3 May 2021
Cryptocurrency trading can be a rollercoaster ride due to its volatile market. However, many have made millions of dollars in the crypto space. Trading is all about buying and selling an asset to make a profit. One can follow many strategies and methods for crypto trading, one of which has been claimed to be a lucrative approach is Cryptocurrency Day Trading.
Day trading is short-term trading, meaning holding an asset for a short period; it could for seconds to a couple of hours. The concept of day trading is basically to sell your asset by the end of the day, hoping to make a profit! Since dealing with crypto trading can be tricky, one has to keep themselves updated all the time and understand the risks associated with the asset you are planning to invest in. The first approach to day trading or any trading strategy is to have a plan, some rules, risk management, and willingness to stick to the plan. Thus, all that crypto day trading requires is crypto market knowledge, a plan, timing, and enough crypto liquidity.
With Crypto Day Trading, you don’t have to trade everyday but when all the conditions are aligned in your favor. Thus, the idea behind day trading crypto is to approach the trading opportunity when you see the potential of making profits.
In this blog, we are going to discuss 10 Tips For Cryptocurrency Day Trading:
1. Practice makes a man perfect
Cryptocurrency trading can be overwhelming at times, especially if you are a newbie in the crypto space. So instead of first playing in the trading field, you can practice and experience through platforms that facilitate a demo account or a trading simulator. Coins2Learn is a platform that offers a crypto market simulator, and it is also a trading academy.
2. The Novice Trader
If you are a novice trader, then you must not rush to gain high as crypto day trading can be a challenging approach. Learning about the working of blockchain, the crypto market, and starting with a small amount will help you get the gist of crypto trading. One step at a time will help you figure the working of the crypto market; then you can start with full-fledged trading.
3. Choose a Coin With High Volatility, Liquidity, and Volume
The first step to Crypto Day Trading is to choose a coin that is highly volatile and liquid. One crucial factor is to check the cryptocurrency liquidity through the 24-hour volume of the crypto trade. Many exchanges and websites provide the live, 24hour, and historical data of the cryptocurrency. These platforms provide live prices, volumes, charts, market cap, and so forth. Since many cryptos and crypto exchanges are illiquid, it affects the trading execution.
Over 5000 cryptocurrencies exist in the market; it is not necessary to choose the top cryptocurrencies, you can even go with the smaller ones. However, it would be best to keep in mind that crypto trading is risky and highly volatile; so the price can swing at any point; hence risk management is the key factor here.
Also Read, 5 things you should know before Crypto trading
4. Choosing an Exchange
While choosing the Crypto Exchange, you should consider the given factor - pairings listing, liquidity, trading volumes, fees such as exchange fees, trade fees, deposit and withdrawal fees, security, and so forth.
5. Money Flow Indicator
Many crypto analysts have suggested the preferred setting for MFI reading to be 3 periods. MFI reading of 100 shows the presence of big sharks participating in the market, you will learn about this through MFI due to their activity traces in the market. Ideally, in the course of 3 periods, you should study their crypto reactions and skip the first two readings of 100; however, the price should hold up during these first two 100 MFI readings. If the price strikes down during the first two readings, it means that the market will eventually go down. Thus you should the least ideally wait for the third 100 MFI reading or the ones after that considering the crypto price flow and the conditions stated above. For the final step, when reading the MFI 100, the candlestick’s candle should be bullish.
6. Stop Loss
A stop loss is an order to automatically exiting the trade when it reaches the price you have entered. The protective stop loss should be hidden below the low of the day. A break below will signal a shift in the market sentiment which also signals a reversal day to exit the trade. The ideal crypto day trading rule to follow is to take benefits in the first 60 minutes after your trade is triggered since holding it for too long will affect your success rate. Stop loss protects you from a sudden price decline, especially when you are not watching.
7. Limit Sell Order
A limit order is an order to sell the asset when it has reached the specific price or better price that you have entered.
Also Read, Everything you need to know about High-Frequency Trading
8. HFT - High-Frequency Trading
High-Frequency Trading requires skilled traders as it is a complex method. It involves algorithmic trading strategy and trading bots wherein you enter and exit the trade as quickly as you can over a short period ( these time frames are literally milliseconds). This type of strategy requires monitoring, backtesting, and algorithm adjustments, and advanced market strategies and research to implement.
Scalping is a method that involves taking advantage of the smaller movements in price on short time frames. The gaps consist of the bid-ask spread, liquidity, market inefficiencies. To leverage in scalping, it is important to understand the risks involved, thus you will have to be aware of the margin requirements to apply position sizing, order book analysis, heatmaps, and so forth.
10. Way To Day Trade Cryptocurrency
There are two ways you can day trade cryptocurrency, one is through exchange wherein you buy and sell the asset by the end of the day, hoping the crypto price to go up. The second way is through Cryptocurrency CFDs - Contracts-for-differences assets using long order or short orders.
Cryptocurrency trading can be stressful, overwhelming, and demanding. You would need to give your all in to be a part of day Crypto trading and not trade based on your emotions, FUD and FOMO. It is important for Day Crypto Traders to have a plan, strategy, and risk management in the picture, solid understanding of the crypto market, experience in the trading field, market understanding, and knowledge of TA - technical analysis, volume, price analysis, chart patterns, technical indicators. The Golden Rule for any investment approach is “Invest what you can afford to lose”.
Disclaimer: The author’s views and opinions are for informational purposes only and do not constitute financial, investment, or other advice.