Day trading crypto can be really profitable if you know what you are doing and follow specific strategies to increase your chances of winning. I’m not saying that following the tips and strategies that I use in this article are going to make you an instant winner but it will definitively help you increase your earnings.
Day trading is the kind of trading that involves the practice of purchasing and selling cryptocurrencies within a single trading day. It’s a short-term strategy that traders utilize to earn small profits. Looking at the indicators for the short term like 15 minutes, or less and making decisions on that. It occurs in any market place but is most common in the stock, forex, and cryptocurrency markets. Day traders never hold any positions overnight, they enter and exit trading positions within the same day and sometimes within the same hour. Instead, they buy digital assets and hold them for a short period, anywhere between a few minutes to a few hours, before they sell them off.
The first step towards your day trading journey is to pick a marketplace that offers the coin pairings that you want. Each marketplace has different fee structures, trade amount limits, etc. This is really important because little profits on large trade volumes can quickly disappear because of high fees. So, it’s crucial that you pay attention to the fee percentage. Once you find a good marketplace, go ahead and find two to three other marketplaces as a backup and register accounts on each. Doing this is smart and gives you flexibility in terms of cryptocurrency fees, liquidity, and availability.
The next thing you need to do is to develop a solid trading strategy. This involves a lot of research and requires even more self-discipline. For starters, you need to make sure that you do not risk more than you are willing to lose. Having a conservative strategy ensures that you don’t lose your entire cash on risky bets. Day trading is a numbers game, and you are bound to make some losses here and there unless you’re a literal god and come from the future. That’s why it’s way better to collect small gains and remain safe rather than to risk big to score big.
Another essential factor in cryptocurrency day trading is the stop-loss limit or as commonly known as the exit strategy. Also, the stop-profit limit is important since it’s essentially an automated trade. Most exchanges allow traders to set a stop loss that automatically exits a trade at a certain price level. For instance, if you purchase a particular cryptocurrency at $100, you may set a stop loss at $80 to ensure that you at least preserve a large chunk of that investment in case prices take a nose-dive. Or you may have to do something else that is important and can’t check on the price for the next few minutes so you place a stop profit at $120 and if that price point has been hit you have made your profit automatically.
Limit sell order is another important concept in the cryptocurrency trading world. Unlike the stop-loss or stop-profit order, the limit sell or buy order automatically closes or opens a trade one once your digital asset hits a specific high price. For instance, if the said digital asset is on an upward trend, and you perceive the top market price to be $500, you can set a limit sell order of that amount. Once the asset hits that price point, the limit sell order will automatically sell your asset. And the contrary for a limit buy order.
Scalping is a standout strategy in day trading that’s well-recognized in the forex market but also commonly used in the cryptocurrency trading market. It’s conducted by executing hundreds of trades per day in an attempt to make a small profit from each trade. The trader undertaking scalping hopes to profit by exploiting the bid-ask spread. Scalping is a quick, paced strategy that tends to be dangerous at times. Therefore, you need to be hot on timing and vigilant for unpredictable assets.
This is a popular strategy that depends on following up on news sources and recognizing price moves. The values of digital assets are guaranteed to move around every day, therefore, there’s always a chance to take advantage of this strategy. You need to make sure that you remain mindful of up and coming news and declarations since you’ll have moments before they affect the values of the digital assets.
Inversion is a commonly discussed strategy utilized all over the world. It’s fondly referred to as pattern trading, switch trading, or pull back inclining. This strategy follows a fundamental rationale as it fixates on buying and moving day by day low and high pull-backs. Therefore, it requires the capacity to anticipating pull-backs quality and precisely distinguishing them.
Bitcoin is the most volatile cryptocurrency in the entire market. Therefore, day trading bitcoin comes with a considerable amount of risk. Bitcoin prices are highly sensitive to public sentiments and regulatory changes. They fluctuate quickly depending on the types of news circulating in the industry, whether positive or negative. Therefore, before trading bitcoin, you want to wait until there is a high reading of volatility to make correct entries. It’s also essential to check how liquid the crypto is by verifying the 24-hour volume of the crypto trade.
Not having enough liquidity could trigger a substantial slippage that could lead to even more significant losses. Bitcoin is a safe commitment for a new trader as it can be used as a long-term store of value. It also comes with relatively fewer risks compared to altcoins. Furthermore, trading bitcoin doesn’t need to occur every single day. You only need to day trade bitcoin when all conditions align in your favor. Therefore, avoid trading on weekends and limit trading only to days with the highest volume.
The safest altcoins to trade are those that are the top by market cap. These are the ones that are less volatile and are most likely to serve as long-term stores of value. A great example is Ethereum, Ripple, Bitcoin Cash, among others. These coins are less apt to disappear. Smaller altcoins are profitable in the short-term, but the risks associated with them are much higher. Their prices can be artificially boosted through pump and dump. Therefore, the risk of your funds going up in smoke is much higher compared to bitcoin. A little dash of due diligence is needed in determining which altcoins to day trade.
Although day trading can be a lucrative business or career, it’s important that you come to terms with all risks associated with it. Some of these risks include:
The Psychological Addiction
For some people, trading is like gambling. It’s exciting, fun, and makes you feel alive, especially if you are generating wins. Just the mere thought of making thousands of dollars at the comfort of your house is thrilling. Just like drugs, the drive to win becomes an addiction that’s difficult to avoid. This addiction can be especially dangerous to your bank balance. It can damage your life, put you in debt, and destroy relationships with family and friends.
Risk of False Information
The cryptocurrency market is extremely speculative. Therefore, almost everyone in the market has an opinion of how the value or price of a digital asset will move. All these conflicting information tends to saturate the market and mislead new traders into making trades based on false information. Therefore, it’s vital that you find a credible news source and connect with trustworthy people before trading.
Loss of Capital
Almost all day, traders fail in their first year starting. Day trading is extremely challenging for novices as it requires a lot of knowledge, experience, and discipline- qualities that most beginners lack. Therefore, you are bound to make significant losses before you move on to make profits.
Stress and Big Time Commitment
Day trading is a lucrative career. However, it’s also a full-time job that requires constant attention. That means hours will be spent on the computer monitoring price movements and making adjustments whenever necessary. Subsequently, stress and big-time commitment become a reality for traders who don’t wish to lose any money.
You can minimize these risks in the following ways.
Manage your risks
No trader wins 100% of the time. You are bound to make losses. To minimize losses and hold on to your wins, you will need to put in place strategies that can guarantee you win at least 60% of trades.
Put theory into practice by signing up to a demo brokerage account and make trades in real-time with fake cryptocurrency. It’s a risk-free way of gaining valuable experience and developing trading strategies that will prepare you for day trading in the real market.
Day trading is an acquired skill. Therefore, you need to train and hone your trading skills through education and training. It’s crucial that you use trustworthy sources of information and invest in a mentor with a proven track record of success.
Never trade with any cash that you can’t afford to lose.
The cryptocurrency space is full of scams, pyramid schemes, and fake digital assets. The risk of losing money in a day is real. Therefore, it’s important not to place all your cash in one basket. Ensure that you diversify your investments and only use a section of it to day trade. This minimizes the risk of losing all your hard-earned cash.
Below are some useful cryptocurrency tips that can help increase your profit margin and minimize losses. They include:
Define your goals before trading
With day trading, you want to get in and out of a trade as quickly as possible. Therefore, you need to have a clear objective in place before entering a trade. You may want to avoid being greedy as a massive swing in the market can translate to substantial losses.
Avoid Succumbing to the Fear of Missing Out (FOMO)
A lot of new traders tend to succumb to the pressures of FOMO. As soon as they make a good trade and crypto rallies again for a sizable profit, they go all in. Yielding to the fear of missing out is one of the fastest ways to lose money. A slow winning approach is most helpful.
Be Careful with Exchange Fees
Exchanges have different fee structures. Therefore, you want to do your research and find ways that you can minimize your trade fees. For instance, it’s always advisable to be a trade maker rather than a trade taker to avoid paying high fees on some exchanges.
Given the market’s constant and rapid change, the correct answer to this question is a fixed answer but one based on acknowledging a changing industry. One of the best ways to know which cryptocurrency to day trade is to conduct your research. By studying the market and analyze which coins are doing well, you gain knowledge and experience on where and how to start.
Before getting bogged down by the complexities of highly technical indicators of cryptocurrency trading, you need to focus on a simple crypto-trading strategy. First, you need to understand that day-trading takes a lot of practice and know-how to undertake. Moreover, you’ll be going up against professionals in the field who have access to the best tech and connections in the industry. Furthermore, the government will still need you to pay taxes. The industry can be quite overwhelming. Therefore, the best strategy is to start small until you get your bearing.
Are there any differences between day trading Bitcoin, Ethereum, and Altcoins?
The only difference that exists between trading Bitcoin, Ethereum, and other altcoins is that both Bitcoin and Ethereum are safe commitments for beginner traders. Smaller altcoins that are less popular have the risk of their values plummeting as fast as they have risen. Moreover, unlike Bitcoin and Ethereum, they are susceptible to pump and dump or Ponzi schemes that rely on hype and speculation to boost their prices. Both Bitcoin and Ethereum are legitimate coins that are less risky to trade.
Describe a simple strategy that works
There are different types of trading strategies which can be broadly split between short-term trading strategies and long-term trading strategies. The difference between the two approaches is how long you hold an asset before you sell it. A simple long-term plan that works is buying a digital asset while its value is low and holding on to it for longer before selling it for a higher price. As opposed to day trading, this strategy takes much longer than a day.
Day trading has the potential to be a profitable venture that generates enormous profits. Nevertheless, it isn’t free money, and it’s not for everyone. The industry can be vicious. However, it can be more mellow if you follow the tips and strategies that I have mentioned here.