Crypto day trading is a strategy derived from traditional financial markets. In stocks, commodities, and other financial assets, ‘intraday trading’ is a regular and most effective strategy because individuals, as well as institutional investors, can earn profit quickly by opening and closing their trade positions in a day.
In the cryptocurrency market space, day trading is a strategy to take advantage of the volatility depicted by crypto assets by entering and exiting a position in the market on the same trading day. It is a method used to earn massive profits, and the entire rationale behind the crypto day trading strategy is to avoid the volatility of cryptocurrencies. For instance, it is very infrequent to see a 10% or 15% jump in value in stocks and commodities. However, this scenario occurs frequently and on a daily basis in the world of cryptocurrency.
What is day trading?
Day trading crypto involves speculating the price of the crypto asset on the same day. Usually, the idea behind day trading is to identify a cryptocurrency whose price is most likely to increase in the upcoming few hours. So, the traders hold the position till the price reaches a pre-decided estimate and then sell off the asset and close the trade.
However, this seems like a cakewalk for beginners but it requires massive crypto knowledge, discipline, and a proper day trading strategy. The trader must know the ins and outs of the market and the cryptocurrency they are going to invest in to make huge profits. Otherwise, traders might end up in huge losses at the end of the day.
How to start crypto day trading?
Let’s list down the points that will help you commence day trading crypto with a structured approach and rule-based strategy:
Choose cryptocurrencies with high volatility and high liquidity:
The primary and most important point while day trading crypto is to pick up coins with high volatility and high liquidity. Though Bitcoin is the most liquid coin present in the cryptocurrency market. However, if you don’t want to choose Bitcoin, you can try some of the altcoins, such as Tether (USDT) or Bitcoin cash (BCH), to name a few. Day trading smaller cryptocurrencies can be a very lucrative strategy, but it involves high risk. The prices of coins can crash as fast as they have risen.
Start using the money flow index (MFI):
The money flow index is a technical indicator that traders and investors use to track the activity of smart money and ultimately to keep an eye or gauge when the institutions are buying and selling cryptocurrencies.
Wait till the money flow index (MFI) reaches 100:
When the money flow index represents a level of 100, this means that now the big sharks or the prominent investors have entered the cryptocurrency market space. As a matter of fact, buying smart money cannot hide the tracks of their activities. The money flow index or MFI can easily analyze their activity.
The technical indicators cannot be 100% accurate, and that is why traders and investors wait for at least two MFI readings to reach 100. This strategy is of utmost importance to avoid huge losses while day trading crypto. The price need to hold up during the first and the second MFI reading. In case the price drops during the second reading, it is an indication of upcoming loss in the intraday trading.
Hide your protective stop loss:
The final point to take care of is to hide your protective stop loss below the low of the day. Make a profit in the first 60 minutes of the trade, a break below it will depict a shift in the market sentiment, and it’s best to exit your position and get out of the trade.
Day trading crypto strategies:
As mentioned before, day trading crypto is not a child’s play. Instead, it requires proper analysis, rule-based strategies, and proper trading knowledge, especially about different crypto assets. So, here we have outlined a few day trading crypto strategies that will be your pilot in the journey to earn massive profits.
Scalping is a trading strategy in which traders capitalize on growing trading volumes to make a profit. Most of the traders in the cryptocurrency market are scalpers. Scalpers close a trade within a few seconds or minutes of opening it when they see even a small hike in the price. In this day trading strategy, traders, better known as scalpers, rely on small profits and exit their position before there is any shift in the market sentiment or price of the coin.
Most of the scalpers use automated trading bots to increase the trading frequency of their trading sequence. In the Scalping trading strategy, traders take advantage of the slight price fluctuations within a small duration of time. It is crucial to have a massive bankroll for this strategy to work. Additionally, the return on investment on each trade is very small but staking a large amount of money means that the scalp comes back with a substantial amount. Plus, even if you trade 10-20 times within a short period of 5 minutes, the small gains will add up.
Range trading crypto is heavily dependent on the patterns of the candlestick charts. This day-trading crypto strategy is reliant on support and resistance levels on a candlestick chart. To succeed as a cryptocurrency trader by using a range trading strategy, you must learn to identify the support and resistance levels and the price ranges within the market structure. By identifying the price ranges, you can plan the trades based on the ranges.
The concept behind the range trading strategy is to buy the crypto when the range touches support and sell the coin when the range gets close to resistance. Range trading is significantly risky because it requires appropriate or precise market timings. It can result in huge losses if the price of the coin does not move in the direction you anticipated.
This day trading crypto strategy works in an entirely different manner. Arbitrage day trading strategy involves buying a cryptocurrency at a specific price from any cryptocurrency exchange and selling the same cryptocurrency on another crypto exchange. The difference between the buy price and the selling price of the coin is known as the spread. We are well aware of the fact that the cryptocurrency market is decentralized and unregulated. It means anyone can open an account on any crypto exchange. Moreover, this enlightens us with a point that due to the differences in the trading volumes and liquidity between different exchanges, there will be a huge difference in the spread.
To become a successful arbitrage trader, you need to identify the exchanges which show different prices for the same crypto asset. For instance, there was a time when Bitcoin was being sold at 40% higher in Korea than in the United States. Traders simply purchased the prominent crypto asset from United Stated and sold it at a huge profit margin in Korea.
Mistakes to avoid while crypto day trading:
We can convincingly state that crypto markets are highly volatile, and traders can lose a lot of capital in the vicious cycle to make a profit. So, here are some of the common mistakes to avoid while day trading crypto:
Cryptocurrency markets give a lot of opportunities for day trading. Plus, it is normal human behaviour that when we win once, we start looking for more winning opportunities. And this works best when humans stake a lot of capital on an asset. Becoming too zealous about earning more and more money via crypto day trading and staking everything you have can be a disastrous situation for you as a trader.
Professional and experienced traders in the financial markets suggest to invest logically and sticking to a pre-decided and rule-based approach rather than investing emotionally and letting your emotions overpower your brain.
Trading more than you can afford to lose:
The cryptocurrency market is a speculative market space with highly volatile financial assets. Crypto assets are subject to huge price swings on a daily basis, unlike stocks and commodity markets. Beginners who want to start a side hustle at times stake whatever they have earned to date on a cryptocurrency to earn and get rich quickly. Moreover, even professional traders experience significant losses.
Day trading crypto is not a get-rich-quickly scheme or any sort of gamble that can make you rich in a day. Instead, intraday trading is a well-calculated, analyzed, and researched strategy. It requires proper trading skills and knowledge, adequate planning, well-planned execution, and risk management. Good risk management planning and skillset can prevent traders from incurring huge losses.
Not conducting your own research:
We all know that social media platforms play a major role in guiding our life journey. In the crypto market, there are people who call themselves experts and post advice to get rich on social media. Many beginners blindly start following their suggestions and end up with huge losses.
A wise trader does not depend on secondary information to know when to enter and exit the market. Start learning how to conduct technical analysis as there are various courses available on different educational websites.
How do day traders make money?
Successful day traders are usually experienced with years of knowledge and technical skillset in the cryptocurrency market space. Day traders use technical analysis (TA) to create profitable trade ideas regarding when to enter and exit the market. While day trading crypto, day traders devise a proper risk management strategy to prevent significant losses. They use the daily volume of exchange, chart patterns, price movements, and technical indicators to figure out the entry and exit point of a crypto asset.
Day traders do not get themselves involved in the fundamental analysis (FA). They take advantage of a temporary spike in the trading activity and make a profit out of it. As mentioned before, high volume and high liquidity are the two main factors in the day trading strategies. Similarly, day traders require higher liquidity specifically while exiting a trading position. Even a small slippage on just one trade can have a devastating effect on the trader’s trading account. That is the primary reason why day traders always trade highly liquid market pairs such as BTC and USDT.
Assuredly, day trading crypto strategies are extremely profitable if executed in a proper and planned manner. However, crypto day trading can be disastrous for beginners with limited crypto knowledge, as they won’t be able to conduct the technical analysis and fundamental analysis. Also, reading chart patterns, and candlestick chart will be a tedious job for them.
Moreover, before you commence your journey as a day trader, learn the crucial technical analysis indicators needed to know when to enter and exit the market.