Day Trading Cryptocurrency: The Ultimate Guide
Day trading is a notoriously risky business, requiring a steely disposition and the ability to endure high-pressure situations. If you’re emotional with money or generally risk-averse, cryptocurrency day trading is not the game for you.
Although the term “day trading” has its roots in the stock market, more day traders are making their way into the cryptocurrency fray as markets grow.
However, if you’ve got a strong understanding of crypto and an interest in putting that knowledge to good use, day trading might be a worthy pursuit, even if you just dabble with a few trades per day.
Of course, some people make a full-time income (and then some) day trading cryptocurrency, which is entirely possible if you put in the work and build your discipline daily. Crypto markets aren’t limited in hours of operation like traditional markets, so you’re always on the clock.
For this article, we’re here to spell out some of the basic day trading techniques you’ll need to get started, some of the technologies that can help you out, and a few tips to make money – or at least keep those losses to a minimum. Let’s begin.
Core Principles
Day trading cryptocurrency has many similarities to conventional day trading--such as securities, commodities, currencies--with a few key distinctions.
Blockchain, Tokens, and Coins
Rather than trading stocks, bonds, or other traditional assets, crypto traders work with digital assets based on blockchain technology, which is essentially a public ledger secured by cryptographic records.
These can be well-known coins such as Bitcoin, Ethereum, or Litecoin, or smaller, up-and-coming altcoins that come in and out of the crypto news cycle.
An aspiring crypto day trader will need to understand the basics of blockchain technology and the assets they’re purchasing and speculating on, just as a Wall Street trader needs to know the details of the securities and commodities in their portfolio.
While most of the high-volume activity occurs in Bitcoin and Ethereum exchanges, there is considerably more risk in small-cap altcoin spaces – and therefore, more rewards to be had.
Smaller Market Caps and Volatility
Speaking of market cap, the overall value of the crypto market is significantly smaller than the stock market or currency markets – still under $2 trillion total.
This means that crypto markets are more easily influenced by “whales” holding large amounts of particular currencies and trends that move fast in the news or social media.
With this in mind, crypto markets are especially volatile, making for an exciting and engaging day trading experience. Swings happen quickly and severely, allowing for big gains to be made – as well as losses.
For this reason, we suggest starting your day trading practice with a more stable and predictable asset like Bitcoin, which tends to move in a 10% range in 24 hours.
This will present opportunities to observe trends and make predictions without wild swings that can quickly deplete an account without warning.
Regulations, Emerging Tech, and More
The cryptocurrency market is still finding its footing. This goes for the technology that underpins the assets themselves and the markets and exchanges used for trading.
Additionally, federal and state agencies have begun to implement regulations and restrictions for the cryptocurrency market and industry as a whole.
Staying informed of crypto news can help you protect your investments and prepare to exit markets quickly, retaining your currency with secure storage methods so that it can’t be taken away.
Technology
If you’ve got your basic blockchain knowledge and some capital to work with, you will now need the right tech to get started day trading crypto.
Here are some key tech tools to have in your arsenal.
Software
You’ll want to jump into a comprehensive trading platform to watch markets, perform technical analysis, and quickly move in and out of positions.
Since you’ll be making multiple trades in a single session, the quality and UX of your software makes a big difference in your results.
Look at platforms like Coinbase, Binance, BitMex, and eToro as good beginner platforms, and make sure you are fully educated on how they work before you start moving money around.
Wallets
As we said earlier, you’ll want a crypto wallet with an address to secure the majority of your cryptocurrency since day traders only tend to trade a small fraction of their assets at a time.
Wallets have digital addresses but can also be found in physical drive form. Be sure to keep close track of your passwords and fully protect your wallets.
Mining Hardware
This is an optional part of crypto mining but not a bad idea if you want to keep a healthy flow of coins into your portfolio.
Mining crypto can be done in an energy-efficient way with the proper hardware and setup, so it might be worth exploring if you’ve got the space and cash.
Techniques
Day trading techniques range from simple to highly complex. Let’s cover a few popular techniques in the crypto trading community now.
Range Trading
This is the most common entry-level trading strategy for crypto newcomers, involving candlestick chart analysis and understanding support and resistance levels.
You will be looking for familiar patterns in the market and creating trade ideas based on a set price range. You can earn money on quick trades if you make the right call, but be ready for prices to break out of the range, which can happen at any time.
Scalping
Once you’ve learned the ropes of range trading, try scalping next. This involves higher trading volume, faster trades, and close analysis of short market moves and news items.
You’ll need to be extremely swift and confident to execute these trades and to make money, larger amounts of money and leverage are typically required.
Arbitrage
Advanced traders will constantly convert between coins to maximize efficiency and make the most of gains across the market. This could mean moving out of Bitcoin into Ethereum, then quickly converting to Litecoin based on big-picture predictions.
We don’t suggest using arbitrage as an entry-level technique, but it’s undoubtedly worth observing multiple assets at a time to see how coins move with or against one another over time.
High-Frequency Trading
This is where high-level programming and AI bots come into play, making hundreds of trades (or more) within milliseconds to achieve small gains in large volumes.
You won’t want to tackle high-frequency trading out of the gate, but as you gain a more profound knowledge of markets and trading platforms, it could be beneficial to apply some of these advanced techniques.
Conclusion
Day trading can be as straightforward or as complicated as you want to make it, so start slow and gradually work your way up. Consider mining cryptocurrency to supplement your portfolio.
Sources:
Best Crypto Day Trading Strategies | Benzinga