Want to become a crypto day trader but don’t know how to start? Don’t worry, we’ve got your back 💅🏽
In this article, you will learn all there is to know about crypto day trading. We’ll explain how crypto traders make money and show you the 6 best day trading strategies in the crypto market. Ready? Let’s dive in.
What is Day Trading in crypto?
Day trading in crypto is a type of trading technique in which you buy cryptocurrencies and sell them within 24 hours. It’s like the traditional stock market, where traders only buy and sell stocks during certain hours of the day. The key difference is that unlike the stock market, the crypto market is always open. So, crypto day traders can make money 24/7.
You don’t need a fancy degree to day-trade. All you need is an internet connection, a crypto exchange like Quidax, and a solid crypto trading strategy.
To help you understand day trading in Crypto better, say hi to Ibukun.
Ibukun is a student who wants to make extra cash – we all do, right? So, she comes up with a bright idea – buying snacks and reselling them at a slightly higher price.
But, here’s the catch – Ibukun sells all the snacks she buys within 24 hours. She doesn’t store anything till the next day, and nothing crosses over. Ibukun does this everyday; she makes profits on some days, and she loses money on other days.
Seems simple, right? Well, that’s how crypto day trading works!
How Do Crypto Day Traders Make Money?
Day traders make their profit like everyone else – through the difference in their buying and selling prices.
At this point, you need to know about two market forces that are a crypto trader’s best friend: Volatility and Liquidity.
- Volatility is the speed at which a coin’s price changes.
- Different coins have different volatility levels. For example, Dogecoin (DOGE) is more volatile than Bitcoin (BTC).
- Volatility is important to traders because it allows them to easily day-trade. Thanks to volatility, you don’t need to wait so long for coin prices to change.
But volatility is just one part of the equation- traders also need the market to be liquid.
- Liquidity describes how easy it is to buy or sell a coin without affecting its price.
- Like volatility, liquidity also differs between coins. Some coins are easier to move than others.
- Since speed is important to day trading, traders need to buy coins they can sell quickly.
To make sure that you don’t lose profit, you have to practice risk management.
What is Risk Management?
Risk management protects you and your money from huge losses while day trading. You can create a risk management plan by asking yourself these 5 questions:
- What is my trading goal for the day?
- What risks can stop me from reaching my trading goals?
- How will I recognize the risks?
- How can I prevent the risks from affecting me?
- How do I measure the success of my risk management plan?
The Best Crypto Day Trading Strategies
A trading strategy is a plan that guides all your crypto day trading activities. A good crypto trading strategy protects you from making bad decisions that could cause you to lose money. Now that you know the importance of having a good trading strategy, let’s look at some of them:
Scalping is a very fast form of day trading. It usually happens between 5 to 20 minutes. Scalpers make short trades several times in a single day. They focus on making small profits and combining them.
The Liquidity of the market is very important to scalpers because they must be able to move their coins quickly and prevent slippage. Slippage is when the cryptocurrency sells at a lower price than the seller requested.The drawback of scalping is that it requires advanced knowledge of crypto markets and how they work. You should consider scalping if you want to make multiple trades over a period of time.
2. Range Trading
In range trading, you have two prices – the highest possible price and a lowest possible price. You’re trading between both prices, and you’re watching the coin to ensure it doesn’t exceed these two points.
- The highest possible price a coin can sell for is known as the resistance range.
- The lowest possible price a coin can drop to is known as the support range.
Imagine you want to buy a coin. You’ve done your analysis and you’ve discovered it fluctuates between $50 (the resistance range) and $35 (the support range).
So, you can set up price alerts on the Quidax app and buy the coin when it drops below $35 and sell it when it increases to $50. It’s that simple.
Range traders can make a loss if the resistance range drops. The best way to beat this is by choosing coins with high volatility and liquidity.
3. Technical Analysis-Based Trading
Technical analysis (TA) requires a lot of patience. It’s the process of using a coin’s history to determine what could happen to it in the future.
Traders use several technical indicators charting tools to perform technical analysis. Some of these indicators include:
- Exponential Moving Average (EMA): This is used to track the price of a coin over a set period. It focuses on the coin’s recent price range.
- Moving Average Convergence Divergence (MACD): This is used by traders to determine when to sell or buy a coin based on its momentum in the market.
- Relative Strength Index (RSI): This is used to calculate the speed at which the price of a coin changes.
- Bollinger Bands: This is used to determine if the price of a coin has dropped so much that people have sold it a lot.
- On Balance Volume (OBV): This is used by traders to predict the future price of a coin by measuring its volume in the markets.
- Average Directional Index: This is used to measure the strength of a price trend. This helps traders determine if they should HODL or dump a coin.
4. Sentiment-Based Trading
Unlike technical analysis that focuses on the price history of a coin, news and sentiment analysis involves analyzing what other people think about a coin.
You perform this analysis by tracking social media sites, news articles, crypto communities, etc. The point is to find out what people are saying about the coin.
Take Dogecoin for example. At one point, its price increases whenever Elon Musk tweets something about it. So, many traders watch Elon’s Twitter feed to see what he’s talking about. That’s perfect sentiment analysis.
This form of analysis is risky because trends are short. But, it can be very rewarding when you do it correctly.
5. Bot Trading
A bot is an automated tool that helps you to trade the market. You just have to put the conditions for the trade, and the bot will execute it on your behalf.
6. High-frequency Trading (HFT)
Some traders use computer programs to analyze multiple markets and execute orders when market conditions are favourable. These programs are very fast and efficient. They can carry out multiple orders at once without slowing down. It’s mostly trading firms and companies that use this strategy.
How to Get Started with Day Trading Cryptocurrency
Now that you know some of the strategies used by day traders, it’s time to start day trading! 💃🏿
Here are 3 things you need to do before you start day trading in crypto:
1. Research Properly
The best day traders don’t act on their feelings; they carry out research to find the best coins to buy, the exchanges to use, and the best crypto trading strategies. There are so many coins and strategies in crypto. There’s also a lot of news so you have to carry out your research before you start day trading. Here’s a quick guide on how to do your crypto research.
2. Make a Plan
Trust us, you don’t want the smoke and stress that comes from trading without a plan. It’s also important to keep in mind that the result of your research backs up whatever plan you want.
- Always make sure your plan covers:
- The cryptocurrency you will trade
- The trading strategy you will use
- The budget you want to start with
3. Choose a Reliable and Fast Exchange
Here are 4 things you should keep in mind when choosing an exchange:
The type of coins they list: You want to stick with exchanges that list popular
- The coins listed on the exchange
- The level of security
What is the Best Crypto to Day Trade?
Predicting the crypto market is not easy, even for the best and experienced Crypto traders. But there are some properties to look out for when day trading:
- Volatility: Even though this is often referred to as a risk in crypto, it’s an advantage for day traders. If you trade a coin that goes up and down several times a day, you can take advantage of those price swings. This means more profit.
- Popularity: if more people are also trading the coin, then there’s a reason for that. it’s most likely a profitable coin to trade and other people can see that too.
What are the Downsides of Day Trading Crypto?
Just like any good thing, there are risks involved in day trading. The most common problem day traders run into is overtrading.
Overtrading happens when a trader buys or sells more coins than they can afford. This leads to them losing a huge chunk of their profit and capital.That’s why it’s important to have a good plan in place. It prevents you from acting based on your emotions. Traders also use a stop-limit order to minimize the amount they lose.
Some other things that make traders lose money include: bad timing, inadequate research, and the fear of missing out.
Apart from research, becoming a good day trader takes some practice. The best traders make sure that they trade consistently. That’s how they find tricks, strategies, tips and hacks that work for them.
Finding a strategy that works for you already takes work so let’s help you make the trading process simple. Quidax allows you to buy and sell crypto instantly with a simple user interface. Sometimes a reliable exchange can be the difference between whether you have successful trades or not. If you’re ready to stop missing out on a profitable trading career, hit the button below to get started.