Day trading is a popular trading strategy for people looking to trade the financial markets. This trading strategy can be used to trade forex, commodities, stocks, and even cryptocurrency, which we would largely focus on today.
But is day trading cryptocurrency a brilliant idea? How exactly do traders make money day trading digital assets? Should you give crypto day trading a try? Read on, as we will get into the details shortly.
While we may not have a single answer to all your questions, we will use today’s post to bring you up to speed on everything you need to know about day trading cryptocurrencies.
Day trading: What is it?
Day trading is a famous trading strategy that typically involves traders opening and exiting a position on the same trading day. Since day trading typically happens on the same trading day, it is sometimes referred to as intraday trading. Traders who leverage day trading or intraday trading deploy this strategy to profit from swift price changes in financial instruments.
This trading strategy originated from the stock market, where trading only opens during the business days of the week. With intraday trading, traders never leave their position overnight, as they only want to profit or capitalize from intraday price movements.
Even though this trading strategy emerged from the stock market, it has been deployed to trade other financial instruments, including cryptocurrencies, where high volatility results in swift price changes.
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How exactly do traders profit from day trading?
Do you know that many day traders make insane money trading in the financial markets? But this doesn’t happen by chance, as successful day traders typically have an impeccable understanding of the market. More so, they have years of experience up their sleeves, which gives them an edge over other traders.
Successful day traders deploy a lot of tools and strategies to stand out, including leveraging technical analyses to spot trading opportunities. For successful day trading, many day traders use different trading resources, including price action, volume, chart patterns, and technical indicators, to analyze the market and spot entry and exit positions for trades.
Like every trading strategy, successful day traders know the importance of risk management and implement it for successful trading.
Since fundamental trading can take quite some time to play out, day traders do not typically focus on fundamental analysis. That said, there are quite a number of traders who focus their trading on trading the news. This strategy would typically have traders looking for assets with high volume, thanks to recent partnerships or news. The goal is to profit from the temporary spike in trading activities.
Day traders aim to ride on the back of market volatility to make a profit. To this end, volume and liquidity are super crucial for successful day trading. To execute trades quicker, day traders typically look out for liquidity as it is the main driver of price movement. More so, volatility is important for exiting a position, and here is why. A large slippage on just one trade can cause a devastating impact on a day trader’s account. This explains why day traders typically focus on trading high-liquidity assets.
Many day traders looking to profit quickly from day trading focus on high volatility pairs like BTC/USDT. Some traders even go the extra mile to create a watchlist based on fundamental and technical attributes and choose an instrument to trade on that list.
Top day trading strategies
Now that you know what day trading is, especially as it relates to trading cryptocurrency and how day traders make a profit, it’s time to take you through some top day trading strategies deployed by day traders to make a quick buck. Let’s jump right in, shall we?
Scalping
Scalping is a very popular trading strategy leveraged by day traders. This strategy typically involves traders taking advantage of small price changes during short time frames. These small price moves are typically gaps in liquidity, differences between bid-ask-spread, and other market inefficiencies.
That said, trading using leverage doesn’t mean that you have to throw risk management into the back burner. Successful scalpers thoroughly understand margin requirements and apply proper position size rules.
Many scalpers, especially those with a track record of wins, leverage strategies such as order book analysis, technical indicators, volume heatmaps, and other brilliant resources to find entry and exit positions for their trades.
However, the fast trade execution and high risk typically associated with scalping have made this strategy more suited for skillful and experienced traders. We would also like to add that because of the extensive use of leverage, there is a very high tendency for inexperienced scalpers to blow their trading accounts quickly.
Range trading
Range trading is another interesting strategy deployed by day traders to trade cryptocurrencies. Unlike scalping, which typically relies on small changes in price within a short time frame, range trading heavily involves candlestick chart analysis. Also, a lot of range trading focuses on looking at support and resistance levels.
As we explained, many range traders scout the crypto market for price ranges within the market structure. The aim is to find trading ideas based on established trading ranges. For instance, if the price of a cryptocurrency ranges between support and resistance, a range trader will be compelled to buy at support levels and sell at resistance. What we simply mean is that day traders leveraging range trading strategy will typically short resistance levels and exit their trades at support levels.
The idea of range trading stems from the assumption that the edges of the range will hold as support and resistance until the structure is broken. This means that the lower edge of the range will likely push the price up. On the flip side, the upper edge of the range is very likely to push the price down.
That said, keep in mind that the more the price of a digital asset continues to touch a support or resistance level, the more likely it is for the level to be breached. This is why most successful range traders always prepare for a break in market structure. With this in mind, range traders typically have a stop loss at price levels, where they suspect the breakout from the range may happen.
Range trading is relatively more straightforward than other trading strategies for day trading, and yes, it is suitable for beginners. To be successful at day trading, you’ll need a decent understanding of candlestick charts, support, and resistance levels. Also, you’ll need to get a grasp of momentum indicators like MACD and RSI.
High-frequency trading (HFT)
High-frequency trading is an exciting algorithmic trading strategy deployed by quantitative traders, often referred to as quant traders, to trade cryptocurrencies. This strategy involves developing trading bots and algorithms designed to swiftly analyze the market and enter and exit positions over a short period on behalf of traders. These time frames are typically milliseconds. A few milliseconds of high-frequency trading can generate an insane amount of profits.
High-frequency trading algorithms are typically developed to implement highly complex strategies. Even though high-frequency trading may look like advanced day trading and tempting, it’s important you know that high-frequency trading is a bit more complicated than it appears.
While HFT delivers an impressive success rate, it involves a lot of backtesting, monitoring, and tweaking of algorithms to adapt to ever-fluctuating market conditions. So for those thinking they can just sit back and watch their bot do all the hard work, you’ll have to rethink your position, especially if you’re in for the long term.
Another thing we would like to add about high-frequency trading is that it is quite an exclusive industry. To this end, it is sometimes tricky for newbies to access high-quality information. We are sure you may be asking why. Well, the reason is pretty simple. If successful hedge funds and trading firms begin to share their high-frequency trading strategies with the public, they would probably be out of business as people would no longer opt for their services.
Another thing worth considering when it comes to trading bots is that, instead of bot creators selling their profitable bots to the general public, why don’t they just use them for their trading activities? What we are simply trying to point out here is that you should be careful when choosing a high-frequency trading bot.
The reality is that developing a high-frequency bot requires a deep understanding of market concepts and a broad knowledge of mathematics and computer science. This is why we mentioned right from the get-go that HFT is more suitable for advanced traders.
Get started with day trading cryptocurrency
If you have read to this point, we are sure you are thinking of giving day trading cryptocurrency a try. So now the big question is, where can you start?
To be honest, you’ll need a decent understanding of cryptocurrency trading. With proper knowledge of cryptocurrency trading, you’ll be able to profit from swift market changes, especially if you are a day trader.
For newbies just starting out day trading, we highly recommend leveraging demo trading account features provided by brokers, including eToro, AvaTrade, and Plus500. By simply signing up on any of these brokers, you’ll be able to test the waters with their sophisticated demo account features.
Also, you can take advantage of paper trading features provided by Binance Futures testnet. Binance paper trading is pretty much like the demo account features you find on popular online brokerage platforms like eToro, Plus500, AvaTrade, and more.
So, which is the best online trading platform for day trading cryptocurrency? Since we can’t decide for you, we can just make some recommendations and allow you to make the final decisions.
If you’re looking for an online broker for day trading, we strongly recommend you check online brokers like eToro, Plus500, AvaTrade, Binance, Coinbase, and Crypto.com. We chose these options because of the hundreds of pairs available on these platforms. And yes, these platforms also provide traders with research tools, and educational resources traders can leverage to sharpen their trading skills.
Should I start day trading for a living?
To be honest, day trading, when done right, can be highly profitable. That said, there are a few things we would love you to consider before opting for day trading. Since day trading typically requires fast decisions and quick execution, it can be demanding, challenging and stressful. Again, let’s add that day trading can be quite risky. Not just that, traders require a solid understanding of the market to generate a consistent profit. You should also know that day trading requires traders to spend extended time looking at their screens.
Having highlighted all these, we would like to ask you at this point if you’re prepared to bear all this weight while potentially losing money. Before answering this question, take some time to consider if day trading meets your individual investment goal and is suitable for your personality style.
Final thoughts
Day trading is an essential strategy for traders trading financial instruments such as stocks and cryptocurrency. Successful day traders use several trading strategies to take advantage of volatility in the crypto market. And, as we mentioned, day traders don’t hold a position for more than a day.
For successful day trading, day traders deploy a number of resources, including chart patterns, technical indicators, and technical analysis. All these are designed to help traders spot profitable trade setups.
Some of the leading day trading strategies covered in today’s post include range trading, scalping, and high-frequency trading.
As we stated, day trading can be insanely profitable if done right, so ensure you continue to improve your knowledge of cryptocurrency to give yourself an edge. Also, don’t forget that trading financial markets, especially cryptocurrency, can be quite risky. So ensure you observe strict risk management while trading.
