Day Trading Cryptocurrency. The term “day trader” first appeared in the stock market, where transactions commonly only occur during weekday business hours. The marketplaces for cryptocurrency are available for business all day, every day, which is a significant difference when day trading. Before investing in this type of cryptocurrency, prospective day traders should have a firm grasp on the basics of day trading and a few additional considerations.
What is Day Trading?
Buying and selling stocks on the same day is known as day trading. Something similar is referred to as “intraday trading.” The goal of day traders who use intraday trading methods is to profit from price fluctuations in a particular financial asset or instrument.
Things to Know About Crypto Day Trading
For day trading to constitute a profitable endeavor, two market conditions must be present:
Liquidity
The ability to quickly enter and exit agreements without substantially impacting prices is essential for traders. When there isn’t enough liquidity in the market, traders risk losing money due to slippage, which occurs when they can’t sell a prominent position at the price they want. If the position is to be sold in stages, with each order sold for less than the one before, this is known as slippage. This implies that the gains will be diminished when the entire position is liquidated.
Volatility
When market prices aren’t fluctuating, there’s no way to profit from buying low and selling high. Day traders rely on short-term market changes to fuel their buying and selling strategy within a single day. Price fluctuations in cryptocurrencies are not unheard of; for example, if miners are liquidating their holdings, the cryptocurrency price could fall for a while.
5 Day Trading Crypto Strategies
Some cases make sense to hold onto some cryptocurrency for the long haul, and others don’t. Consequently, buying and holding cryptocurrencies could be a strategy for some investors. This might be especially true during cryptocurrency bull markets when corrections are short. Cryptocurrencies, like Bitcoin, are risky investments; therefore, investors should be aware of this. An investment’s previous performance is no guarantee of future returns.
If day trading is your primary investment strategy, you have many options. Technical analysis is a popular trading method; entire communities have sprung up around it. Traders with a shorter time horizon must undoubtedly employ a rule-based trading strategy. Five strategies for day trading cryptocurrencies are presented here.
Technical Analysis
Technical analysis (TA) uses mathematical indications and patterns in charts to predict the future movement of prices. While automated trading platforms like TradingView can generate technical indicators like the Relative Strength Index (RSI), human analysts are still required to identify patterns like the cup-and-handle.
One popular technical indicator is the relative strength index or RSI. Underneath a graph, a single line displays a value between zero and one hundred. As the RSI reaches 100, it is assumed that overbought conditions exist, which could lead to a decline in prices. When the RSI falls below zero, it’s thought that oversold conditions prevail, which could lead to price increases. Here, we see one possible use of TA by a cryptocurrency day trader.
News and Sentiment Analysis
Even though it’s not as frequent among day traders, keeping an eye on news and market sentiment can help you make money trading cryptocurrency. Occasionally, major news might trigger a sharp movement in bitcoin values.
At the time of writing in mid-April 2021, for example, Turkey has already announced that it will not permit Bitcoin or any other cryptocurrency as a means of payment within its borders. This precipitated a global sell-off in cryptocurrencies, leading to a 10% long-term decline and an initial 3.2% reduction in Bitcoin’s value.
In addition, several websites use Twitter buzz research to evaluate the attitude surrounding the most popular cryptocurrencies. More positive tweets indicate a more optimistic mood on a cryptocurrency, whereas more negative tweets indicate a more negative sentiment, at least in theory.
Range Trading
Prices tend to stay inside a predetermined range, according to the theory behind range trading. This method uses support and resistance levels as well as candlestick charts. When prices reach support, traders may decide to buy; when prices reach resistance, they may choose to sell. Another option is to go short when prices are about to hit resistance and then get out when prices are about to hit support. Pivot points are an example of range-bound trading. By computing pivot points, investors can learn when momentum reversals will likely occur at certain price levels.
Scalping
This strategy aims to turn little price changes into big profits. These are typical market inefficiencies, including liquidity gaps and the bid-ask spread. Because they seek to profit on minute price changes, “scalpers” often use leverage, like margin or futures contracts, to boost their earnings. Risk management is of the utmost importance while employing this strategy, as it raises the likelihood of losses.
When deciding whether to join or quit a trade, scalpers may use tools like volume heatmaps, research into the order book, or technical indicators. The fast-paced and high-risk nature of scalping makes it best suited for experienced traders.
Bot Trading
“Bot trading” or “high-frequency trading” refers to using automated trading systems and algorithms that can execute many trades quickly. This method requires programming skills and complex trading strategies.
While high-frequency traders don’t hand over control to a computer, crypto trading bots do just that. To build a trading bot, one must establish a detailed strategy, design appropriate software to implement it, and then monitor, backtest, and update the algorithms in real time to adjust to changing market conditions.
You can buy trading bots that some vendors have already programmed. The question of why not everyone is using this bot and why its creators are selling it instead of using it themselves arises when considering this type of bot. After all, the bot is both profitable and easy to use.
