- Cryptocurrency day trading is a short-term trading strategy based on buying and selling crypto assets on the same day.
- Cryptocurrency day trading is a high-risk business that is made possible by the distinct volatility and liquidity in the cryptocurrency markets.
- While day trading comes from traditional markets, cryptocurrency day trading requires a deeper understanding of crypto and on-chain technology blocks for consistent success.
day trading is an investment strategy that relies on frequent trading of one or more securities throughout the day for profit. While traditional buy-and-hold investors care about a company’s long-term performance, day traders look to take advantage of more immediate profit opportunities.
Successful day traders rely on a number of resources and tools to be successful, such as stock picking or trading simulator software, to capitalize on short-term price movements of stocks, bonds and other commodities and currencies.
Reading: Does bitcoin trade 24/7
This process of trying to profit from price discrepancies and movements within a short period of time can be very difficult, and the risk associated with day trading is high.
Recently, crypto markets have become an increasingly popular destination for day traders. Unlike traditional markets, crypto markets never close. Crypto day trading does not require a brokerage or margin account subscription, making the ability to short-term trade more accessible than stock markets.
Although crypto is a new and exciting industry, it does have its risks for those who are interested in investing in it. And with thousands of new cryptocurrencies popping up on exchanges and trading platforms, anyone considering investing in a cryptocurrency must also take into account the volatility and speculative nature of the market.
No matter the market, a day trader must have a thorough understanding of cryptocurrencies as well as trading principles. he only invests what he is willing to lose. If he has impeccable risk management skills and nerves of steel, here’s what he needs to know to start day trading cryptocurrencies.
1. choose a platform to trade
The first step a day trader must take is deciding which platform to use. US-based merchants uu. they can only use nationally regulated crypto trading platforms, so this is an important factor to consider when researching the right platform.
Exchange liquidity, asset liquidity, and fees are at the top of a trader’s list when choosing the right platform to buy and sell cryptocurrencies. the volatility of the crypto market means that the value of digital assets can fluctuate wildly. For traders looking to maximize profits in this market, they need to make quick moves.
The first option is not always the best option when it comes to figuring out where to trade cryptocurrencies. For budding cryptocurrency day traders, the options and differences between the many cryptocurrency exchanges can be overwhelming.
These are the most important things to consider when looking for the right trading platform:
- Years in business: The longer an exchange has been in business, it can be a sign of stability and credibility.
- Supported Cryptocurrencies: Knowing which cryptocurrencies are available to trade ahead of time can be a valuable tool when weighing which platform to use. day traders interested in altcoins may find more use on a smaller exchange with more supported cryptos and trading pairs than on a larger exchange with fewer options.
- fees: Transaction fees are what exchanges charge when buyers or sellers execute a trade. All cryptocurrency exchanges charge users a transaction fee to monetize their business. The transaction fee structure may vary depending on the exchange’s strategy, such as not charging fees for transactions over $10,000 to incentivize large-scale transactions.
- deposit methods: Similar to a brokerage, users need to fund their trading account with capital. many exchanges allow wire transfers and wire transfers, but fewer allow credit card funding, paypal transfers, and even gift card transfers.
- user feedback: visit different crypto communities and reading user feedback is one of the best ways to gauge which exchange to choose.
- Liquidity: An exchange’s liquidity, or exchange liquidity, means both the speed such as the ease of access to an exchange it has when converting one asset into another without affecting its price. The best cryptocurrency exchanges are highly liquid, meaning they can buy or sell assets almost immediately and with minimal difference between the bid price and the ask price.
Quick Tip: For traders looking for a more detailed comparison of cryptocurrency exchanges, cryptowisser and coinmarketcap are reliable resources for comparing different platforms based on liquidity, trading volume, and supported cryptocurrencies. .
Exchange liquidity is influenced by a handful of internal factors. high trading volume for the listed crypto assets, the number of active traders on a specific exchange to fulfill orders, low fees that incentivize creators to open positions, and a variety of funding options that attract more traders to the platform.
Another thing prospective traders should keep in mind: They should weigh whether the exchange of their choice makes it affordable and easy (or even possible) to send their assets off-platform to another crypto wallet of their choice. If your trading day is interrupted, your exchange should make it easy to send funds or account assets to off-exchange wallets.
2. choose your investments
Once you’re set up on a platform, it’s time to choose what you’re interested in investing in. For crypto traders, market volatility is a necessary evil. The same market condition that scares off buy-and-hold investors is the chaos that creates opportunities for day traders to profit. volatility and liquidity are two elements that the day trader needs to actively participate in the crypto market.
tally greenberg, director of business development at allnodes, believes that success as a cryptocurrency day trader requires more than just reading the charts. “Knowing what the blockchain does, the size of its network, governance, and protocols will allow you to assess the overall health of your potential investment,” says Ella Greenberg. “then get ready to learn a lot and follow the news about the blockchain updates of your selected assets.”
According to Greenberg, a technical understanding of the technology and team behind an altcoin project gives traders a competitive advantage. When asked how a day trader should decide which currency to trade, Greenberg emphasized careful deliberation. “A common crypto strategy is to invest in the top 15 or 20 coins by market cap, but even here, I would err on the side of caution,” Greenberg adds. “Not every coin on this list makes perfect sense, and you’ll need to do some serious research to find out for yourself. Crypto day trading is a risky business. Invest [only] what you can [afford] to lose. But when you approach trading daily with the same respect as any serious job and learn everything about the trade and the assets you are trading, it will be profitable.”
When choosing what to invest in, consider the assets’ liquidity, volatility, and trading volume.
Asset liquidity is a measure of the ease with which an asset can be converted into cash without affecting its price. The price of a crypto asset can change when the trader executes the trade and the exchange fulfills the order. the difference between those prices is the slippage, and in the crypto markets, a few minutes can mean the difference between a big profit or a big loss.
The lack of liquidity can be disastrous for the entire cryptocurrency market, causing mismatches and increasing the risk of a sudden crash. Flash failures occur when a large market sell order wipes out major buy bids on the order book. Traders preemptively try to get out of their position as soon as possible, and with no buy orders present, the price of the asset can plummet. In the past, flash crashes have led exchanges to refund millions of dollars in losses to affected users.
Understanding and accounting for volatility is a day trader’s best friend. The volatility of a market refers to the unpredictability of cryptocurrency price movements. Factors that affect market volatility include the news cycle, economic data, and research reports. in crypto markets, the same factors have a dramatic impact (or none at all) on certain crypto assets.
Volatility is higher on altcoins with small market caps compared to more popular and well-known cryptocurrencies like bitcoin or ether.
trading volume refers to the total number of cryptocurrencies traded during a defined period of time. the trading volume of a cryptocurrency is a measure of the general market interest. a cryptocurrency with a high trading volume tends to have higher liquidity. Along the same lines, a highly liquid cryptocurrency is often accompanied by a higher price. while the crypto market is highly liquid, highly volatile; not all cryptocurrencies are the same. Cryptocurrency day traders should look closely at the trading volume of an asset to assess whether it can be sold quickly and at a higher price level than it was bought for.
The cryptocurrency market is still in its infancy, and the uniqueness of the blockchain technology underpinning cryptocurrencies creates crypto-specific market issues. An example of this is the correlation between the price of bitcoin and any other altcoin. if there is an exodus of bitcoin miners out of a specific country, for example, the price could crash due to miners dumping coins. when the price of bitcoin falls due to downward pressure, the altcoin market tends to fall with it.
Finding a crypto asset with high liquidity and volatility is a good start in identifying the right crypto for day trading. making the decision to enter should not be based only on these two conditions, but on other factors specific to the crypto in question. how is it mined or minted? Is there a lot of buzz about the coin? when should you cut your losses if the price of the currency does not increase in a given time?
3. choosing a trading strategy
There are many techniques used by day traders to profit from short-term fluctuations in the crypto markets. A crypto trader should devise a winning strategy backed by research, with well-established plans for when to enter and exit their positions.
For potential day traders, certain websites allow users to track and copy the most successful traders on the platform. Below are some of the most popular trading strategies in the crypto trading game.
Arbitrage in crypto is when traders buy a cryptocurrency on one exchange and make a profit by immediately selling it on another exchange at a higher price.
Cryptocurrency pairs can facilitate arbitrage opportunities. When the price of a crypto pair consisting of a lesser-known altcoin and bitcoin varies from exchange to exchange, arbitrageurs can profit by taking advantage of the difference in value. Although arbitrage is a complicated financial mechanism, usually automated by price monitoring software, it keeps the prices of digital assets stable between different exchanges.
Note: Crypto trading pairs are assets that can be directly traded for each other on an exchange. When the price of a crypto pair consisting of a lesser-known altcoin and bitcoin varies from exchange to exchange, arbitrageurs can profit by taking advantage of the difference in value. Although arbitrage is a complicated financial mechanism, usually automated by price monitoring software, it keeps the prices of digital assets stable between different exchanges.
A trading bot is an automated software tool that investors use to buy and sell financial instruments at a pre-set time or when pre-defined conditions are met to maximize profits. crypto trading bots are designed to increase profits and reduce losses and risk.
cryptocurrency trading bots can streamline the process of looking at price movements, trading fees, and short-term profit opportunities on trades. For decades, bot trading software has been a staple of publicly traded brokerage houses. Traders with knowledge of software and api programming should definitely consider using this to their advantage as a day trader.
The long leg, also known as a call leg, option leg, or simply leg, involves the buying of a sell and a call order. buy and sell orders on a long leg are in the same cryptocurrency, strike price and expiration date.
Long is a popular option in cryptocurrency trading due to the volatility of the cryptocurrency market. A crypto day trader using this strategy is betting on the price change of a crypto asset. the day trader wins regardless of whether the price goes up or down on the long leg. if the price does not move, the trader will incur a loss.
Note: A strike price is the fixed price at which a derivative contract can be bought or sold when exercised.
Range trading capitalizes on trading ranges (or non-trending markets) by signaling stable price highs and lows, represented on charts as support and resistance levels. day traders using range trading techniques identify a period of time to buy a crypto asset when it is oversold (at a low price) and sell it when it is overbought (at a higher price) to make a profit.
Cryptocurrency day traders can use online filters to identify the right crypto asset to range trade. Range trading, like most other trading strategies, can work beyond the crypto space and is flexible for other markets. Cryptocurrency day traders favor range trading for its clearly defined entry and exit points, which can minimize losses. By making small profits over a short period of time, the range trader minimizes losses incurred from news cycles or unfavorable market conditions.
Recognized as the fastest-turning trading strategy, scalpers leverage large amounts of liquidity to take advantage of small price movements. This investment strategy may involve buying and selling bitcoins or altcoins over the course of a few hours and collecting small percentage profits at the end of the day, or setting up a bot for frequent, high-intensity trading based on technical signals or indicators.
Day traders favor cryptocurrency scalping due to its ease of automation for bots, low risk, and potential return. programming trading bots can take the anxiety and stress out of trading. Since positions are smaller with scalping, traders can assess profit or loss at the end of the day rather than investing for the long term. Due to the volatility of the markets, traders can reliably make small profits over time that can turn into sizeable profits in the long run.
Technical analysis (TA) is the study of financial data such as historical price and volume data points to identify statistical trends in the markets. ta provides traders with a science to find opportunities to trade and make a profit.
Technical analysts can apply their strategy to any market or security as long as they have historical trading data. In crypto, ta can be used as a guide to assess how past performance may indicate future gains or losses.
the applicability of ta in crypto markets is a hot topic of debate among traders. Many believe that the absence of global regulations and the number of exchanges in crypto make it incompatible with technical analysis. Other traders believe that some indicators like the Relative Strength Index (RSI) are worth using. The RSI indicator evaluates the relationship between the price of a cryptocurrency and the real demand for the asset. The RSI identifies whether an asset or security is overbought or oversold, it can be useful for traders plotting entry and exit points based on momentum.
Another important oscillator used by technical analysts in crypto is the money flow index (mfi). The MFI can also be used with the RSI to check if the price of BTC is trending towards a bullish or bearish divergence.
The application of technical analysis in crypto is best used in conjunction with other strategies. Cryptocurrency day traders should be aware of TA and have it in their repertoire, but consider it alongside news, fundamental analysis, correlation arbitrage, and other market drivers. The best aspect of technical analysis is the emphasis on determining a complete strategy for when to enter and exit positions.
pros and cons of cryptocurrency day trading
Any investment in crypto is high risk, high reward. crypto is a new class of digital assets, and investors should always consider the possibility that their crypto investments are capable of evaporating.
traders should set aside time to familiarize themselves with the upcoming rules and regulations that tax earnings made from cryptocurrencies. crypto is not exempt from short-term capital gains tax, for example. For day traders, the sale of any crypto held for less than a year is taxed as marginal income. Be sure to include your crypto earnings when reporting earnings online or with your accounting professional.
- Anyone with access to a crypto exchange can trade it freely. Aside from verifying your identity and funding your exchange account, there are no additional barriers to entry for retail investors or day traders to access, research and interact with the crypto markets. and for those who want to own bitcoin but can’t make an investment of more than $60k, they can buy and sell a fraction of any cryptocurrency.
- cryptocurrency markets are open 24/7 days of the week throughout the year. traders have the ability to buy and sell without limits as the crypto markets do not close. For the New York Stock Exchange or the Nasdaq, market hours are open for trading from 9:30 a.m. to 5:00 p.m. m. to 4 p.m. m. et. An advantage of 24/7 market access is the luxury of being able to trade when it suits you (instead of adapting to the market).
- Cryptocurrencies and the blockchain technology that powers them are decentralized and designed to keep users anonymous and able to process payments without intermediaries. For day traders on a centralized exchange, the absence of government taxes and fees makes the cost of crypto transactions very low.
- Because it is so easy to start trading cryptocurrencies, a new and inexperienced trader can incur catastrophic losses just as easily as profits.
- The 24/7 market is a double-edged sword. . The always-open nature of cryptocurrency means there are fewer patterns in the day for predictable (and profitable) trades. cryptocurrency day traders can find themselves glued to charts looking for the right time to execute a trade longer than they would have to in traditional markets. This can make trends much more difficult to find, and a fast day trading session can turn into night trading sessions.
- While US government watchdogs. requirements for domestic crypto exchanges, the space remains mostly unregulated. the lack of government oversight means there is no protection for exchanges, institutions, and traders who get hacked or scammed. this means that without a private insurance fund, if an exchange goes out of business, users are unlikely to get their funds back.
- When trading cryptocurrencies, you could fall victim to pump-and-dump schemes or dummy sales. This occurs when a group of people coordinate to artificially increase the price of a specific cryptocurrency to attract unsuspecting traders. traders then dump the crypto after making a profit, driving down the price.
the end result
Cryptocurrency day trading is a high-risk strategy that involves the frequent buying and selling of cryptocurrencies in search of short-term gains. Anyone interested in cryptocurrency day trading should know where they plan to trade, have a detailed day trading strategy, and stick to their entry and exit points.
It is also important to remember that the vast majority of day traders lose profits. Setting aside time to focus solely on your trades, measuring profits and losses, and sticking to a comprehensive strategy are the key factors that separate cryptocurrency day trading from gambling. there are plenty of opportunities to make a profit in crypto, and day trading is just one way to make a profit.
“I would suggest starting with what’s called paper trading,” says shaun heng, vice president of operations at coinmarketcap. “After all, there is a learning curve to crypto trading. Most exchanges offer paper trading and are essentially training wheels, or ‘trading wheels’ if you will. You trade as if you were trading with real money, but without depositing anything. money. this allows you to try your luck and practice without using money to trade that you could lose. this means you won’t lose or win money, but it will also help you consider potential risks and rewards.”