TOP-5 indicators for scalping trading
By Yuriy Bishko Updated November 30, 2022
Scalping, as most of us already know, is a strategy of trading on the cryptocurrency market during one day with a large number of trades and earnings on the fluctuations of the digital assets rate. This type of trading is ideal for those who dream of "hitting the jackpot" in a matter of hours and quickly achieve results, but it also requires considerable skills. Today we will talk about the top indicators for scalping that will help you quickly analyze the short-term trend and make money on it.
- What is trading volume and how to use this indicator?
- Horizontal volume: concept and applicatio
- VWAP indicator and how to use it in scalping
- Footprint and DOM: what is their difference and how to use the indicators?
1. Trading volume
The first in our rating is the volume indicator. What is volume in trading? This is the data of the platform or exchange where you trade about the amount of cryptocurrency sold for a selected period of time. In other words, this indicator allows you to analyze at what time and period users often sold and bought digital coins. The indicator is presented in the form of columns or bars, and the higher they are, the more deals traders make.
How to use volume in trading? Everything is quite simple: first, you need to open the chart of the desired currency (timeframe up to 1 hour), and then add the volume indicator and compare the data obtained.
Consider the example of the BTC/USDT pair:
The chart shows that every time the volume of trades to buy or sell the currency increased, there were strong fluctuations in the price of the trading pair. The correlation between the trading volume and the price of a cryptocurrency is a great tool for understanding the market sentiment (bullish or bearish), as well as predicting the future fall or rise of the cryptocurrency rate.
Watch Now on YouTube: Trade Like a PRO: Get 99% Win Rate with These 5 Indicators!
2. Horizontal volume (Volume Profile)
Horizontal volume took the second place among the top indicators for trading. What is horizontal volume in trading? This is an indicator based on the number of concluded trades relative to a certain price level. The indicator is shown as a horizontal bar chart with bars, where the longest bar signals the largest number of trades. Horizontal volume is often the best indicator of resistance and support levels in the market.
How to use horizontal volume in trading? First, you should open the cryptocurrency chart you need, then add the horizontal volume indicator to it, and the next step is to compare the data and find the points where the least or most funds were traded.
An example for the BTC/USDT pair:
As you can see, the largest volume was traded in the Bitcoin price range of $20000-21500. This means that liquidity is at this level, and therefore the quotes will return to this price range. Horizontal volume also allows you to determine the levels of support ($18500-19500) and resistance ($23000-24000).
The VWAP indicator took the bronze of our TOP. What is VWAP? VWAP (Value-Weighted Average Price) is an indicator of the weighted average price by trading volume over a certain period of time. In other words, this indicator shows the average price at which the selected cryptocurrency was traded on the market during the day, week or month. VWAP does not predict price fluctuations, but shows the current situation and trend direction. We recommend using the indicator only in combination with the previously mentioned indicators to get a more complete picture of the market situation.
How to use VWAP in trading? After opening the desired chart, add the Value-Weighted Average Price indicator. By default, three lines will appear, where the middle one is the VWAP indicator, and the others signal the plus or minus marginal deviation from this trend. To sell a large amount of currency without affecting the market, it is worth making a trade at the VWAP level, and in order to notice price fluctuations and determine resistance and support levels, you should observe the indicator for, for example, one day. An example for the BTC/USDT pair is shown on the chart below.
It is impossible to imagine scalping without such an indicator as Footprint. What is Footprint in trading? Footprint is an indicator that displays already executed trades on buying/selling cryptocurrencies at the prices at which these trades were executed. Footprint is depicted in the form of ordinary candles, but it also contains information about already executed orders, their volume and the price of the purchased/sold currency. To work with Footprint, you should know what cluster analysis is and how to use it for successful trading.
How to use the Footprint indicator in trading? For example, consider the ETH/USDT pair and its footprint. On the chart above, we can see already executed traders' orders to sell ETH at $1200 with a volume of 8.6 thousand units, 10.1 thousand units, 1.4 thousand units and 3.7 thousand units.
Next, we open the chart of the pair and notice that immediately after the orders were executed, the price made a false breakout and then went into a downtrend.
As a result, the quotes went down twice, but later this volume became a strong support level, which caused the beginning of an uptrend. Thus, Footprint helped us analyze the recent situation and assess how volume trades affect the cryptocurrency rate.
Footprint also helps to understand the intentions of traders in the market and predict strong jumps in the cryptocurrency rate. On the Binance exchange, the footprint is not very convenient and does not help to assess the situation at all. We recommend using the indicator on the ATAS platform: it is free and contains the most detailed Footprint with data from many popular exchanges at the same time.
5. DOM (Depth of Market or Order Book)
The DOM indicator, or order book, closes our top. What is an order book in trading? The DOM, also known as an order book, is an indicator that displays the current orders of traders to buy/sell cryptocurrency. Unlike the footprint, the DOM allows you to predict price fluctuations at the time of trading, and not to analyze past trades that have already affected the market.
How to use the DOM in trading? To clearly demonstrate how to use the DOM in scalping, here is an example for the APT/USDT pair.
From the DOM indicator data, we notice an order for the sale of this cryptocurrency in the amount of 1.18 million APT units. The next step is to open the footprint indicator and immediately check whether the volume is displayed on the chart.
In the image above, you can see that the footprint also recorded the traded volume of APT coins at $9.876 in the amount of 1.39 million units, which is equal to $13.7 million. Thus, the order that we found during the analysis of the DOM indicator data was also reflected in the footprint of this pair.
After the execution of this trade, the pair price makes a false breakout, and then the currency rate begins to fall rapidly. This order acted as a strong resistance level. Observing the situation, we notice that the price of the APT/USDT pair after the execution of such a large order decreased by 54% in total. It becomes clear that the larger the position volume and the more assets an investor buys/sells, the more it will affect their rate.
Catching the moment when the volume limit orders of other traders are fixed in the DOM, you can easily place your own order to buy/sell currency at the same price set by a large player in the market.
Friends, today we have successfully reviewed the TOP 5 indicators for scalping trading, which help to carefully analyze the market situation. However, in order to start earning on this, you also need to understand how these indicators are arranged and how to use them correctly. We recommend you to join our mini-course on scalping, where together we will learn how to work with indicators and use them for our strategies. We wish you profitable and successful trades!