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Cryptocurrency Day Trading Guide

May 12, 2020

What is day trading

Day trading defines trading in any market (but most often in the currency or stock market) that occurs within one day. In order to achieve success using an intraday strategy, you need to have in-depth knowledge of the market.

Here’re the key points that will help you to understand what day trading in the cryptocurrency world is:

Day traders implement intraday trading strategies, seeking to capitalize on short-term asset price movements;
Day trading mainly exploits market inefficiencies that lead to price fluctuations;
Technical analysis is the main tool for the day trader, although the main points can be determined by the general picture on the market: for example, day traders often rely on the news;
Volatility and trading volume are friends of the digital asset day trader.

Day trading tips before you start

Before you dive into day trading here are a few things you should keep in mind:

You need a safe and reliable trading platform;
Fees will affect your profits. The types of fees that you will encounter are exchange commissions, trade commissions and commissions related to the transfer of funds (deposits and withdrawals). Exchange commissions are fees that the exchange charges you for using its services. Trading commissions are reduced to commissions of market makers and market participants who create and accept orders. Commissions for deposit and withdrawal of funds depend on the exchange you have chosen, as well as the method of money transfer you choose
You need to understand the laws governing cryptocurrencies in the jurisdiction of your residence;
Your profit from trading cryptocurrency assets can qualify as a capital gain. You must understand how taxes are calculated on your cryptocurrency income.
You can use trading bots to implement your trading strategies. This approach can save you time and increase profits. However, with automatic day trading, you cannot leave your bot on full autopilot.

Best Crypto Day Trading Strategies

Scalping
Scalping is an outstanding day trading strategy, well known in the forex market, but also widely used in the cryptocurrency market. It is carried out by making hundreds of deals per day in an attempt to get a small profit from each transaction. A scalping trader hopes to make a profit using the spread between supply and demand. Scalping is a quick strategy that is sometimes dangerous. Thus, you need to be aware of the timing and pay attention to unpredictable and highly volatile assets.

Trading on the news
This is a popular strategy that depends on tracking news sources and recognizing price movements. The values of digital assets are guaranteed to change every day; therefore, there is always a chance to take advantage of this strategy. You have to make sure that you are up to date on all the latest news and announcements and can keep them fresh in your memory, as it will take some time before they affect the value of digital assets.

Wave Riding strategy
To make a profit, you have to try to buy as low as possible and sell as high as possible. So with this strategy, it all depends on finding a good entry point at a low position. Once you’ve identified a target, you need to wait 2-3 hours and if all or almost all the candles are green, make a purchase. Then you should wait until you reach a desired level of ROI or when the price starts to fall and close your position.

Red candles will appear along the way, but that is par for the course. You should be prepared for the fact that not all transactions will be profitable. Nevertheless, strict adherence to the rules will allow you to have more profitable transactions than unprofitable ones.

Risks of day trading

Although day trading is a profitable business, and some even build careers in this field, it is important that you clearly understand all the risks associated with it. Some of these risks include:

Psychological addiction
For some people, trading is like gambling. It is fun and makes you feel alive, especially when you earn profits. Just the thought of making thousands of dollars without leaving your home is incredibly motivating. This addiction can be especially dangerous for your bank account, negatively affect your life and health, drive you into debt and ruin relationships with family and friends.

The risk of false information
The cryptocurrency market is extremely speculative. Therefore, almost everyone on the market has an opinion on how the value of a digital asset will change. All this contradictory information tends to mislead new traders into making transactions based on false information. Therefore, it is highly important that you find reliable sources of news and contact trustworthy people before initiating a trade.

Loss of capital
Almost every day traders fail. Day trading is extremely difficult for beginners and masters alike because it requires a lot of knowledge, experience and discipline, which most people lack. Therefore, you must be ready for significant losses.

Stress and spending a lot of time
Day trading can be a lucrative career. However, it is also a full-time job that requires your constant attention. This means that hours will be spent on a computer that tracks price movements and makes adjustments when necessary. Subsequently, stress and great investments of time become a reality for traders who do not want to lose money.

How to manage risks in day trading

Pay attention to liquidity, volatility and volume
Liquidity allows you to enter and exit trades at a good price. Assets with high liquidity have a better price spread and are easier to buy and sell during the day.
Volatility is an indicator of the expected daily price range. The higher the volatility, the greater the potential profit or loss.
A large trading volume indicates interest in a coin, regardless of which direction the price goes.
Don’t stake all your funds on one transaction
Your first step in developing a strategy is to evaluate how much capital you are willing to risk in each transaction. Most successful intraday traders risk less than one or two percent of their account in a given trade.
Use price patterns to enter and exit
Knowing the price at which you want to enter and exit the transaction can protect you from risky trading. One of the best ways to trade during the day is to use price patterns. Repetitive behaviour that you see day after day can be capitalized on.
Create your own entry point criteria
The entry point at which you buy crypto should not be formed on the basis of intuition, but on a set of conditions that can bring you positive results. A trader needs to develop his own criteria (entry rules) that will save him from impulsive and rushed transactions.

Conclusion

Day trading is a very complex activity. If you decide to do it, then you will have to compete with professional traders. It is important to increase your level of education and find a method with which you will feel comfortable and which you can use consistently, adhering to strict rules of money management. Be prepared for the inevitable ups and downs that all day traders face.

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