitive fee structure among top crypto exchanges. Click here to see if Kraken is available in your area.

Scalping Tools on Cryptowatch

The following information can help you learn to scalp, but is far from exhaustive.

We describe some drawings, indicators, and overlays, but there are many tools and countless combinations of them on Cryptowatch to help you trade. Always do your own analysis when trading any style or strategy, and use the tools you understand best.

Cryptowatch makes it easy to trade fast — you can make/manage trades, check the order book and use analysis tools all from any Charts page.

Finding the Right Market

For scalpers, trends aren’t as important as liquidity — the market needs to be active. Highly-liquid markets increase the likelihood of completely closing your trades. Volatile, active markets also produce more frequent changes in price, which creates more opportunities to trade.

Not a great prospect for scalping.
This is better — lots of liquidity, many small movements up and down within a prevailing trend.

Your orders can be more costly in markets with low liquidity because they require a larger range of the order book to fill completely. A portion of your order may fill at your desired price, but some (or most) of it can fill at worse prices deeper in the order book (this is called slippage). If your chosen market has a lot of empty (flat line) candles when set to 1, 3 or 5 minute periods, it may not have sufficient liquidity to support this trading style.

You can use Cryptowatch to help you find a liquid market to scalp in. Cryptowatch’s homepage gives you an at-a-glance view of asset liquidity across all exchanges. You can sort by bid and ask liquidity to find assets with more buy or sell orders, respectively. Once you've found a liquid asset, click on the asset and scroll down to look for high volume markets for that asset.

You can sort exchanges on the Exchanges page by liquidity to see which is most active when you sit down to trade. You can also sort the Markets page by asset and USD volume. High asset volumes mean large amounts of the asset are being traded. Ranking by USD volume shows markets with the most value being exchanged.

Exchanges on Cryptowatch, sorted by total liquidity.

Create Orders Using the Market Depth Chart & Order Book

You can set your order price quickly by clicking on any price level in the depth chart or order book, then hitting the Review & Buy/Sell button in the trading form.

The depth chart visualizes the order book, making it easy to identify walls — price levels with a lot of orders. Walls can note support and resistance levels in the market. Trading within walls can help you pick entry and exit points, though the order book is usually thinner between support and resistance, with less buy and sell orders leading to more slippage.

You can click anywhere on the depth chart to create an order at that price. Keep in mind you will still have to set the rest of the order manually.

Clicking on the depth chart (left-most panel) will auto-fill the price of your order.

You can also click on other orders in the order book to create an order at that price. Sometimes scalping involves a bit of aggression; you may need to outbid other traders to have your orders filled faster. If this is the case, you can choose a price level from the order book, then adjust it up or down in the trading form. This makes out-doing other traders fast and easy.

Clicking on the Order Book (middle panel) will auto-fill the price of your order, too.

Click and Drag Orders

If the price is adjusting to new levels and you want to move your order, you don’t need to scrap your current order and start over. Simply click and drag the order’s circle icon along the y-axis of the price chart to the new price, then confirm the order. This can be useful for moving stop losses (if you do let your profits run) or getting your entry and exit orders to the top of the order book.

To quickly replace the order after moving it on the chart, just hit Enter twice. If you want to set orders with just one keypress, skipping the confirmation step, click the gear icon at the top of the trading form and toggle on Skip order confirmations.

Read more about trade settings in the Trading settings menu guide.

Click the order's circle icon on the y-axis and drag to the new level.

You can also use the Replace Order button when an order is selected to edit its parameters directly. The old order will be automatically canceled and replaced by a new one, complete with its new parameters.

Drawing Tools

Drawing on price charts can reveal information that isn’t already apparent, or made apparent by indicators and overlays. For scalpers, drawing tools can illuminate important support and resistance levels that can serve as entry and exit points to their trades.

Keep in mind that support and resistance levels are temporary — at some point, the market will probably break the level.

Below are some examples of these tools in use, indicating key levels in Kraken's BTCUSD market on 1-minute candles.

Tool

Icon

Description

Fibonacci Retracement

Shows possible support/resistance levels of a larger trend. Set the endpoints at relevant levels, typically the high and low points of the trend.

  • Start high then go low for bearish trends

  • Start low then go high for bullish trends.

Drawing a Fibonacci Retracement tool over an up trend.

Tool

Icon

Description

Line

Draws a line in any direction from an initial point. Useful for making trend lines, or combining two lines to form a channel of possible support and resistance.

These lines respect the y-axis they are drawn on, and may curve if you change your y-axis from linear to log.

The line tool can be used to define channels on charts.

Tool

Icon

Description

Parallel Lines

The first line draws just like the Line tool. Once the 2nd point is selected, you’ll have a parallel line to place above or below the first. Good for determining support and resistance levels in a consistent channel.

These lines respect the y-axis they are drawn on, and may curve if you change your y-axis from linear to log.

The parallel lines tool can be used to define strict channels on charts.

You can draw channels or fibonacci lines on higher candlestick periods, like the 30 minute or hourly charts, to determine the primary trend of the day. Gauging whether the price is ultimately going up or down will help you determine your trading bias — whether to enter more longs or shorts, or — if your analysis leaves you uncertain — not to trade at all.

At support or resistance lines, there may be an increased risk of the market breaking out (moving out of the trend). This could potentially leave you trading in the wrong direction.

Scalping Indicators & Overlays

Indicators and overlays can help you to better understand the trading action in your chosen market. Indicators and overlays can be selected and edited from the Analysis menu above the price chart:

The Analysis menu has learning tools for each indicator and overlay.

Stochastic Fast & Slow Indicators

The first tools we'll look at are the Stochastic Fast & Slow indicators. These are momentum oscillators — graphic representations of how much an asset's price has changed over time. They're functionally similar, except the Stochastic Slow indicator has an extra moving average in its calculation, which smooths the lines.

Buy and sell crossovers are highlighted with green and red circles, respectively.

The price chart above shows an uptrend with both the Stochastic Fast and Slow indicators below it. The default look-back periods for each is 14 — in the image above, the amount of look-back periods is reduced to 7 to indicate short-term reversals.

Look-back periods refers to the number of past candles factored into the indicator’s calculations.

‌Scalpers will look for crossover points in the Stochastic indicators (the green and red circles in the indicator panels above) to time their entries and exits. The crossover points indicate a potential change in price direction. The signal may be stronger if the crossover occurs above 80% or below 20%, which indicates overbought and oversold markets, respectively.

These crossovers in the Stochastic Slow indicator show potential entry and exit points.

The Fast indicator goes into the overbought/oversold range more readily and makes crossovers more obvious in appearance. The Slow indicator is less likely to give false signals, like this one:

The Larger circle above shows a false crossover in the Fast indicator.

Looking at the larger image above, you can see that this false signal could have faked out an analyst compared to the Slow crossover point. Ultimately, it will be up to your personal preference (and practice) to see which signals best fit your trading. For scalpers, a false signal isn't always detrimental due to the sheer volume of trades they will make in a day.

Volume

Volume shows the amount of an asset being traded during a candlestick period. Typically, a rise in volume helps legitimize a trend reversal. Low volume can usually indicate a trend will continue, even if the price action has increased.

Scalpers may rely on volume to verify their entries and exits, or as a signal to the end of the overarching trend they are trading on.

More importantly, volume can tell you whether or not to trade at all — as mentioned above, the market needs to be active and highly liquid for scalping to work.

The faint green bars/arrows show the rise in volume with its corresponding price action.

SMA (Simple Moving Average)

Simple Moving Average lines are used to supplement many trading styles and strategies. This overlay works by calculating the moving average (the difference in price) over short, medium and long periods. In Cryptowatch’s Analysis menu, you can adjust the length of each period to make the SMA lines better suited for your particular style.

Customize your analysis tools using the Inputs & Style tabs.

Scalpers often reduce the default SMA periods to produce more crossover points, which signal entry and exit levels for their trades. The “Periods” parameter is the amount of candlestick periods each line uses to calculate the average. Typically, traders use a fast, medium and slow line.

We have set the fast line to look back 5 periods, the medium line to 8, and the slow line to 15.

The Fast line is red, the Medium line is yellow, and the Slow line is cyan.

In the image above, the initial crossover (marked by a green circle) indicates a potential entry point for a long position. There are three subsequent points where the fast line crosses the medium line — any of these would show a reasonable place for a scalper to exit their trade.

The final red circle shows where the Fast line crosses the Slow line. This is a stronger reversal indication, and might influence the trader to close their long and start looking for opportunities to open short positions.

Another option here is the Exponential Moving Average (EMA) overlay, which puts more emphasis on recent data. Both tools are analyzed in a similar way.

What does a scalper's chart look like?

What could a scalper’s Cryptowatch terminal look like? This is an example of one combination of analysis tools and drawings that a scalper may use while they trade:

Multiple analysis tools, customized for making scalp trades, applied to a Kraken BTC/USD chart.

Here’s what you can see in the image above:

  • A channel drawn along the highs and lows of this trend, indicating resistance and support, respectively.

  • A range The price bounds within the channel, before indicating it may break down at the current candle.

  • SMA Overlay — the crossovers correspond to the Stochastic Fast indicator below.

  • A Stochastic Fast indicator — the crossover points above the 80 line and below the 20 show strong reversal. signals

  • A Volume indicator high volume early in the trend helps legitimize it. Volume drops off while trading continues in the range.

  • The Trading panel — you can trade directly on the charts at the same time you analyze the market.

This is a simple but effective setup to learn how to scalp on Cryptowatch. These are not the only tools that will work for this trading style, though — it’s important (and fun) to experiment with different indicators and drawings.

Check these guides to learn more Cryptowatch's Analysis and Drawing tools: