Day Trading Crypto: Platforms, Investments, and Strategies

In order to make money, day trading and traders frequently trade one or more stocks throughout the course of the trading day. While conventional buy-and-hold investors are focused on a company’s long-term performance, day traders look to capitalize on more recent opportunities for profit.

Successful day traders use a variety of resources and tools, such as stock screening software or day trading simulator software, to profit from short-term price changes in stocks, bonds, and other financial instruments like commodities and currencies.

Day trading entails a high level of risk because it can be challenging to capitalize on price disparities and changes within a little window of time.

The cryptocurrency markets have recently gained popularity as a day trader destination. The cryptocurrency markets never close, in contrast to conventional markets. Day trading cryptocurrency is more accessible than day trading on the stock markets because it doesn’t require a brokerage or leverage account.

Cryptocurrency poses hazards for individuals who are interested in investing in it, despite being a new and exciting business. Anyone thinking about investing in a cryptocurrency should also examine the market’s volatility and speculative nature given the thousands of new cryptocurrencies that are constantly appearing on exchanges and trading platforms.

No matter the market, a day trader should have a thorough understanding of crypto as well as trading principles. Only invest what you’re prepared to lose. If you have impeccable risk management skills and nerves of steel, here’s what you need to know to get started day trading crypto.

Choose a platform for day trading

Deciding which platform to utilize is the first step a day trader must take. This is a crucial consideration when choosing the best platform because US-based traders can only use platforms that are domestically regulated for crypto day trading.

The most important factors for traders to consider when selecting the best platform to buy and sell cryptocurrency are exchange liquidity, asset liquidity, and fees. The value of digital assets might fluctuate rapidly due to the turbulence of the cryptocurrency market. The market demands quick decisions from traders who want to maximize their profits.

When choosing a location for crypto trading, the first option isn’t necessarily the best. The options and distinctions among the numerous crypto exchanges can be confusing for nascent day traders.

When searching for the ideal trading platform, keep the following factors in mind:

• Number of years in operation: The length of time an exchange has been in operation can indicate its stability and reliability.
• Supported cryptos: When deciding which platform to use, being aware of the cryptocurrencies that may be traded in advance can be a useful tool. A smaller exchange with more supported cryptocurrencies and trading pairings may be more useful to day traders interested in altcoins than a larger exchange with fewer alternatives.
• Transaction fees: Exchanges charge transaction fees when buyers or sellers complete a transaction. To monetize their operations, all bitcoin exchanges charge users a transaction fee. Depending on the exchange’s goal, the transaction cost structure may alter, for example, charging no fee for trades exceeding $10,000 to encourage big trades.
• Deposit options: Users must fund their exchange account with capital, much like a brokerage. Fewer exchanges permit credit card funding, PayPal transfers, or even gift card transfers; most exchanges only permit bank transactions and wire transfers.
• User testimonials: One of the greatest ways to decide which exchange to utilize is to visit various crypto communities and read user reviews.
• Exchange liquidity: Also known as market liquidity, refers to how quickly and easily an exchange may transform one item into another without impacting the price of the original asset. The top cryptocurrency exchanges have high liquidity, which means they can purchase or sell assets quickly and with little variation between the ask price and the bid price.
• Another consideration for potential traders is if it is affordable, simple, or even possible to send their assets off-platform to a different cryptocurrency wallet of their choosing. Your exchange should make it simple to transfer account funds or assets to off-platform wallets if your day trading session is cut short.

Choose your investments 

It’s time to decide what you want to invest in after you’ve registered on a platform. Volatility in the cryptocurrency market is a necessary evil for day traders. The same chaotic market environment that scares away long-term investors also provides possibilities for day traders to benefit. Day trader requires both volatility and liquidity to actively participate in the cryptocurrency market.

Success as a cryptocurrency day trader, according to Tally Greenberg, head of business development at Allnodes, involves more than just understanding the charts. According to Greenberg, understanding how the blockchain works and its network’s scale, governance, and protocols can help you evaluate the general health of your potential investment. “Therefore, be ready to learn a lot and follow news on the blockchain changes for your chosen assets.”

According to Greenberg, traders have a competitive advantage if they have a technical understanding of the technology and team behind an altcoin project. Greenberg stressed cautious consideration when asked how a day trader should choose which coin to trade. “Investing in the top 15 to 20 currencies by market cap is one popular cryptocurrency approach. But even here, I would proceed carefully,” Greenberg continues. You’ll need to do a lot of research to understand all of the coins on this list because not all of them make sense. Crypto day trading is a risky activity. Invest [only] what you can [afford to] lose. But when you approach day trading with the same respect as any serious job and learn everything about the craft and the assets you are trading, you’ll be profitable.”

Consider asset liquidity, volatility, and trading volume when deciding what to invest in.

The ease with which an asset can be exchanged for cash without depreciating is known as its liquidity. When a trade is executed and an order is filled by the exchange, the price of a crypto asset may fluctuate. Slippage accounts for the difference between those prices, and in the crypto markets, a few minutes can make the difference between a significant gain and a significant loss.

The entire cryptocurrency market could suffer from a shortage of liquidity, which would increase the likelihood of a flash crash and cause slippage. When the top buy offers in the order book are eliminated by a sizable market sell order, flash crashes occur. When there are no buy orders available, traders will attempt to exit their position as soon as possible, which can cause the asset’s price to crash. Flash crashes have in the past caused exchanges to repay millions of dollars in damages to impacted users.

A day trader’s best friend is volatility, which they must comprehend and account for. The unpredictability of cryptocurrency price changes is referred to as a market’s volatility. The news cycle, economic statistics, and research reports are among factors that impact market volatility. The same variables in the cryptocurrency markets have a significant impact on some crypto assets, or none at all.

Compared to more well-known and widely-used cryptocurrencies like bitcoin or ether, volatility is greater among altcoins with lower market capitalization.

The total quantity of cryptocurrencies traded over a specific time period is referred to as the trading volume. The trade volume of a cryptocurrency is a gauge of interest in the market as a whole. A cryptocurrency with a lot of trading activity typically has more liquidity. In a similar line, a cryptocurrency with great liquidity frequently has a higher price. Even though the cryptocurrency market is quite liquid and volatile, not all cryptocurrencies are created equal. The trading volume of a cryptocurrency asset can be used by day traders to determine whether it can be sold quickly and for a higher price than when it was first bought.

Because cryptocurrencies are still in their infancy, there are still many unresolved market difficulties caused by the distinct blockchain technology that powers them. The relationship between the cost of bitcoin and each alternative cryptocurrency is one illustration of this. The price may fall as a result of miners selling their coins if there is a mass exodus of Bitcoin miners from a certain nation, for instance. When there is negative pressure on the price of bitcoin, the altcoin market typically declines along with it.

The first step in choosing the best cryptocurrency for day trading is to find a cryptocurrency asset with high volatility and liquidity. These two requirements alone should not be used to decide whether to enter; other elements unique to the particular cryptocurrency should be considered instead. How are the minerals or coins made? Is the coin receiving a lot of attention? If the coin’s price doesn’t increase by a set amount of time, when should you stop losing money?

Choose a trading strategy

Traders who engage in day trading employ a variety of strategies to profit on transient movements in the cryptocurrency markets. A successful trading strategy should be developed by a cryptocurrency day trader, supported by thorough planning on when to join and quit positions.

Some websites enable users to follow and emulate the most profitable traders on the platform, which is helpful for aspiring day traders. Here are a few of the most used trading methods for day trading in cryptocurrencies.

When a trader purchases a cryptocurrency on one exchange and instantly sells it on another exchange for a better price, they have engaged in arbitrage.

Arbitrage opportunities may be facilitated by cryptocurrency pairs. Arbitrageurs can profit by exploiting price differences across exchanges when the price of a crypto pair made up of Bitcoin and a lesser-known altcoin varies. Arbitrage maintains the stability of the price of digital assets across several exchanges while being a complex financial mechanism that is typically automated by price-monitoring software

Bot Trading

An automated software tool called a day trading bot is used by investors to purchase and sell financial instruments at certain times or when certain conditions are satisfied in order to maximize earnings. Bots for cryptocurrency trading are intended to boost gains while lowering risks and losses.

Cryptocurrency day trading bots can speed up the process of analyzing price changes, exchange costs, and trading chances that could result in quick profits. Trading bot software has been a mainstay of brokerages that trade on stock exchanges for many years. Traders who are familiar with software programming and APIs ought to think seriously about utilizing this as a day trader.

Long Straddle

The purchase of both a put and call order constitutes a long straddle, sometimes referred to as a buy straddle, option straddle, or just straddle. The same cryptocurrency, striking price, and expiration date are used by the call and put orders in a long straddle.

Due to the volatility of the cryptocurrency market, the long straddle is a common trading strategy. By employing this tactic, a cryptocurrency day trader is placing a wager on the price movement of a crypto asset. Whether the price in the long straddle rises or decreases, the day trader still makes money. The trader will experience a loss if the price does not change.

Range Trading

Range trading capitalizes on sideways markets (or non-trending markets) by pinpointing stable high and low prices, represented on charts as resistance and support levels. Day traders using range trading techniques identify a period of time to buy a crypto asset when it is oversold (at a low price) and sell when it is overbought (at a higher price) to make profits. 

Online screeners can help crypto day traders choose the best crypto asset to range trade. Like other trading techniques, range trading is adaptable to a variety of markets outside the cryptosphere. Range trading is favored by cryptocurrency day traders due to its distinct entry and exit locations that help reduce losses. The range trader reduces losses brought on by negative news cycles or market circumstances by making tiny profits over a little period of time.

Scalping

Scalpers use a lot of liquidity to profit from small price changes and are known as the trading method with the fastest turnaround. This trading method can involve putting up a bot to execute high-volume, frequent trades based on signals or technical indicators, or it can involve buying and selling bitcoin or other cryptocurrencies over the course of a few hours and cashing out on modest percentage profits by the end of the day.

Scalping cryptocurrency is popular among the day trading communities because of its simplicity for bot automation, low risk, and possible return. Trading can be made less stressful and anxious by programming trading bots. Scalping allows traders to analyze wins or losses at the end of the day rather than investing over an extended period of time because the positions are smaller. Due to market volatility, traders might consistently make little profits over time that add up to significant wins in the long run.

Technical Analysis

Technical analysis (TA) is the study of financial data like historical price and volume data points to identify statistical trends in the markets. TA provides traders with a science to find opportunities to trade and earn profits. 

Any market or securities that has previous trade data is a candidate for technical analysts to use their methodology on. When analyzing how previous performance predicts future gains or losses in the cryptocurrency market, TA can be utilized as a general framework.

The use of TA in the cryptocurrency markets is a hotly contested issue among traders. Many contend that cryptocurrency is incompatible with technical analysis due to the lack of international laws and the sheer number of exchanges. Some traders think it’s worthwhile to use indicators like the relative strength index (RSI). The RSI indicator assesses the link between a cryptocurrency’s price and its actual demand. The RSI helps traders plan entry and exit points based on momentum by determining whether an asset or security is overbought or oversold.

The Money Flow Index is yet another significant oscillator used by technical analysts for cryptocurrencies (MFI). To determine if the price of BTC is trending towards a bullish or bearish divergence, the MFI can be utilized in conjunction to the RSI.

Technical analysis in cryptocurrency is best applied in conjunction with other tactics. The news, fundamental analysis, correlation arbitrage, and other market drivers should all be taken into consideration by crypto day traders in addition to TA, which they should be aware of and have in their toolbox. The emphasis on developing a comprehensive strategy for deciding when to enter and exit positions is the best feature of technical analysis.

Pros and cons of day trading cryptocurrency 

Any crypto investment carries a high risk/high reward ratio. Cryptocurrencies are a new type of digital assets, and investors should always be aware that their investments could go away.

Traders should put aside some time to become familiar with the impending laws and guidelines governing the taxation of cryptocurrency profit. For instance, short-term capital gains tax does not apply to cryptocurrency. Any cryptocurrency sold by day traders that was kept for less than a year is subject to marginal income tax. When reporting earnings online or to your accounting professional, be sure to include your cryptocurrency gains.

Pros

• Everybody who has access to a cryptocurrency exchange is free to trade it. There are no additional obstacles to entry for retail investors or day traders to access, research, and engage with the crypto markets aside from confirming your identification and financing your exchange account. Additionally, those who wish to possess bitcoin but are unable to pay $60k or more can buy and sell a portion of any cryptocurrency.
• The crypto markets are open every day of the year, 24/7. As the crypto markets never close, traders can purchase and sell without restrictions. The trading day for the Nasdaq or the New York Stock Exchange is from 9:30 a.m. to 4 p.m. ET. Being able to trade whenever it’s convenient is one benefit of having access to the market around-the-clock (rather than suiting the market).
• Cryptocurrencies and the blockchain technology that powers them are decentralized and designed to keep users anonymous and capable of processing payments without an intermediary. For day traders on a centralized exchange, the absence of government taxes and fees make the cost of transacting crypto very cheap. 

Cons

• Due to how simple it is to begin trading cryptocurrency, a novice or inexperienced trader may suffer severe losses in addition to gains.
• It’s a two-edged sword having a 24/7 market. There are fewer times of the day where predictable (and successful) trades are being performed due to cryptocurrency’s always-open nature. Day traders using cryptocurrencies can spend more time than they would in conventional markets staring at the charts in search of the best moment to execute a trade. Because of this, identifying patterns may become considerably more difficult, and brief day trading sessions may grow into evening trading sessions.
• The know-your-client and anti-money laundering standards for domestic cryptocurrency exchanges are being gradually tightened by US government watchdogs like FinCEN, but the market is still largely unregulated. Without government control, exchanges, institutions, and traders who are hacked or conned lack protection. This means that if an exchange closes, users may not be able to get their money back without a private insurance fund.
• You could become a victim of wash sales or pump-and-dump operations when trading cryptocurrency. This happens when a group of individuals work together to artificially raise the price of a certain cryptocurrency in order to draw in unwary traders. After making profits, the traders dump the cryptocurrency, which drives down the price.

In Conclusion

Crypto day trading is a high-risk tactic that frequently involves buying and selling cryptocurrencies in an effort to make quick money. Anyone interested in day trading cryptocurrency should have a clear day trading strategy, be aware of their trading location, and adhere to their entry and exit points.

It’s crucial to keep in mind that the vast majority of day traders lose money. The main characteristics that differentiate cryptocurrency day trading from gambling include setting aside time to concentrate only on your transactions, tracking earnings and losses, and adhering to a full-fledged plan. There are several ways to make money in the cryptocurrency market, and day trading is only one of them.

“I’d suggest starting off with what is called paper trading,” says Shaun Heng, VP of operations at CoinMarketCap. “After all, there is a learning curve to crypto trading. Paper trading is offered by most exchanges and is essentially training wheels, or ‘trading wheels’ if you will. You trade as if you were trading with real money, but without depositing any money. This allows you to try your hand and practice without using money to trade that you could lose. This means that you won’t lose or earn money but it will also help you consider the potential risks and rewards.”