In the world of cryptocurrencies as well as more traditional markets like stocks and forex, day trading is a common trading strategy (Forex). Moreover, investors are interested in the cryptocurrency market because it is one of the most hugely profitable venues for day trading.
Digital assets have historically provided day traders with a tactical way to make quick gains due to their high volatility and constant accessibility. In spite of this, many cryptocurrency investors decide to hold onto their holdings in the hopes that the value will increase over time. However, compared to swing trading, it does generally carry a lot more risk.
To assist you in determining whether this trading strategy is appropriate for you, we’ll cover all relevant factors of day trading in this article.
What Is Crypto Day Trading?
The goal of crypto day trading is to profit from a short-term movement by speculating on the asset’s price. Additionally, opening and closing all positions on the same day is the primary day trading rule. In other words, cryptocurrency day traders wouldn’t keep their trades open over the course of the night.
You might be unsure if you qualify as a day trader if you buy and sell cryptocurrencies on the same day based on the definition. Technically, this is correct; however, successful day trading also requires the ability to capitalize on small price fluctuations on a regular basis. In fact, 80 percent of day traders quit within two years, according to a popular statistic.
When making generalizations about cryptocurrency, the majority of crypto day traders will use leverage and a variety of tools to increase potential profits. Leverage is also used to open positions using borrowed money or hedge funds.
Day trading is a very difficult way to trade because traders have to stay on top of their positions at all times. This is particularly true for day trading cryptocurrencies, which are much more volatile than currency pairs or stock prices. Naturally, for this reason, you should always block out some time for day trading, even though stop orders and losses can be very effective at automating the essential procedures.
How Does Crypto Day Trading Work?
A day trader needs to be completely familiar with both the crypto assets he is trading and the complexities of the market. A day trader’s objective is typically to purchase cryptocurrencies whose value is expected to rise over the coming hours. Next, trade cryptocurrencies that are likely to lose value by selling them or opening short positions. For a beginner, this may sound easy, but trading is hard and risky without good strategies and discipline.
Interestingly, the profitability of each position is not a primary concern for crypto day traders. Instead, they want to make money off of the combined positions.
Day trading strategies that don’t involve monitoring breaking news are, well, a bad idea. Nevertheless, the majority of traders only use technical analysis. By watching charts and analyzing data from various indicators, traders can gain insight into price action in the past and make informed decisions.
Crypto Day Trading Strategies for Beginners
Scalping is a day trading method for cryptocurrencies in which traders try to profit from rising trading volumes. Within minutes of entering a trade, they can close it out, taking small profits along the way. To make their trading activities more convenient for themselves, some scalpers also automate them using trading bots.
A scalper’s goal should be to make frequent, small gains. The way they find these opportunities is by “scalping” the market. Because the profits from scalping are typically so small, those who engage in the practice must have access to a substantial amount of starting capital.
To engage in range trading, one must first identify areas of support and resistance, then buy when the market is oversold and sell when it is overbought. With this strategy, you can make money even when the market is quiet.
(HFT) or High-frequency trading
The goal of high-frequency trading is to enter and exit multiple positions in a short period of time using algorithms and trading bots. In order to create HFT bots, one needs to be well-versed in both computer science and mathematics as well as advanced market concepts. It is therefore better suited to experienced traders.
How to Get Started with Crypto Day Trading?
Technically speaking, day trading cryptocurrencies is not challenging, but things get complicated when you want to ensure steady profits. Most of the time, traders who invest a lot of time and energy into honing their skills and responding appropriately to different market signals will experience success.
The key actions to take to begin day trading cryptocurrencies are listed below:
- Put aside a certain sum; when trading or investing, you should never risk more than you could manage to lose. Depending on your risk tolerance, most financial advisors advise investing 10% to 20% of your yearly salary.
- Find some time to spare in your schedule because day trading takes some time. Therefore, it’s important to set aside at least some time every day.
- Use a demo account to trade; to comprehend how cryptocurrencies behave, you should start out with virtual money.
- Select a cryptocurrency trading platform and register with a reputable exchange that offers spot or futures trading. It would be wiser to begin modestly, though. Verify the exchange platform’s chart is fully loaded with a variety of indicators and tools.
- Don’t forget to keep a trading journal; this is a step that many day traders skip over despite its importance in preventing losses, analyzing patterns, and identifying areas for improvement.
There are a few things you should know before you start day trading because it has the potential to bring in sizable profits. Due to the need for quick decisions and execution, day trading can be very stressful and demanding. Being well-versed in the market is crucial for effective day trading. Naturally, it will also involve spending a lot of time staring at screens.
If you risk financial loss in addition to this responsibility, ask yourself if you have the strength to handle it. You should carefully consider whether day trading fits with your investment goals and personality before getting started.