Day trading cryptocurrencies grants traders a chance to earn revenue speculating on their short-term movement. As a result, day trading is the most extensively used strategy across all financial markets, including forex, stock, commodities, and crypto markets.
Due to the high volatility of the market, traders could also suffer great losses.
Unlike the traditional financial markets, the crypto market has turned heads because it offers one of the most lucrative environments for day traders. The massive volatility and their availability 24/7 has proved to be a strategic opportunity to earn quick bucks day trading crypto.
In this cryptocurrency trading guide, we will look at what day trading cryptocurrency is. Most of you are probably wondering how to make money with cryptocurrency? Well, let's find out.
What Is Day Trading?
It is important to note that day trading has been borrowed from the traditional financial markets, and the same principles apply to bitcoin day trading. Day trading involves speculating the price of a crypto asset over a single day. For cryptocurrency day traders, the rule of thumb is to open and close all positions within the same day. Otherwise stated, day traders do not hold their positions overnight.
Can you Day Trade Crypto?
Yes, you can become a crypto day trader but it is very hard to be a successful one. To start day trading, you will need the following: starting capital; strategy; patience and discipline. Our crypto day trading guide covers all of these.
How to Start Day Trading Bitcoin and Other Cryptos
A trader must know all the ins and outs of the market and bitcoin or any other cryptocurrency to become a successful day trader. Usually, the idea is to purchase a cryptocurrency whose price is likely to rise over the next few hours and then sell it to earn profit. Although this might seem easy to beginners, cryptocurrency trading is demanding and risky. It takes massive discipline, knowledge, and dependable cryptocurrency day trading strategies to succeed.
To get started, you need to open an account in a suitable bitcoin trading exchange that meets your day trading needs. Notably, the crypto market is incredibly fragmented, and exchanges operate under multiple jurisdictions scattered worldwide. Having that in mind, you need to select a crypto exchange platform that is supported in your country.
On top of that, there are various other factors that you need to put under consideration to ensure you select the best bitcoin exchange for day trading. These factors include authenticity and security, funding methods supported, the number of supported cryptos, fees and commissions, and the user experience. Therefore, it is vital to balance all these considerations before selecting an exchange to ensure a smooth trading experience.
After choosing a reliable crypto exchange, the next step is to deposit an initial investment capital and kick off your day trading journey. However, it would be best if you had a reliable day trading strategy to succeed. So, what are the best bitcoin day trading strategies?
Find the Best Crypto Exchange for You
Day Trading Crypto Strategies
Apart from having an intuitive crypto trading platform, you will need a lot of nerves and a winning game plan to succeed. Even though doing thorough research combined with a reliable day trading strategy will give you an edge in the market, they do not guarantee success. This is because cryptocurrencies are highly volatile, meaning their prices change constantly. Nevertheless, here are some incredibly reliable day trading crypto strategies used by traders.
Most of the traders across financial markets are scalpers. Scalpers capitalize on growing trading volume to make a profit. For example, a scalper might close a position seconds after opening it, and most scalpers tend to use automated crypto trading bots to enhance the trading frequency of their trading sequence. The idea is to take advantage of slight price fluctuations that take place within short timeframes.
Most scalpers tend to trade on margin or futures contracts to intensify their profits using leverage. The price ranges targeted by scalpers are relatively small. Thus, for this strategy to work, it's crucial to have a massive bankroll. Leveraged trading is highly risky, and you need to apply risk management principles to win effectively.
Range trading cryptocurrency is heavily reliant on the concept of support and resistance on candlestick charts. As such, to succeed in range trading, you must learn how to analyze a candlestick chart and identify the support and resistance levels. As the name implies, range traders identify cryptocurrency price ranges within the market structures and plan trades based upon those ranges. The idea is to buy crypto when the price touches the support and sell when it gets close to resistance.
Range traders assume the confines of those price ranges will maintain support and resistance until the price action breaks outside those confines. As such, the bottom confine of a price range will possibly shove the price action upwards, and the top confine will press the price action downwards. However, the price action could potentially break out of a range depending on the number of times it touches a support or resistance level.
This day trading strategy involves buying cryptocurrency from one marketplace and selling on a different one at a higher price. The difference between the buy price and the sell price is referred to as the spread. The crypto market is largely unregulated, and anybody can create an account on an exchange platform. This can result in huge differences in spread due to the differences in trading volume and liquidity in different exchanges.
To become an arbitrage trader, you need to open accounts on exchange platforms that you know have quite significant differences in the spread. This means they will have different prices for the same asset. For instance, there was a time when Bitcoin was selling at a price 40% higher in Korea than in the United States. Day traders simply made significant profits by purchasing BTC in the United States and selling in Korea.
Mistakes to avoid while day trading
Although day trading is very popular among cryptocurrency traders, it is considered risky because the crypto market is volatile. Thus, traders can oftern lose capital. Here are some common mistakes to avoid while day trading cryptocurrencies.
There are plenty of day trading opportunities in the crypto market, mainly because they are highly volatile. However, becoming too zealous and dedicating significant amounts of capital in day trading can result in big losses.
Professional traders recommend that you stick to logic and have a strategy instead of trading emotionally. Due to the many trading opportunities, most beginner traders might find themselves trading everything could result in making very wrong decisions. It would be helpful if you put your emotions aside and stick to a plan.
Trading more than you can afford to lose
Early in their trading journeys, beginners tend to put their entire life savings into cryptocurrency trading, hoping to get rich quickly. Cryptocurrencies are speculative financial instruments that are subject to huge price swings which can change at any moment, and even professional traders do experience significant losses at times.
Day trading, on the other hand, is not a get-rich-quick scheme but a clever strategy to generate income and create wealth over time. It requires adequate planning, proper execution, risk management, and trading skills. Good risk management skills protect cryptocurrency traders from losing all their capital or making significant losses.
Trading FOMO (fear of missing out)
Beginner traders tend to exit a trade early to avoid losses or enter a trader late to avoid missing out on a trend. Most traders are guided by the fear of missing out syndrome while day trading crypto. This can often result in significant losses. Avoiding FOMO can be very hard given cryptocurrencies are speculative assets. Learning how to do that is crucial for success.
You should stick to your trading plan if you want to avoid trading FOMO. Also, you can dictate the maximum tolerable losses or the profits level to exit a trade. After all, the world of cryptocurrencies is full of surprises, and new earning opportunities come up every day. So, just relax and let FOMO pass.
Not doing your own research
Most traders during their early days tend to rely on crypto trading signals from people who call themselves experts on social media platforms. These people might end up giving you wrong information, which might result in very significant losses. As a wise cryptocurrency trader, you should always conduct your own research before you follow their signals.
A wise trader does not depend on information from other traders to know when to enter or exit the market. Learn how to conduct technical analysis and keenly follow news headlines that are likely to affect the market. There are many online materials that can teach you the basic trading skills so you become a better trader moving forward.