How to Day Trade Bitcoin: A Beginner’s Guide to Day Trading Bitcoin

DATE PUBLISHED: JAN 9, 2023
29 MIN
DATE UPDATED: FEB 6, 2023

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Want to learn how to day trade Bitcoin? You’ve come to the right place.

Day trading Bitcoin allows traders to profit by speculating on the cryptocurrency's short-term movement. As a result, day trading has become the most widely used strategy across all financial markets, including stocks, forex, commodities, and cryptocurrency.

Unlike traditional financial markets, the crypto market has drawn attention because it provides one of the most profitable environments for day traders. The massive volatility and their availability 24 hours a day, seven days a week, have proven to be a strategic opportunity to make quick money from day trading.

In this bitcoin day trading guide, we will look at what day trading is and also consider the different strategies for day trading Bitcoin.

Most of you are probably wondering how to make money day trading Bitcoin. So, let us find out.

What is Day Trading?

Day trading (also referred to as "intraday" trading) is trading executed on the same day, usually with the assistance of computers, to capitalize on small and short-term movements in price. The goal is to capitalize on small (or large) fluctuations in price, to realize incremental gains that can add up over time.

Day trading is fundamentally about volume, support, and resistance.

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Steps to Take Before Day Trading Bitcoin

Reportedly, good day traders use their day trading strategies to make one to two percent in profit per day. The statistical probability is slim, but how can you beat the odds?

If you want to know how to day trade Bitcoin, your chances of success depend on taking the right steps before you start trading. Before focusing on how to day trade Bitcoin, you need to understand how the blockchain itself works and what makes it different from the traditional model of transactions.

Learn the basics through free educational content online

Before you start day trading Bitcoin, gather different opinions from people who know what they are talking about. 3Commas hosts an entire community of professional traders from which you can learn firsthand.

Apart from developing good day trading strategies, this will also go a long way in helping you understand how to day trade Bitcoin.

Pay attention to all the aspects – positive as well as negative

Research resources that will objectively highlight different peculiarities of this market. There is a lot to learn from blogs, books, online classes, documentaries, etc.

Accept the inherent risks

In this risky market, things can go wrong at any time. For example, in late June 2019, the Bitcoin price fell by 15% after a violent sell-off. Interestingly, even seasoned traders were caught off guard.

Determine how much you can invest

Considering the volatility of Bitcoin, you can expect a lot of ups and downs. Your existing capital, risk tolerance, and financial goals are the main determinants.

Catch up to speed with the recent industry updates

The media is the most important source of influence on the price of Bitcoin and other cryptocurrencies. Certain news spreads like wildfire, and the price of Bitcoin gets impacted. For example, a simple declaration of a large company’s interest in Bitcoin may cause a sharp increase in the price.

Pay attention to political news

Political events also have an impact on day trading Bitcoin. This is why you need to pay attention to them while learning how to day trade Bitcoin.

During the Greek crisis in 2015, many Greek traders invested in cryptocurrency and were affected by it. Similarly, presidential elections or Brexit will affect Bitcoin’s price before any other crypto.

Find good software

If the software interacts directly with financial exchanges, it is a useful tool in such rapidly changing settings as daily trading. Based on the comprehensive interpretation of the market data, the 3commas trading program allows trades to be executed faster and more efficiently.

How to Day Trade Bitcoin: Strategies for Day Trading Bitcoin

Even though you can get deep into highly technical indicators, you should learn the basics of simple Bitcoin day trading strategies in the beginning. It does not necessarily have to be an intricate strategy that you can’t wrap your head around.

When it comes to day trading Bitcoin, the more straightforward the strategy is, the more effective it is. The basic questions you should be asking yourself when deciding on a strategy are:

  • How much effort are you willing to put into the process? Can you manage sitting behind the computer for a long time, or do you want minimal involvement?
  • What kind of expertise does the strategy require? With varying degrees of complexity, you need to find one that suits your skills.
  • When do you want to see the first results? Do you expect to start earning as soon as possible, or can you give it some time?
  • What trading style would suit your personality best? Decide if you should stick with formula-like systems or follow a more creative and intuitive approach.
  • Do you want to play it safe or make riskier but potentially more profitable trades?
  • What are the regulations in your country? They can eliminate certain strategies. For example, US regulations place limits on leverage and hedging.

We will shed more light on Bitcoin day trading strategies later in the guide.

When day trading Bitcoin, positions are based on short-term movements, so you need to respond quickly. If there is relevant news that could affect the price or you see an emerging pattern, the window for any action is very limited. After you master the basic techniques, you could consider using a series of day trading strategies.

How to Begin Day Trading Bitcoin for Beginners

Select a Trading Platform

The first decision a day trader must make is which platform to use. Since traders based in the US can only use crypto trading platforms that are regulated domestically, this is an important factor that must be considered when looking for the best platform.

Factors to Consider Before Choosing a Trading Platform

While learning how to day trade Bitcoin, you need to pay attention to the platform that will be used for day trading bitcoin. Here are the most important things you need to consider:

Years the platform has been active

The longer an exchange has been in business, the more stable and credible it is.

Cryptocurrencies the platform supports

Knowing which cryptocurrencies are available for trading ahead of time can be a useful tool in deciding which platform to use. A smaller exchange with more supported cryptocurrencies and trading pairs may be more useful for day traders who are interested in altcoins than a larger exchange with fewer options.

Transaction fees

When buyers or sellers execute a trade, exchanges charge transaction fees. They do this to monetize their business.

Deposit options

Many crypto exchanges accept wire and bank transfers, but few accept gift card, PayPal, and credit card funding. So it is important to know if the platform accepts your deposit option.

Reviews 

One of the best ways to decide which exchange to use is to visit different crypto communities and read user feedback. This will give you an idea of how the platform operates and if it is reliable.

Liquidity

The liquidity of an exchange refers to how fast and how easy an exchange can convert one asset into another without any impact on the asset’s price. The best cryptocurrency exchanges are highly liquid, which means they can buy or sell assets almost instantly and with a small difference between the bid and ask prices.

Select Your Investments

Once you've chosen a platform, it's time to decide what you want to invest in. Market volatility is a necessary evil for crypto day traders. The same market conditions that scare away long-term investors create opportunities for day traders to profit. The day trader requires volatility and liquidity to actively participate in the crypto market.

Factors to Consider Before Choosing What to Invest In

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

Asset liquidity

This refers to how easy it is to convert an asset to cash without affecting its price is referred to as "asset liquidity." When the trader executes the trade and the exchange fulfills the order, the price of a crypto asset can change.

Slippage is the difference between those prices, and in the crypto markets, a few minutes can mean the difference between a large profit and a large loss.

A lack of asset liquidity can devastate the crypto market, thereby leading to slippage and increasing flash crash risk. A flash crash occurs whenever a large market sell order clears out the top buy offers in the order book. Traders try to close their positions as soon as possible, and with no buy orders present, the asset's price can plummet.

Volatility

The unpredictability of the movement of crypto prices is referred to as "market volatility." Economic data, research reports, and news cycles are all factors that influence market volatility. In the crypto markets, the same factors have a dramatic (or no) impact on certain crypto assets.

Trade volume

The total number of cryptocurrencies traded over a specified period is referred to as "trading volume." The trading volume of a cryptocurrency is a measure of overall market interest. A cryptocurrency with a high trading volume has more liquidity. In the same vein, a cryptocurrency with high liquidity often has a higher price.

While the cryptocurrency market is highly liquid and volatile, not all cryptocurrencies are created equal. Cryptocurrency day traders should carefully examine an asset's trading volume to determine whether it can be sold quickly and for a higher price than when it was purchased.

Select a Trading Strategy

The next step in learning how to day trade Bitcoin is to choose a day trading strategy.

Day traders use a variety of strategies to profit from short-term fluctuations in the cryptocurrency markets. A good crypto day trader should do research and come up with a plan for when to get into and get out of positions.

Certain websites allow prospective day traders to track and copy the most successful traders on the platform. The following are some of the most popular trading strategies for day trading Bitcoin.

Arbitrage

Arbitrage in cryptocurrency is when traders buy a cryptocurrency on one exchange and then sell it right away on another exchange for a higher price, making a profit.

Arbitrage opportunities can be facilitated by cryptocurrency pairs. Arbitrage traders can profit by taking advantage of the value difference when the price of a cryptocurrency pair (comprising a lesser-known altcoin and Bitcoin) differs from one exchange to the other.

Arbitrage is a complex financial strategy that is usually done automatically by software that tracks prices. It helps keep prices for digital assets consistent from exchange to exchange.

Bot Trading

The goal of crypto trading bots, like the ones offered by 3Commas, is to make more money while reducing losses and risk. This is a strategy that you should consider if you want to understand how to day trade Bitcoin.

Crypto trading bots can automate the process of analyzing price movements, exchange fees, and opportunities to profit from trades in the short term. Day traders who understand APIs and software programming should consider taking advantage of this day trading technique.

Should I Use a Trading Bot?

There is no denying that computers can perform calculations much better than humans. It is crucial, especially when there is real money on the line. The success of a trader is heavily dependent on his or her psychological state, whereas a bot is not affected by emotions.

People often make mistakes by holding trades for additional gains even though it goes against their chosen strategies. Failure to stick to the plan can have significant ramifications. People lose existing profits just because they feel they can get more.

Another human flaw to point out is not being able to react quickly enough. Trading bots never make erratic decisions because a predetermined algorithm dictates every action. Also, when it comes to day trading, timing is key. Bots can react to data and execute transactions in a matter of seconds.

However, a trading bot is as good as the technology behind it. When you choose the automated trading platform by 3Commas, you get a robust platform with no downtime and technical hiccups.

Your trading gets even better when you think about how you can share and learn strategies, indicators, and settings from other traders in the community.

Long Straddle

The long straddle entails purchasing both a put and a call order. A long straddle has call and put orders on the same strike price, cryptocurrency, and expiration date.

Due to the volatility of the crypto market, a long straddle is a popular option in crypto trading. A crypto day trader who uses this strategy is betting on the price of a crypto asset changing. In the long straddle, the day trader profits whether the price rises or falls. If the price does not move, the trader will lose money.

Range Trading

Another strategy that you can use in day trading Bitcoin is range trading.

Range traders make money in markets that don't move in any particular direction. They do this by finding stable highs and lows, which are shown on charts as resistance and support levels.

Day traders using range trading techniques pick a time frame during which they will buy a digital asset when it is at a low price (i.e., oversold) and sell it when it is overbought (at a higher price) to make money.

Crypto day traders prefer range trading because it has clearly defined entry and exit points, which can help reduce losses. The range trader reduces losses caused by bad news or bad market conditions by making small profits over a short period of time.

Scalping

Scalpers use large amounts of liquidity to capitalize on minor price movements. This Bitcoin day trading strategy can include buying and selling Bitcoin over a few hours and earning small percentage gains at the end of the day—or setting up a bot for high-intensity and frequent trades based on signals or technical indicators.

Since scalping positions are smaller, traders can evaluate their gains or losses at the end of the day rather than investing for the long term. Due to market volatility, traders can consistently earn small profits over time, which can add up to significant gains in the long run.

Technical Analysis (TA)

Technical analysis is an important aspect that those learning how to day trade Bitcoin must consider.

The study of financial data such as historical price and volume data points to identify statistical trends in the markets is known as technical analysis. TA helps traders find profitable trading opportunities.

In the crypto world, technical analysis can be used as a guideline to assess how past performance predicts future gains or losses.

Technical analysis works best when combined with other trading strategies. Cryptocurrency day traders must be aware of and use TA, but they should do so alongside fundamental analysis, news, correlation arbitrage, and other market drivers.

How to Read Bitcoin Day Chart

All trading charts show data points for past and current price movements. A Bitcoin day chart focuses on its price action for a specific day. You can also view changes within a specific timeframe, which helps traders make more informed decisions.

Whilst there is no shortage of line and bar charts, one of the most valuable types is the candlestick chart. It offers plenty of valuable information in a concise form. Here is what the chart can tell you:

  • It shows what Bitcoin’s opening and closing prices were.
  • Shadows display the highest and lowest prices at which Bitcoin has traded that day.

If the stick is red, then the closing price was lower than the opening one. When it’s green, it signifies that it closed higher.

If you can tell that a chart is mostly red and heading downward, it exhibits a downward trend. If the opposite is true (green and upward), it is an upward trend.

There is a lot more information to extract that will hold significance in your trading. So, don’t rush into trading before you properly learn how to use charts.

How to Find a Trend

Trends show the momentum of Bitcoin price changes in a particular direction. You can identify these patterns on a chart and make decisions based on that data. It’s not hard to tell the price direction as it is indirectly represented on a chart through these invisible lines:

However, prices don’t follow the lines precisely but rather move back and forth between an upper and a lower trend line.

Peaks in an uptrend and troughs in a downtrend form a trend channel, which is a commonly used concept in technical price analysis. The channels show where Bitcoin is trading at a particular time and compare it to the overall direction.

Analyzing Bitcoin Day Chart

Price changes are not linear. That is why technical chart analysis uses levels of support and resistance; they showcase short-term trends within the overall trend. Resistance shows where an upward trend is expected to pause or rebound.

That means there are a lot of buyers concentrated at that time.Resistance can be used as an exit point for a transaction. A level of support can be used to predict where a downward trend can pause or rebound. This can be used as an entry point.

Limit Orders for Bitcoin Day Trade

Let’s examine limit orders in comparison to market orders. Market orders are the fastest way to enter or exit a trade at the best price available at the time.

However, instant execution means that the price becomes secondary. When you place a limit order, it will only be triggered once Bitcoin reaches the price you set. Thus, you may get a better price if you are patient enough.

Have it in mind that the price should be profitable for you but still realistic. For example, you want to buy three bitcoins for $9,000 each. The limit order will not be executed until there is a seller (or sellers) willing to accept the price that matches yours. Alternatively, you could sell bitcoin for no less than $10,000.

If the market price is lower, it simply will not execute your order. Here are the benefits of limit orders: 

  • Better prices for the trader’s orders
  • Protection against drastic changes
  • More freedom because traders are not required to actively monitor prices.

 However, some aggressive trading techniques do not suit limit orders. In situations where fast execution is more important than the price difference, you should opt for market orders.

Best Exchanges for Day Trading Bitcoin

When you are day trading Bitcoin, the activity on the exchange occurs very sporadically. So, you need a reliable exchange that won’t let you down at the most crucial moment. Before you commit to any exchange, take your time to fully explore its functionality and thoroughly evaluate its drawbacks.

Here are the best crypto exchanges for day trading Bitcoin:

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Binance – vast functionality, basic and advanced exchange information, no lagging, on-the-go app.

GDAX – advanced features, low transaction fees, funds are FDIC insured, intuitive design, suitable for beginners.

Bitfinex – margin trading feature, many order types, customized user interface, reliable security measures.

Kraken – an array of additional tools, suitable for all skill levels, account management services.

CEX.io – easy to use, suits individuals and institutions, useful mobile app.

The great news is that all of the exchanges, except for the last one, are supported by 3commas.

Psychological Factors in Day Trading Bitcoin

Many traders shared their experiences about the psychological struggles that have caused them losses. If you want to avoid quietly sabotaging your trading profits, here are some mindsets that you need to adopt:

Don’t get greedy

You cannot get rich instantly, so you shouldn’t try to; slow and steady wins the race.

Take responsibility

If you constantly blame your losses on others, you don’t learn from your mistakes. See what you did incorrectly and make the necessary changes.

Accept the risks

Fear can be detrimental to your ability to make the right decisions. Make peace with the fact that funds allocated for trading can be lost – then you can act rationally.

Improve self-discipline

Making money by trading Bitcoin is not just a hobby that you can get in and out of whenever you want. Rearrange your schedule so that you can always find the time without making excuses.

Develop a winning attitude

Although the cryptocurrency market can be unpredictable, you need to maintain a sense of control. Stay reasonably confident and trust your knowledge and trading plan.

Dos and Don’ts of Day Trading Bitcoin

Trading cryptocurrency for profit is a difficult craft in itself. But when you add other layers—such as trading Bitcoin specifically and engaging in day trade – traders can’t afford to neglect the rules.

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 Not a great idea 

  • Having clear entry and exit rules;
  • Treating margin responsibly;
  • Closing all open positions in time;
  • Becoming fluent in technical analysis;
  • Using risk-management tools;
  • Sticking to the trading plan;
  • Continuous learning.
  • Trading with indispensable money;
  • Overtrading;
  • Hesitating and stalling;
  • Trading around the major news releases;
  • Buying just because the price is low;
  • Using ‘Get rich quickly’ strategies;
  • Neglecting local laws and regulations.

Pros and Cons of Day Trading Cryptocurrency

Pros

The market is open 24 hours a day, seven days a week

Since the market never closes, trades can be made at any time. This is advantageous because you can access markets at any time of day or night, depending on your time zone.

Market volatility can be beneficial to you

Even though day trading Bitcoin and other cryptocurrencies is a risky venture, there are numerous advantages. One of the best things about trading cryptocurrencies every day is that you can take advantage of volatility.

You can profit when the market goes up and down because it will naturally fluctuate in price throughout the day.

Transparency

Cryptocurrency prices are displayed on exchanges around the world, making them easily accessible to anyone looking to buy or sell. This eliminates the need for guesswork when determining how much something should cost.

Cons

Stress levels are high

Since markets do not have set hours for trading, you may not have consistent hours or breaks while day trading Bitcoin and other cryptocurrencies on various exchanges around the world. The inconsistency in the trades can result in increased stress.

If you are interested in day trading, there are a few pitfalls to be aware of before you begin. Only a limited number of coins can be traded on popular exchanges, and it can be hard to enter and close positions if they don’t happen quickly. Hence, crypto day trading is ideal for experienced traders.

Conclusion

This guide has explored what day trading is and how to day trade Bitcoin.

Day trading Bitcoin can be a profitable endeavor. However, it is critical to remember that it is by far one of the riskiest ways to interact with the crypto market. Understanding the specifics of how to day trade Bitcoin is critical if you want to make long-term gains.

The best way to manage this risk is to first thoroughly understand the cryptocurrency market, then devise and implement a suitable strategy. If you take these precautions, you can understand how to day trade Bitcoin profitably.

  • Day trading Bitcoin can be a profitable endeavour. However, while learning how to day trade Bitcoin, you need to realize that day trading Bitcoin is risky. Understanding the specifics of day trading Bitcoin is critical if you want to see long-term gains.

  • Bitcoin trading is available 24 hours a day, seven days a week. Most traditional markets, such as commodities and stocks, have a beginning and ending time. You can buy and sell bitcoin whenever you want.

  • Bitcoin has no day trading limits because it is not technically regulated in the same way that stocks and options are.

  • Investing in Bitcoin costs only a few dollars. For instance, most crypto have a $5 or $10 minimum trade. Other crypto trading platforms may require a lower minimum.