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Day trading occurs in all markets including shares, forex and of course, cryptocurrency. Cryptocurrency day trading is a strategy implemented by crypto enthusiasts to potentially make a fast return on their investments.
Crypto day trading involves buying and selling crypto assets like Bitcoin and Ethereum within the same day. While some choose to ‘HODL,’ their crypto assets, others practice a more short-term trading strategy. The primary goal of day trading is to make a profit from the short-term price fluctuations of the crypto market.
Successful day traders are typically well-versed in the crypto market and use crypto technical analysis to capitalise on small price movements in highly liquid cryptocurrencies.
This beginners guide covers popular day trading strategies and signals and how to become a successful day trader.
Day trading can be complicated and without proper strategies in place, making money from it can be difficult. There are several strategies and techniques that crypto day traders utilise to better understand cryptocurrency market movements.
A popular strategy used by day traders is to align trades with news or events that are likely to cause short term market movements. Day trading originated from the stock market and has since been adopted by many crypto traders. analysis to capitalise on small price movements in highly liquid cryptocurrencies. The main difference between the two is that the stock market is only open during business hours as opposed to cryptocurrency markets which are open 24/7.
Another common technique that day traders use is crypto technical analysis. Technical analysis focuses on key components like chart patterns and trends, 24hr trading volume, price action and technical indicators to identify potential entry and exit price points.
Fundamental analysis is another common investing strategy, especially in cryptocurrency markets, however it is not overly used by day traders. This is because fundamental analysis is based on finding the underlying value of a coin or token for long terms investment.
Trading on the back of news is a common strategy used by all day traders. This involves purchasing an asset following a recent announcement that is likely to spark enthusiasm in the industry and cause a price spike.
There are several types of crypto day trading strategies. We’ve listed some of the most popular strategies to show teach you how to day trade cryptocurrency below:
‘Scalping’ involves placings very short-term trades on assets that will have small price movements in the market. These small price movements can be a result of liquidity, spreads or other market inefficiencies.
Consistency and speed are two main components that will determine the success of a scalping strategy. Traders using this strategy must have a strict exit strategy as one large loss could be detrimental to all other smaller profits made.
A trading range occurs when the price of an asset bounces consistently between two price levels over a definitive period of time. Range traders look for price trends within a market structure and create trade ideas to buy and sell based on those ideas. For example, these two levels could be support and resistance level. Range trade could use these two price points as a top and bottom to buy and sell at.
News-based crypto trading or ‘trading the news’ is a strategy that has been adopted from traditional stock and forex trading. This strategy involves trading based on particular events or pieces of news that have recently taken place.
In traditional markets, news is often scheduled, allowing traders to anticipate a price movement. Scheduled news includes earnings reports and economic updates. Trading the news in cryptocurrency markets is a bit more difficult as news and events tend to be more sporadic, however, if timed right it can be a highly effective strategy.
For example, The below image show a huge spike in the Bitcoin price following news of Tesla investing $1.5 billion USD in Bitcoin.
High-frequency trading or ‘HFT’ is a method of day trading that uses powerful computers and trading bots that can quickly enter and exit positions over a short period of time. This method is usually employed by quantitative traders (quant traders) as well as investment banks and institutional investors. The system uses a complex algorithm to scan the markets and spot emerging trends in a matter of seconds.
This method of crypto day trading may seem like the easiest option, however, this is far from the truth. HFT is highly complicated and often requires a lot of time and resources to test, monitor and tweak the algorithm.
Cryptocurrency arbitrage lets you take advantage of the price differences between two exchanges. Arbitrage is when you buy crypto on one exchange where the price is low and then immediately sell it on another exchange where the price is higher. Arbitrage can be an easy way of making quick gains, but it can also work against you as the market could fluctuate during the time it takes for you to buy and sell an asset.
Crypto day trading signals are indications or recommendations to buy or sell a specific coin at a specific price and time. These trade signals are produced either manually by an experienced trader, or by trading bots that use algorithms to deliver the trade signals automatically. Trade signals are often tied to profit-taking and stop-loss-shielding.
There are free day trading cryptocurrency signals available to use, but there is no guarantee that these signals will be effective. Some trade signal applications cost money, but these do also not guarantee success.
Going beyond free and paid trading signals are the internal signals used by some of the world’s most successful capital funds. Internal signals are produced by highly skilled data scientists who can predict trends based on a number of indicators.
For example, the infamous quant fund Renaissance Technologies hired the data scientist Sandor Straus as the company was starting. Straus helped Renaissance collect information on historic commodities as far back as the 1800s.
Straus’s analysis of the data patterns that he viewed found that there was a pattern between the trading sequences based on the days of the week. Strauss discovered that the previous days trading can often predict the next day’s activity. He developed the “Medallion Model” which suggests buying late in the day on a Friday and then selling early on Monday to take advantage of “The Weekend Effect”.
The work produced by Sandor Straus has driven Renaissance Technologies’ to becoming the highest returning fund to date. Unfortunately, all of the trade secrets in the Renaissance Technologies Medallion Fund are almost exclusively only available to the fund’s employees.
In general, investors will do anything to get an edge on the markets moves, whether it’s feeding a century and a half of data into a predictive trading model or using technical indicators to identify chart patterns.
Successful cryptocurrency day traders have discipline and share several characteristics such as:
Knowledge and experience in the crypto market: Day traders should be both familiar with the market and have a vast knowledge of Bitcoin and crypto market cycles. Successful traders know the factors that cause price fluctuations and have experience in forex trading to understand how trading pairs work.
Have sufficient capital: All traders should have risk capital. This refers to the money that you can afford to lose. Having risk capital helps prevent emotional trading.
Have a crypto day trading strategy: Cryptocurrency traders need an investment thesis. Understanding different strategies when trading crypto and knowing when to use them can give you an edge over the market. It is also important to know what is the best crypto to day trade at a given time.
Be disciplined & focused: Even with a profitable strategy, without discipline, you can lose a lot of money. It is important to set strict rules and not to invest out of emotion.
Follow multiple news sources: You should be up to date with what happens in the crypto and forex market. This insight will assist your day trading strategy.
Access to analytical software: Despite this being an expensive tool for many day traders, this is something that can potentially improve your investment success. Swing traders rely more on analytical software than on news.
Access to a trading desk: As a crypto day trader, you should have simultaneous access to all trading equipment such as a crypto day trading platform. This will help you make swift decisions and act in real-time.
If done right, day trading crypto can be a highly lucrative activity, however, as with any type of investing, it comes with significant risks. The dedication and quick execution of trades can make day trading a highly stressful job.
The biggest mistake new day traders make when they first start is not having the appropriate risk management protocols in place. Most new traders are enthusiastic and optimistic about the opportunity to make a profit which can often lead them to overlook crucial risk management steps.
To effectively manage risk, traders should set stop-loss orders on all trades to ensure they don’t lose more than they’re willing to. Additionally, it’s important to set a daily loss limit for example: you stop trading at day if you lose more than 4%.
What is the difference between day trading and dollar-cost averaging?
Dollar-cost averaging refers to the process of buying an asset like a stock or cryptocurrency over a long period of time at set intervals regardless of price i.e. every week. month etc. With this strategy, the trader is more concerned about increasing the overall position of an asset rather than timing the market. Whereas, day trading relies on volatility and price fluctuations of an asset within a 24-hour period.
Anyone can day trade cryptocurrency. However, first, you need to dedicate yourself to the right training, education, and discipline before taking on a day trading postion. As we’ve made clear throughout the article, it’s very easy to lose money by day trading cryptocurrencies. It is very easy to predict exactly what the market will do 100% of the time, Coin Telegraph estimates 95% of day traders lose money and fail. Forbes estimates that only around 10% of traders are successful with 90% losing some or all of their money.
Yes, Swyftx is a great platform for day trading cryptocurrency. Swyftx crypto exchange has over 300 cryptos with low trading fees. The Swyftx platform uses up to date TradingView charts that can help you track an asset’s fluctuation and predict the best times to buy and sell.