As a trader, you can choose between a variety of trading strategies. While some are suitable for short-term earnings, others offer better long-term investments. However, if you are interested in minimal investments and short-term results, you should consider day trading. Day trading isn’t a new concept, per se. It has been around in financial markets for decades now.
More importantly, day trading is broad in that you get to deal with various assets, including but not limited to stocks, forex, and cryptocurrencies. However, day trading with crypto is not as simple as it seems. It would be best to consider a few aspects before starting your cryptocurrency day trading hobby or career.
In this handy guide, We want to help users to understand the basics of day trading in the context of crypto trading.
An introduction to day trading
Day trading isn’t a challenging concept. It is precisely what you would guess from the name. It’s the type of trading that happens during the day and within a day only. That is, you would have to acquire and sell the assets (for profit) within a day. Due to this characteristic, day trading is also known as intraday trading.
Compared to long-term trading, day trading wants the trader to focus on small movements of value. You cannot keep the asset overnight and wait for it to gain value on the next day. Similarly, day trading will work on business days of the week only. Like other types of trading, though, intraday trading also requires a proper understanding of the market. And it’s a skill that you can finesse through practice.
Factors traders consider while day trading
Depending on the market and the asset they are dealing with, day traders consider many factors.
An asset’s liquidity refers to how effortlessly you can cash in the asset or vice versa. In the case of day trading, it refers to how easily you can sell the stock and get money in return. If the stock is easily sellable, it’s very liquid. If it’s not, the stock is not very liquid.
Volatility refers to the frequency and size of an assets price. If the assets value changes very frequently, the asset is considered very volatile. On the other hand, if it retains its value for an extended period, it will be regarded as non-volatile.
In addition to these two factors, different traders employ different methods. For instance, some traders may perform Fundamental Analysis to get a comprehensive idea about the asset they are dealing with. However, some traders stick to Technical Analysis, analyzing historical data and patterns to calculate how the asset would perform in the future.
Popular Day Trading Strategies
Scalping is one of the most popular crypto day trading strategies to make profit in the short term. Scalping requires you to make small, but frequent trades that typically last anywhere from a few seconds to a few minutes. Repeating the process, traders can take advantage of small price changes in markets.
At the same time, you can implement this strategy to leverage both the top and bottom markets. The only limit of this strategy will be your reaction time and the latency of the platform you are using. After all, crypto scalping doesn’t require any technical knowledge and can be used in a wide range of market conditions.
Next, high-frequency trading is a crypto day trading strategy that uses algorithms and bots to execute trades. Its essentially automated scalping. The bots can execute very frequent small trades for profit faster than a human could manually. It can take time to find your ideal strategy.
High-frequency trading will give you the edge you need to catch shorter price movements.
Range trading is a great crypto day trading strategy that has the potential for profit while mitigating the downside when markets move sideways. Range trading basicaly works by setting a range between support and resistance levels.
The key in this strategy is to buy after the price of an asset hits the support level and sell when the price hits the resistance line. This technique has some limits as the asset will inevitably break out from the range.
Technical indicators are a prominent tool in crypto day trading strategies. Typically, indicator strategies make trades based on secondary sources of information such as MACD (Moving Average Convergence Divergence), RSI (Relative Strength Index), Bollinger Bands, and much more.
Technical Indicators will help you avoid day trading at a risky price points while potentially providing new opportunities. Of course, you can also sign up for market signals based on indicators recommended by other traders on TradingView.
With technical indicators, you can trade manually within our multi-exchange trading interface. You can also run an automated trading bot like MACD or Bollinger Bands and take advantage of both technical indicators and high-frequency trading.
Sentiment-based trading is another popular day trading strategy, using data sourced from public information like news sources, social media media outlets, or even Google search trends to find entry or exit points for their trades.
For example, Elon Musk tweets about Dogecoin. You could set up notifications for the moment that type of tweet goes live, with the potential of getting ahead of the game. The quicker you can receive and act on new information, the higher your potential to make trade decisions ahead of everyone else.
Day trading cryptocurrencies: what Is It?
Day trading cryptocurrency is almost similar to traditional day trading. However, intraday trading also has to adapt because it happens in the crypto ecosystem. For instance, even though you can focus on the minute changes in the value of an asset, the business hours don’t restrict your actions. You can easily trade crypto assets at any point in time.
However, you may want to pay corresponding network and transaction fees. So, it becomes imperative that you choose a compatible cryptocurrency trading platform. If you have to pay a transaction fee higher than the overall profit you gain from the volatility of the coin, you essentially have no reason to trade crypto assets in the first place.
Day Trading Cryptocurrencies: Why and How?
We mentioned that liquidity and volatility matter the most regarding intraday trading. These factors have been trademark characteristics of cryptocurrencies from the very beginning. The change in cryptocurrencies’ value is so much that even within 24 hours, a crypto token value varies very much.
While these trends are not as predictable as traditional trading trends, a strategic intraday trader can earn considerable profit by focusing on this value change. As for liquidity, there are multiple ways to cash in cryptocurrency assets.
Now, when it comes to how to day trade cryptocurrencies, you have some straightforward options to pursue. The most convenient option is to choose a reliable crypto trading platform, which will allow you to purchase different crypto assets and sell them for money at your convenience.
The additional benefit here is that you can use various payment methods to perform these tasks. Some trading platforms also offer margin trading options, which means you can purchase crypto assets by borrowing money to augment the profits.
Can I make a living by day trading cryptocurrency?
Anyone certainly can make a living by day trading cryptocurrency. However, because of the relatively higher volatility of crypto assets, you have to spend more time watching the market activity. Unlike traditional stocks, crypto assets can have a price change in minutes or even a few seconds.
For instance, the value of Bitcoin (BTC) may go down within seconds if a country bans its use. Similarly, even minute changes in the market can have huge implications on your assets’ value. If you are ready to deal with this volatility and instability, you can consider cryptocurrency day trading as a full-time profession.
As you can see there are many strategies out there for day trading cryptos. All of them work differently, so you just need to find the one that works best for your goals.
Scalping allows a fast way to create profit as long as you stay updated. Range trading permits profit while being safe with a stop loss in place. High-frequency trading helps you to make a profit with higher volumes. Technical indicators provide information to include a technical analysis perspective. Finally, sentiment-based trading will help you stay informed and trade using trends.