Of course, if you go to an exchange, you plan to make money on it. Unfortunately, you cannot make a very high profit on any exchange, relying only on luck, in which case it would be easier to go to the casino. Successful trading on the exchange implies knowing such things as technical analysis, financial instruments, and, of course, trading strategies. What are the best crypto day trading strategies? You are about to find out.
There are many strategies on the market, from simple - buy and hold - to complex with different types of financial derivatives. But there is one type of trading that gives the markets life, movement, and volatility - crypto day trading. This type of trading gives many people the opportunity to make good money. We will discuss it in today's article.
What is day trading?
It is not a day trade and a night trade, as the name would imply, but a trade in which transactions are opened and closed during the same business day. That is, regardless of the outcome of the trade, all positions must be closed at the end of the day. This is monitored either by the trader himself, or the broker closes all transactions a few minutes before the end of the session on the trader's order. Yes, this assumes that you will rest at night and work during the day, but the emphasis is not on working hours, but on the fact that the trader does not leave unfinished trades overnight, thereby avoiding unmanageable risks.
Such players on the exchange are called daytraders. In a sense, they cannot be considered investors, because it in most cases means investing money in some assets expecting their price to grow considerably in a rather long period of time. Day traders, on the other hand, make dozens and even hundreds of transactions during the day, the time of which can vary from a few seconds to several hours, and earn on minor price movements. In other words, in this kind of trading, we are not relying on strong price movements but on plenty of small different price changes.
Let us explain with an example. If you buy a $30000 bitcoin and wait a few months for it to rise to $40000, that's investing. But if you bought that same bitcoin for $34900 and sold it for $34927 three minutes later - that's day trading.
As you know, cryptocurrencies have high volatility, which makes them the best way to day trade crypto. You can open a lot of trades during the daytime hours, thereby earning on rate differences.
Pros and Cons of Day Trading
Like any form of trading (and everything in this world) day trading with cryptocurrency has its pros and cons, which you should examine carefully before engaging in it.
First of all, we will begin with the pros.
- Independence from global news. Intraday traders do not depend much on some global world events, because such events mostly affect stockholders. Take the pandemic situation, for example, when the assets of many companies went down sharply. Investors in a panic were forced to sell the stock so as not to lose even more, and the activity traders simply turned trading in the other direction.
- Low entry threshold. It takes a lot of investment and, of course, a long time to get an acceptable return on the investment. However, you can start day trading with small amounts, increasing them with each successful transaction. That is, you can come to the exchange with an amount you are not afraid of losing, buy a cryptocurrency with it and make it bigger in a matter of hours. This makes it easier for many traders who do not have a large amount of money to enter the market, and it also reduces losses in case something goes wrong.
- Short-term results. When trading over long distances, a profit or loss often puts a trader in a state of limbo because it is unclear where the market will go next. A crypto daytrader does not have such a problem because he always sees at the end of the session how much he has earned or lost during the previous day.
And, of course, you can't avoid the disadvantages. Because cryptocurrency day trading is not as simple as it may seem at first glance.
- Lots of work during the day. Day Trading requires a huge amount of time spent on the monitor. Yes, some traders calculate the position for the whole day, enter the position at the beginning of the session, and close it at the end. But most of them have to watch cryptocurrency price charts all the time, waiting for the right moment to enter. In other words, if trading is not your main job, or if you are not ready to devote several hours a day in a row to it, it is better not to take up this activity.
- The psychological aspect. Day trading requires a huge amount of mental strength from a crypto-trader, primarily psychological. Because among successful trades, there will more than likely be unsuccessful ones - not because you are a bad trader, but simply because it is not always possible to take into account all factors. In day trading, which involves up to a few hundred trades during the day, some of them turn out to be losing trades.
- High risks. Despite the use of small amounts of money for trading, the risk still remains. Day trading is regarded as one of the riskiest types of trading. In other words, you must be experienced enough, know technical analysis and use its basic tools if you want to succeed.
As you can see, both advantages and disadvantages are quite significant, so the approach to Day Trading should be balanced, and if you are not confident or too afraid to lose, start with small amounts, increasing them gradually. If you are a beginner, for instance, trade on a demo account for the first few days or even weeks, in order to master your skills without losing anything.
In fact, this advice is suitable not only for day trading but also for any kind of cryptocurrency trading. In addition, we advise you to try copy trading, thanks to which you can copy the deals of your chosen successful traders. By following his actions you will not only understand how to trade, but you will also be able to learn different strategies in practice - like crypto futures trading strategies and many others.
Best cryptocurrency trading strategy
Scalping
Perhaps, the most common day trading cryptocurrency strategy that allows you to earn during the day. It is based on making money on a change in just a few price points in any direction - hence the name.
The essence of scalping is to make small transactions in large numbers, that is, dozens and sometimes hundreds of fast transactions during the day, each of which is designed for a profit of a few pips. For example, it is possible to open 100 deals during a day, each of which will bring $5 on average, taking into account losing positions. Thus, in one trading day, you can earn $500.
This type of trading requires a player a good reaction and the ability to make decisions instantly. At the same time, the scalper can rely on:
- Analysis of supply and demand.
- Market reaction to the news.
- Technical analysis.
- Intuition.
It helps to choose the moment more accurately and close most trades in the plus. It is also necessary to use clear trends to make more trades with profit.
The high frequency of price changes in the crypto market has opened up many opportunities for professional scalpers. Dealers who use this strategy choose those cryptocurrencies that constantly and sharply fluctuate in price as much as possible. If the asset rises and falls in the range of 1-2% per day, the scalper will not be able to earn much money on such a coin. If, however, the price of a cryptocurrency fluctuates over 15% during the day and can rise and fall by 2-3% in a few minutes, then fast transactions with such assets can bring the trader a good income.
From here, we can determine how to choose the best crypto for day trading when scalping. The ideal ones will be those that have the highest volatility - for example, Litecoin, Bitcoin, Ripple, or Ethereum.
Manual scalping requires constant concentration from the trader as well as a considerable amount of free time. This is the reason why many participants in the digital industry crypto automation trading, entrust it to bots on cryptocurrency exchanges. This is a specially created algorithm that uses various indicators and software systems to make trades on behalf of the user. By choosing the best trading bot for crypto, you can make more money with it.
Also, do not forget about the trading platforms on which you will carry out the operation. Best crypto platforms for day trading present the trader with a lot of tools with which he can facilitate his trading.
Arbitrage
Cryptocurrency exchange arbitrage is one more cryptocurrency trading strategy, that means buying a digital currency at the current price on the first exchange and then selling it at a higher price on another.
Let's explain again with the example of the first digital coin. For example, you notice that a bitcoin is worth $43000 on one exchange and $43400 on another. Your action, in this case, is to buy it on the first exchange and sell it on the second one, which will bring your profit in a few minutes to $400 minus the commission to both exchanges.
There is one nuance that the trader should keep in mind. He must have accounts with replenished balances on both crypto exchanges ready to work. Otherwise, he runs the risk of missing out on an opportunity to make money on arbitrage while he is registering accounts and depositing assets into his account.
In addition to earning on the rate differences between the two exchanges, it is also possible to earn within the exchange. Such arbitrage is called intra-exchange arbitrage. Its trading scheme involves the use of three assets. As a result, the so-called exchange triangle appears, after the closing of which the trader earns income.
The scheme of intra-exchange arbitrage consists of a sequence of the following actions:
- Purchasing a selected cryptocurrency, for example, bitcoin for fiat.
- Select a pair with which bitcoin is quoted at a favourable rate.
- Performing the exchange.
- Selling the result of the exchange and making a profit.
- Withdrawing profit from the exchange to your wallet/bank account.
Profit in this case is formed as a result of the difference between the exchange rate of the first and the second crypto in relation to fiat or stablecoin. The art of arbitrage is choosing the right assets. But most often the calculations are made with the help of special software.
How to pick crypto for day trading in case of arbitrage? Don't look towards digital assets with high volatility. You should not look toward digital assets with high volatility. It is not the rapid price change that plays a role here, but the gap in the value of assets on different crypto exchanges. Therefore, give preference to coins with a more stable rate, so that their price does not have time to change while you are making a transaction.
What should I keep in mind when choosing this strategy?
- An exchange charges a fee for the execution of transactions. Thus, the cost of the transaction may well exceed the potential income from the deal itself. Therefore, the price gap for the same digital asset must be high enough to realize profitability.
- Another important condition is the time of execution of the transaction, and the speed of transfer of information between your device and exchange. The delay should be minimal. In this case, we are talking about the speed of finding an arbitrage situation in the financial market. In addition, it is worth taking into account the time for the execution of transactions themselves.
However, arbitrage can become one of the good and safe cryptocurrency day trading strategies, if you take into account all the above points.
Range trading
Let's consider another day trading crypto strategy.
A range is when the price moves between the upper and lower levels. Ranges arise as a result of buyer and seller indecision - neither group can push the price of a cryptocurrency beyond the upper or lower range, or resistance and support levels respectively.
The top of the trading range of digital assets often provides price resistance and the bottom of the trading range usually offers price support.
Once these levels are determined, a trader can buy the cryptocurrency at the lower support level of the trend line and sell at the resistance level of the upper trend line, thereby making a good profit. Many traders also use forms of technical analysis in conjunction with price channels to increase their chances of success.
Range trading is a relatively simple strategy that can suit even those who do not have much experience in trading cryptocurrencies. However, keep in mind that you should know how to read candlestick charts and understand what support and resistance levels are before you move on to day trading.
Tips for Day Trading
Below are daily cryptocurrency trading tips that will help you successfully implement day trading strategies, especially if you are a beginner. However, before getting to them, one important thing should be mentioned.
Like in any other business, the success of day trading depends entirely on the qualities of a trader. It requires focus, concentration, high-stress tolerance, the ability to work at an extremely fast pace, and not to react to short-term failures. However, unlike many other strategies, day trading does not require waiting around, which can be a major advantage for many traders who do not wish to wait long for results.
Check out our crypto day trading tips to be successful in day trading and get a good profit out of it.
Plan and Strategy
A plan of action is an important aspect when it comes to day trading cryptocurrency. If you are a beginner, avoid the risk of putting real money on the line without a plan in place. In this case, the plan should include how much you want to buy and sell, when to enter and exit trades, and the volume of trades.
The plan should also be accompanied by a risk management strategy that ensures that you only lose what you can afford. Without a trading plan, as well as a risk management strategy, being a day trader will be quite difficult and such an approach is unlikely to make much profit.
The time to start trading
Day trading is based on consistency. One way to achieve consistency is to trade at the same hours every day. It's quite common to see day traders spending three to four hours a day. It is in this interval that you are likely to find profitable trades.
Use of technology
Using all available technology is the best way to gain an advantage as a day trader. If you are a beginner, you should master the art of using charts to analyze the market in addition to using a computer or laptop and a reliable internet connection. Using mobile apps can also help you get instant access to the market almost anywhere. Also, keep in mind trading robots that can help automate your strategy, thereby increasing your income.
Never stop learning
To become a successful day trader, you need to always be aware of all new trends in the markets. Keeping up with the latest news, studying the most profitable crypto trading strategies of day trading, and chart patterns are all sure ways to build a successful career.
Know when to stop
A big mistake that beginners make is not knowing how to stop at the right moment. As a day trader, you must know when to stop trading to prevent accumulating losses. If any of your selected strategies for trading cryptocurrency suddenly stop working, pause and go back to planning, or even postpone it to the next day. Sometimes there can be days when the market slows down or everything just doesn't go according to plan. Instead of taking a loss on one of those bad days, it's better to just step away from the computer. The market will be there tomorrow and you will return rested.
In conclusion, day trading requires hard work, determination, and focus to make a profit. But if done right, day trading can be exciting and profitable. You can trade day trading in almost any market, especially if you choose the best crypto day trading strategy that you can use or modify to make even more money from it.