Day trading is a popular trading method in the crypto industry that capitalizes on quick, short-term price movements to provide profit opportunities. While it originated in the traditional market, it has now found much popularity in the crypto space.
In this article, we’ll look into day trading and provide some critical information that can help you get started:
What is Cryptocurrency Day Trading?
Primarily, day trading is simple trading – entering and exiting the market at appropriate points to make profits. However, what makes day trading especially interesting is that the actions happen on the same day.
Also known as intraday trading, the activity aims at using intraday trading strategies to profit from off-price swings. The “day trading” term originates from the stock market, where trading activities happen every business day. Since traders are looking to capitalize on intraday price movements, they don’t leave positions overnight.
While day trading in the stock market can be challenging, the crypto market is much easier. Cryptocurrencies are incredibly volatile, and assets could see thousands of dollars in price movements on any given day. So, there are opportunities to make more money via crypto day trading.
Successful day trading depends on your ability to generate profits from short-term movements in a cryptocurrency consistently. Most crypto traders tend to use various tools and apply leverage trading to maximize their profits as much as possible.
But, crypto day trading is not all rainbows and sunshine. It can be demanding. Traders will need to be alert to notice open positions while being careful with their speculations. A trader also needs to know when to exit a market – not so easy, especially when the asset’s price could be rising.
How Cryptocurrency Day Trading Works
As explained earlier, day trading works like traditional trading. A trader looks to purchase a digital asset that they believe could increase in price over the next few hours. Then, they look at assets which they believe will decrease in value and short those.
It might sound easy, but keep in mind that the crypto market is much more volatile than traditional markets. So, more work goes into effective trading. Discipline and reliable strategies are required, and it could take a while to master these. A trader needs to be versed in technical analysis so they can make decisions based on data. They also need to follow up with market news and trends.
How Cryptocurrency Day Traders Make Money
Success in day trading requires an in-depth understanding of the cryptocurrency market. You also need a great deal of trading experience. Most day traders apply technical analysis to generate ideas on when to buy and sell. Technical analysis includes terms like chart patterns, price action, and technical indicators. By conducting these analyses, traders can identify possible entry and exit points.
Day traders can also look into the fundamental analysis. This primarily involves watching cryptocurrencies and the companies involved with them – for instance, Ripple Labs and XRP, Chainlink, and LINK, and others.
Traders could “trade the news” – essentially, conduct their activities based on suspected announcements and the perceived activity on underlying assets. For instance, the Securities and Exchange Commission (EC) sued Ripple Labs in December 2020 for securities fraud. A day trader could infer that XRP’s price would stumble following the suit’s announcement, leading them to short the asset immediately.
Day traders also look to profit off market volatility. As such, they require a great deal of liquidity and volume. Higher liquidity improves your chances of securing profits, and you need enough open positions to maximize your earnings. Highly liquid market pairs also get lots of attention from day traders as small moves in such markets significantly impact positions.
What Do You Need to Begin Day Trading?
Tools for day trading are abundant. However, since you’re a beginner, you don’t need all the bells and whistles just yet. You can start with a laptop or a mobile device with a stable internet connection. Then find a suitable exchange or broker that provides charting software and analysis tools to help your trading activities.
Most exchanges and trading platforms use charting tools from TradingView, which is fast and convenient. Also, TradingView provides a seamless API that allows integration into other platforms that might not initially support it.
Along with these tools, be sure to keep an eye on the latest trends and news. Technical analysis tools and indicators will also help you, since they provide easy access to market data and more details to inform your decisions.
How Do You Start Crypto Day Trading?
Ideally, it’s not so challenging to start day trading in the crypto market. You need to dedicate yourself to research and analysis, and you will have to find systems to proactively and appropriately react to market signals.
For a beginner, consider the following steps:
Get a Suitable Exchange
The first step when starting a crypto day trading journey will be to sign up on a trusted cryptocurrency exchange. Generally, this is an exchange that allows you to buy and sell coins 24 hours a day.
You will also need to consider the digital assets you’re trading with. If you want to trade full time, make sure to exchange different trading pairs. A trading pair are assets that are assets traded for one another on an exchange. For instance, if you want to trade your Bitcoin for Ethereum, the trading pair would be BTC/ETH.
The right exchange also needs to have high liquidity. This ensures that you can always get a buyer – or a seller, depending on your needs per time. Otherwise, you might find some difficulty with closing your trade when the right time comes.
When you’re done finding a suitable exchange, the next step is to deposit your funds. Look for crypto trading platforms that offer several funding methods – debit/credit cards, wire transfers, payment processors, cryptocurrencies, bank transfers, others.
Remember to start small. Since you’re a beginner, always keep in mind that the crypto market is very volatile. Start with smaller amounts and learn the ropes from there.
Acclimatize With the Trading Platform
Exchanges and brokerage platforms have different interfaces that you have to understand before you begin.
Ensure to get familiar with the platform’s features and all the tools it provides, as well as possible shortcuts and tricks that could make your trading journey significantly smoother.
Notable Day Trading Strategies
Scalping is one of the most common day trading strategies available. It involves capitalizing on small, short-term price movements that primarily occur due to market inefficiencies. Most scalpers trade on margins to boost their returns when they leverage. Since this strategy yields smaller gains, taking more significant positions usually makes the most sense.
It’s worth noting that this strategy can induce significant risks. Successful scalpers will need to apply proper risk management and position sizing rules to stay safe while they work towards maximizing their profits.
Breakout strategies revolve around signals that occur when a cryptocurrency’s price breaks above a specific level. The price could break above a resistance level or go below a support level. Thus, traders open long positions when the price breaks upwards and a short position when the price moves downward.
Resistance is another term that is common in trading. Resistance is an imaginary line that is drawn based on recent highs. When an asset struggles to break above a point (or if it breaks and then retreats), that point becomes a resistance level. Conversely, Support is an imaginary line drawn from recent price drops. It shows up when an asset’s price doesn’t drop below a specific line.
This strategy is primarily algorithmic, and it’s popular among quantitative traders. It involves building algorithms that bots that can enter and exit multiple positions within short periods.
Usually, these bots will need to make trades within milliseconds. Considering how complex it is, high-frequency trading requires a lot of monitoring, backtesting, and changing to adapt to market conditions.
Momentum trading is relatively straightforward. With this strategy, trades are made based on current trends. So, momentum traders buy a cryptocurrency when its price increases and sell it when the price drops.
This strategy depends on the rationale that an asset has enough strength to push it in a specific position. So, there is a high chance that a current trend will continue in the interim. Once the trend reverses, the trader closes their position.
Trading the news
This is probably the only approach that doesn’t rely on technical analysis. Essentially, it involves opening positions based on relevant events happening in the crypto market. These events could include high-profile partnerships, token launches, product upgrades, lawsuits, regulatory developments, crypto integrations from traditional companies, and others.
The strategy is relatively simple. With trading, positive news about an asset usually triggers a bullish sentiment, while bad news makes investors turn bearish. While trading the news should be an integral component of your strategy, you should avoid kneejerk reactions. Ensure you make rational decisions regularly and cap your risk levels.
Cryptocurrency day trading is growing in popularity, taking advantage of the volatility in the crypto market and traders’ access to leverage. However, this volatility could also be the market’s curse as it presents just as big a threat of losing money.
While there are several complex strategies and analyses you will need to learn, you could quickly get started with day trading using the “trading the news” strategy. You can get started by signing up for our BeInCrypto newsletter to stay informed on the market. You can then move up from there as you grow in skills, and find more success down the line.
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