Much like stock trading, crypto traders too can implement a variety of trading strategies to churn out profits. While traders can use some of these strategies to build up a long-term portfolio, some focus on short-term earnings. One such strategy is day trading, which focuses on short-term results with minimal investments. Note that day trading isn’t exclusive to crypto but has been around for quite some time now—people day trade in stocks, commodities, foreign currencies, and many more.
But if you want to start with day trading cryptos, many questions come to mind. ‘How to Start With Day Trading?’, ‘How Do Day Traders Make Money?’, ‘Is Day Trading Even Profitable In The Long Run?’, and many more! Through this article, we will help you understand the nitty-gritty of crypto day trading and how you can start with it.
What is Day Trading Cryptos
Day trading any asset isn’t a very complex system to understand. As the name suggests, day trading is a trading strategy in which an investor trades an asset within a single day only. In simpler terms, in crypto day trading, investors have to buy and sell crypto within a day to generate profits.
Unlike long-term trading, which looks at consistent and long-term gains, in crypto day trading, traders leverage small changes in the value of the crypto to generate profits. Since the crypto market is very volatile, keeping the assets for extended periods can lead to losses for day traders. Day trading, or intraday trading, as many people call it, requires a comprehensive understanding of the crypto market and how it may react to certain probable events. This requires experience and practice to master.
To help you understand crypto day trading better, here are two examples:
You buy 1000 units of cryptocurrency ABC at $10 per coin, expecting the price to increase during the day. Your total investment in this trade is $100,00.
The price of the cryptocurrency increases in a few hours to $11.5 per coin.
You sell all your coins at that price, as you believe the price may start decreasing now.
The total amount you receive is $115,00, and you have generated a profit of $1,500 with just one trade in a day.
You buy 1000 units of cryptocurrency PQR at $10 per coin, expecting the price to increase during the day. Your total investment in this trade is $100,00.
However, the price of the cryptocurrency starts decreasing and reaches $8.5 per coin.
You sell all your coins at that price, limiting your losses as you now believe the price may keep on decreasing.
The total amount you receive is $8,500, and you have suffered a loss of $1,500 with this trade in a day.
As you can see, both these scenarios are possible in day trading, which is why you need to choose the cryptocurrencies you wish to invest in carefully.
Crypto Day Trade Strategies
Always remember, before you start trading, make sure you efficiently define your trading strategy. Here are some crypto day trading strategies that you can use.
Scalping is one of the most common crypto day trading strategies, and it majorly focuses on minimal price variations of a cryptocurrency in the market. In scalping, traders buy a cryptocurrency, and as soon as the price increases marginally, they tend to sell immediately to build up a profit. Suppose a trader does not have access to real-time price data of a cryptocurrency they wish to trade on. In that case, the scalping strategy is impossible to execute due to high market volatility.
If you want to learn more, you can read our detailed blog on How To Use Crypto Scalping Trading Strategy.
In the range trading cryptocurrency strategy, traders define a specific price range they wish to trade on. The trader will trade only in this range, and as soon as the asset’s price goes out of this range, the traders sell. Rang trading helps traders define the maximum profit they wish to make in a trade and the maximum losses they feel they can take.
High-Frequency Trading day trading crypto strategy, or HFT, uses trading algorithms to execute crypto day trades. Traders who wish to execute a plethora of trades in a day cannot do so manually. Therefore, they invest through trading bots or algorithms, which can help them automate their trades and execute purchase and sell orders instantly. Since these bots execute these transactions in the blink of an eye, the HFT day trading crypto strategy offers higher profit chances. However, it is essential to choose the right algorithms to order through or build your own.
Selected your trading strategy? Here’s how you can evaluate the performance of a trading strategy before you deeply it.
Crypto Day Trading Rules To Know Before Getting Started
Here are some crypto day trading rules that you should know about before you start day trading crypto.
In financial markets, the volatility of an asset refers to its frequency and size. For instance, if the price of cryptocurrency changes frequently, it will be considered volatile, and if the prices remain the same for considerable periods, it is deemed to be non-volatile. In crypto day trading, it is always advised to trade in highly volatile currencies to generate profits in a single day, as non-volatile coins will not provide enough price changes to generate significant returns.
One of the most significant crypto day trading rules to follow is to accept your losses and move on. There will be days when you end up in the red zone of losses, and it is advised you just to forget and march on to the next day. Many new traders make the mistake of chasing their losses by pumping in more money in more trades, which often end up in more losses.
After a certain amount of time in the market, you will have a comprehensive understanding of how it works. But before you start putting in considerable money in the market, ensure that you set realistic targets. This is an essential part of crypto day trading strategies as traders need to set their expectations right. It depends on if you are doing this part-time or full-time, how many hours you wish to give it, how much money you expect to make, how big is your bankroll, and many other factors. Setting in realistic targets is the first step to day trading crypto.
On the other end of the spectrum of your crypto day trading strategy is stop-losses. Before you start trading, it is critical to set a stop-loss for your trades. A stop-loss is a price at which you decide not to take any more losses on the trade and automatically exit the trades. If you keep your stop-loss at 5%, you should exit the trade if your cryptocurrency drops 5% in value.
Crypto Day Trading Tips
Below are some crypto day trading tips that can help you get started.
Tip 1: Decide On How You Want to Day Trade Cryptocurrencies
Deciding how you will day trade cryptos is as vital as day trading cryptos. You can either purchase a crypto coin from an exchange and hope the price increase so you can sell it off for a profit. Another way to go about your crypto day trading is to go with contracts-for-difference assets (CFDs) of the cryptocurrency of your choice using long and short orders. The availability and terms of the CFDs depend on the exchange or broker you invest through.
Both methods have their advantages and shortcomings. Therefore, learn about them in detail before choosing one and start executing your day trading cryptocurrency strategy.
Tip 2: Trade Only In Popular Cryptos
Every cryptocurrency was built to execute a specific set of tasks and don’t have the same characteristics. Much like stocks, some cryptos have taken off, while some are upcoming and not very popular in nature. Popular cryptocurrencies such as Bitcoin, Ethereum, and Ripple are money makers and reliable to invest in. they have a high market cap, see more volatility and have huge trading volumes every day. Therefore, these coins should be looked upon for crypto day trades rather than coins with low volume and low volatility, as their prices won’t move as much to help you build profits.
Tip 3: Don’t Invest In Only Bitcoin
Many day traders make the mistake of only investing in Bitcoin as it is the most famous cryptocurrency. While that is true, it is also the costliest and requires the highest margin of all cryptos. If you are trading with minimal funds, then looking at Bitcoin is not the right way to go. You should invest in other famous cryptocurrencies, yet moderately priced as compared to Bitcoin.
Tip 4: Pay Attention To Crypto News
To stay ahead of the game, you should pay attention to crypto news and events. Find a reliable news source for crypto, and it can help you predict and notice abrupt and sharp price movements before other traders in the market, helping you generate more returns. You can also look for sources that provide crypto day trading tips or daily crypto tips in general for traders.
How To Get Started With Day Trading Crypto
If you are looking for the answer to the question ‘Where can you day trade bitcoin and other cryptocurrencies?’, then your first step should be to look for a reliable cryptocurrency exchange. These cryptocurrency exchanges can help you buy and sell coins round the clock. It is crucial to choose the right exchange, with many cryptocurrencies to trade on and high liquidity to help you trade fast.
One of the most common crypto exchanges is Binance. Day trading on Binance is relatively common, as they have multiple cryptocurrencies and trading pairs available for traders to trade on. There are many other crypto exchanges available in the market as well, and it is advised you start with a reliable and well-known exchange only.
Once you created an account on the exchange, you can verify all your details and start adding funds to trade with. Most exchanges offer support to almost all frequently used payment modes, so you will be good to go. Since you are just starting with day trading, make sure you start with small amounts and increase them over time instead of jumping head-on.
Well, now you are set up with an account and some funds, it is time to start learning about the features of the exchange, what it offers you in terms of day trading, and how easily you can track prices on the exchange. Once you are well versed with the platform, you can select the crypto of your choice and start your crypto day trading journey.
Similar to any other trading system or strategy you use, day trading, too, requires certain essential steps to take into consideration before you can begin. While day trading may look like a good trading strategy on paper, making it a proficient return-churning technique requires practice and the ability to stomach losses before you start making consistent returns. As a trading beginner, you might also make some mistakes in your day trading strategy, but it is essential to learn from them and move on. In the end, always remember to invest only what you can afford to lose, and not a penny more!
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