Crypto Price Action | Scalping Key Market Stages

Cryptocurrency markets, like traditional markets, pass through different stages that shape their entire structure. Two key market stages that present simple but powerful opportunities for scalping strategies are trending and range-bound markets.

Due to the nature of scalping, where lower time frames like 1-minute are the preferred viewpoint by most traders, trends, and ranges are abundant along a trading day.

This guide presents a straightforward approach to scalp such markets, and if you are a beginner, the following methods can be tested in paper trading with ease because of their simplicity so you can see by yourself why trends and ranges are key market stages.

Scalping Trending Markets

A trending market occurs when the price of an asset is moving decisively in a clear direction. It may be the most typical situation scalper traders might encounter. Trends can take action for the downside or the upside, meaning that a crypto asset price decreases or increases.

Identifying a trend requires the crypto asset to move in those directions for a prolonged time. This way, the price leaves footprints that it is currently trending in the form of swing highs and lows.

By spotting price swings, scalpers can identify a trend according to its direction in the following ways:

• Downtrend: In this type of market, the price makes lower lows and lower highs movements.
• Uptrend: In this type of market, the price makes higher highs and higher lows movements.

Once scalpers spot the price swings, they can draw a trendline according to the trend type:

• In a downtrend, the line drawing joins the lower highs.
• In an uptrend, the line drawing joins the higher lows.

These trendlines serve as the support (in uptrends) and resistance (in downtrends) levels where the most crucial price action is expected to occur. So, by employing the pullback strategy and price action patterns, traders can scalp a trendline such as follows:

Price Bounce

In an uptrend, as the price pulls back to the trendline (which acts as a support), it is likely to bounce back for a continuation. 

Scalpers can execute a trade at the appearance of the following candlestick patterns:

• Bullish Engulfing Pattern: Consists of a small previous bearish candle followed by a big bullish candle that engulfs it.
• The Morning Star: Consists of a three-candle formation, where the first candle is a bearish one, the second is a Doji, and the third candle is a bullish one that engulfs the previous doji.

Price Rejection

In a downtrend, as the price pulls back to the trendline (which acts as a resistance), it might experience a rejection to fall lower for a continuation. 

Scalpers can execute a trade at the appearance of the following candlestick patterns:

• Bearish Engulfing Pattern: Consists of a small bullish candle followed by a large bearish candle that engulfs the previous one.
• The Shooting Star: Consists of a candle that retraces from its high, leaving a long upper wick, and closes with a small body pointing down.

There are more candlestick patterns that traders can spot around a trendline. However, the mentioned ones are very typical in lower time frames, which makes them more detectable and suitable for scalping.

Scalping Range-Bound Markets

Range-bound markets are consolidation phases in the quotation of an asset where the price cannot establish a clear direction, either upward or downward. This type of market typically appears following a trend.

In a consolidation, the price moves within support and resistance levels. To identify a range, the crypto asset must maintain a path around those levels for an extended time, repeatedly swinging from the upper extreme to the lower extreme.

Similar to trending markets, range-bound phases present opportunities for scalpers that, by employing support and resistance strategies alongside price action patterns, can scalp a range such as follows:

Buying At Support And Selling At Resistance

• When the price is near or at the lower extreme, it is likely to rise following a bounce.
• When the price is near or at the upper extreme, it is likely to drop back following a rejection.

Scalpers can execute a trade by applying the following procedure:

Identifying a key level

Consists of looking for areas in the range where the price increased sharply on a previous movement.

• Key support levels indicate strong demand.
• Key resistance levels indicate strong supply.

Seizing a candle pattern

• An engulfing pattern may be the signal to execute a buying trade around a key support level.
• An Evening Star pattern may be the signal to execute a selling trade around a key resistance level.

Considerations Scalping Trends And Ranges

Ranging and trending markets have various factors in common. For example:

• A range can appear following a slowdown of a trend.
• A range can anticipate a continuation of a trend if it is an accumulation phase and a reversal if it is a distribution phase.

One of the most critical factors traders should consider is false breakouts. It is especially true when scalping, where traders attempt to take advantage of smaller but also faster price fluctuations.

By understanding that most breakouts can be a false signal, traders should consider being cautious in the decision-making process and bear in mind the following scenarios for both a trend and a range:

• A trendline breakout can suggest a slowdown of a trend and not precisely a reversal movement.
• The trend slowdown may lead to a range market.
• A range breakout can be a stop-loss hunting or liquidity sweep as the support and resistance in a consolidation phase represent areas of clustered orders.

Conclusion

These two markets are strictly correlated with each other since both are driven by breakouts, support and resistance, and price action patterns.

Scalping these market stages requires appropriate identification by spotting swing highs/lows and drawing trendlines in the trending case, or detecting key levels in the case of ranges.

Likewise, scalpers should be aware of the abundance of false breakouts for both market stages. Altrady offers several features like smart trading which is extremely useful for scalpers to trade trends, ranges and protect from false breakouts. You can enroll in a free trial account now.