Cryptocurrency Day Trading – Winning Strategies and Tips

Cryptocurrency Day Trading

Cryptocurrency trading is becoming an increasingly popular alternative to the holding mentality that has dominated the cryptocurrency community in the past. Given the highly volatile nature of the cryptocurrency market, there are many opportunities for people with a bit of talent (and good automated trading bots) to make a living trading cryptocurrency. Currently, there are several types of trading, but day trading remains the most popular. Properly conducted, day trading is hugely profitable but it does take a lot of discipline and experience to master. Even professional financial advisors and managers tend to shy from it. However, with a well-planned strategy, even a novice can make it a lucrative career.    

What is Day Trading?

Day trading is a trading practices that involves purchasing and selling assets, in this case cryptocurrency tokens, within a single trading day. It’s a short-term strategy that traders utilize to earn small profits from minute, intraday fluctuations in the prices of digital currencies or whatever asset they’re trading. It occurs in any market place but is most common in the stock, forex, and cryptocurrency markets. Day traders never hold any positions overnight; they enter and exit trading positions within the same day. Instead, they buy digital assets and hold them for a short period, anywhere between a few minutes to a few hours, before they sell them off. 

Types of Traders

Traders can be classified into two broad categories. Speculators and technical analysts. The speculators keep a watchful eye over the cryptocurrency market for news and activities that may indicate that a particular crypto will lose or gain value. Their main concern is outside market influences such as coin hacks, developments, and significant partnerships, among others. Analysts, on the other hand, are concerned about the internal workings of the cryptocurrency market and tend to rely on financial patterns and charts for their insight. However, as a day trader, it’s vital that you do not confine yourself into any of these two broad categories. 

Other types of traders include:

  • Scalpers
  • Noise Traders
  • Swing Traders
  • Position Traders
  • Fundamental Traders

How to Day Trade Cryptocurrency

Choose Your Marketplace

The first step towards your day trading journey is to pick a marketplace. Different marketplaces offer different fee structures, coin pairings, trade amounts, etc. This is extremely important because making small profits on a large number of trades can quickly disappear in fees charged by exchanges. Therefore, it’s imperative that you pay attention to fee structures. Once you find a viable marketplace, go ahead and find two to three other marketplaces and register accounts on each. Doing so gives you flexibility in terms of cryptocurrency fees, liquidity, and availability.

Develop a Strategy

Next, you need to develop a solid trading strategy. This step involves a lot of research and self-discipline. For starters, you need to ensure that you do not risk more than you are willing to lose. This can be a tough act to practice, but having a conservative strategy ensures that you don’t lose your entire investment fund on risky bets. Day trading is a numbers game, and you are bound to take some losses here and there. It’s almost always a safer long-term bet to collect small gains and accumulate profits over time rather than to engaging in risky trades in an effort to score big. There’s a line between being a smart, disciplined day-trader and being a gambler, and you don’t want to cross it. 

Stop Loss Limits

Another vital factor in cryptocurrency trading is the stop-loss limit or as commonly known, your exit strategy. Most exchanges allow traders to set a stop loss that automatically exits a trade at a certain price level. For instance, if you purchase a particular cryptocurrency at $200, you may set a stop loss at $180 to ensure that you at least preserve a large chunk of that investment in case prices take a nose-dive.

 

Limit Sell Orders

Limit sell order is another important concept in cryptocurrency trading. Unlike the stop-loss order, the limit sell order automatically closes a trade one once your digital asset hits a specific high price. For instance, if the said digital asset is on an upward trend, and you perceive the top market price to be $300, you can set a limit sell order of that amount. Once the asset hits that price point, the limit sell order will automatically sell your asset. While you won’t catch the top price, that’s not a realistic goal anyways. It’s far more consistent to set a Limit Sell order slightly below where you think the top is, to better guarantee you’ll lock in the profit you want from that asset. 

Crypto Trading Bot

The cryptocurrency trading market is currently filled with a large number of trading bots and trading algorithms. Some are freely available on open-source platforms while others charge a fee. As tempting as it is to utilize the services of these trading bots, caution is recommended. Crypto trading bots are only as good as their programming, and it’s important you select a reliable provider with a proven track record. However, we recommend using the 3Commas crypto trading bot because it’s easy to set up and new features are frequently added. Additionally, it supports 18 of the biggest exchanges, including Binance, FTX, Coinbase, and more. Features such as bot performance analytics, social trading, portfolio creation and tracking make it a robust option for any trader interested in automated cryptocurrency day trading.

Best Crypto Day Trading Strategies

Scalping

Scalping is a standout strategy in day trading that’s well-recognized in the forex market but also commonly used in the cryptocurrency trading market. It’s conducted by executing hundreds of trades per day in an attempt to make a small profit from each trade. The trader undertaking scalping hopes to profit by exploiting the bid-ask spread. Scalping is a quick, paced strategy that tends to be dangerous at times. Therefore, you need to be hot on timing and vigilant for unpredictable assets. Note that scalping is incredibly tedious to carry out without significant assistance from automated bots to handle the trade execution. 

Force

This is a popular strategy that depends on following up on news sources and recognizing price moves. The values of digital assets are guaranteed to move around every day; therefore, there’s always a chance to take advantage of this strategy. You need to make sure that you remain mindful of up and coming news and declarations since you’ll have moments before they affect the values of the digital assets. This can also be referred to as opportunity trading, because it’s not predictable and relies on acting on information that other people may not notice. 

Inversion

Inversion is a commonly discussed strategy utilized all over the world. It’s fondly referred to as pattern trading, switch trading, or pull back inclining. This strategy follows a fundamental rationale as it fixates on buying and moving day by day low and high pull-backs. Therefore, it requires the capacity to anticipate the quality of pull-backs and precisely distinguish between them.

How to Day Trade Bitcoin

Bitcoin Day Trading

Bitcoin is more volatile than many assets in the cryptocurrency market precisely because it’s incredibly liquid and is typically involved in over 40% of trades on any given day. Therefore, day trading bitcoin comes with a considerable amount of risk. Bitcoin prices are highly sensitive to public sentiments and regulatory changes. They fluctuate quickly depending on the types of news circulating in the industry, whether positive or negative. Therefore, before trading bitcoin, you want to study the market and get a better feel for the volatility in order to better time your entries into trades. 

Bitcoin is a safe commitment for a new trader as it can be used as a long-term store of value. It also comes with relatively fewer risks compared to altcoins.  Furthermore, trading bitcoin doesn’t need to occur every single day. You only need to day trade bitcoin when all conditions align in your favor. 

Day Trading Ethereum and Altcoins

The safest altcoins to trade are those that are the top by market cap. These are the ones that are more liquid, ensuring you’ll be able to exit a position rather than be stuck holding an asset that you want to sell. A great example is Ethereum, Cardano, XRP, etc. These coins are less apt to disappear. Smaller altcoins are profitable for day-trading, but the risks associated with them are much higher. Their prices can be artificially boosted through pump and dump, so make sure you’re selling the pump rather than buying it. A little dash of due diligence is needed in determining which altcoins to day trade.

How to Make Money Trading Cryptocurrency

Day Trading Taxes

Different countries hold different tax views concerning cryptocurrencies. Therefore, it’s crucial to conduct due diligence as to what tax laws govern your state. Alternatively, you may want to utilize the services of an accountant to make your work easier. The following tax overview is U.S.-centric and does not apply to non-U.S. citizens. It’s divided into two; crypto held for less than a year and crypto held for more than a year. How much tax you pay is conditional to how long you have owned your digital assets.

Tax for crypto held for less than a year is divided into three transaction types. If you purchase digital assets with fiat currency, you are not liable to pay any tax on that transaction. The taxable event comes in when you sell your digital assets for fiat currency. For instance, if you sell Bitcoin for U.S. dollars, you will pay ordinary income tax if you have held it for less than one year. You will be taxed using the FIFO (First In First Out) mode of accounting. The same applies to crypto to crypto sale. All profit made from transactions will be taxed.

Any crypto held for more than a year under U.S. tax laws is classified as long-term capital gains. This tax rate is substantially lower than normal income tax rates.

Risks of Day Trading

Although day trading is a lucrative business or career, it’s essential that you come to terms with all risks associated with it. Some of these risks include:

Risk of False Information

The cryptocurrency market is extremely speculative. Therefore, almost everyone in the market has an opinion of how the value or price of a digital asset will move. All this conflicting information tends to saturate the market and mislead new traders into making trades based on false information. Therefore, it’s vital that you find a credible news source and connect with trustworthy people before trading.  

Loss of Capital

Trading can be brutal for beginners, and has a high attrition rate. Day trading is extremely challenging for novices as it requires a lot of knowledge, experience, and discipline, which are qualities that most beginners haven’t fully developed. Therefore, you are bound to take some painful losses before you move on to make profits. 

Stress and Big Time Commitment

Day trading is a lucrative career. However, it’s also a full-time job that requires constant attention. That means hours will be spent on the computer monitoring price movements and making adjustments whenever necessary. Subsequently, stress and a big time commitment become a reality for traders who don’t wish to lose any money.

Mitigate the Dangers of Day Trading

Manage your risks

No trader wins 100% of the time. You are bound to make losses. To minimize losses and hold on to your wins, you will need to put strategies in place that can guarantee you win at least 52-55% of trades. 

Get experience

Put theory into practice by signing up to a demo brokerage account and make trades in real time with fake cryptocurrency. It’s a risk-free way of gaining valuable experience and developing trading strategies that will prepare you for day trading in the real market. 

Educate yourself

Day trading is an acquired skill. Therefore, you need to train and hone your trading skills through education and training. It’s crucial that you use trustworthy sources of information and invest in a mentor with a proven track record of success.

Never trade with funds you can’t afford to lose.

The cryptocurrency space is an ocean full of sharks and shipwrecks of projects that didn’t work out. The risk of losing money can’t be understated. Therefore, it’s important not to place all your cash in one basket. Ensure that you diversify your investments and only use a section of it to day trade. This minimizes the risk of losing all your hard-earned portfolio

Cryptocurrency Day Trading Tips

Below are some useful cryptocurrency tips that can help increase your profit margin and minimize losses. 

Define your goals before trading

With day trading, you want to get in and out of a trade as quickly as possible. Therefore, you need to have a clear objective in place before entering a trade. You may want to avoid being greedy as a massive swing in the market can translate to substantial losses.

Avoid Succumbing to FOMO (Fear of Missing out)

A lot of new traders tend to succumb to the pressures of FOMO. As soon as they make a good trade and crypto rallies again for a sizable profit, they go all in. Yielding to the fear of missing out is one of the fastest ways to lose money. A slow winning approach is the most helpful.

Be Careful with Exchange Fees

Exchanges have different fee structures. Therefore, you want to do your research and find ways that you can minimize your trading fees. For instance, it’s always advisable to be a trade maker rather than a trade taker to avoid paying high fees on some exchanges. 

Consider Using a Trading Bot

This tip applies only to risk takers who wish to work smarter and not harder. At the most, day trading involves sitting at the computer monitoring charts and making trades all day. This can become monotonous in the long term. To avoid this, you may want to use the services of a trading bot to automate your trading positions. For instance, the 3Commas trading bot can buy and sell crypto automatically according to a pre-defined set of rules that you feed it. It can also incorporate 3rd party signals to start trades, greatly enhancing the accuracy of the trades it executes. 

FAQ

What is the best cryptocurrency to day trade?

There is no correct answer to this, because it can change daily depending on market conditions. A hot new token can go wild for weeks before stabilizing, while Ethereum or Bitcoin may stabilize and be unattractive for day traders for a week or more at a time. 

How to day trade on Coinbase Pro

Below is an excellent video tutorial on how to day trade on Coinbase Pro.
https://www.youtube.com/watch?v=t6Gr8U3mrY0

What is the best strategy for beginners?

Before getting bogged down by the complexities of highly technical indicators and advanced strategies, you need to focus on a simple crypto-trading strategy. First, you need to understand that day-trading takes a lot of practice and know-how to undertake. Moreover, you’ll be going up against professionals in the field who have access to the best tech and connections in the industry. Furthermore, the government will still need you to pay taxes. The industry can be quite overwhelming. Therefore, the best strategy is to start small until you get your bearing.

Are there any differences between day trading Bitcoin, Ethereum, and Altcoins?

The only difference that exists between trading Bitcoin, Ethereum, and other altcoins is that both Bitcoin and Ethereum are safe commitments for beginner traders. Smaller altcoins that are less popular have the risk of their values plummeting as fast as they have risen. Moreover, unlike Bitcoin and Ethereum, they are susceptible to pump and dump or Ponzi schemes that rely on hype and speculation to boost their prices. Both Bitcoin and Ethereum are legitimate coins that are less risky to trade.

Describe a simple strategy that works

Buy when you feel a coin is undervalued and sell at the price point you think provides a good profit margin. Studying historical performance of a token is also critical. If you see a pattern in support and resistance lines, you can exploit it to make informed trades. 

Conclusion

Day trading has the potential to be a profitable business that generates enormous profits, and that’s why it attracts a lot of people who are ready to try their hand. Nevertheless, it isn’t free money, and it’s not for everyone. However, if you want to give it a try while minimizing the tedious parts, then a 3Commas cryptocurrency trading bot may be worth considering. It’s a great suite of tools that allows you to trade on multiple exchanges and currencies at a time, while letting you spend more time analyzing and optimizing rather than manually executing. Moreover, it’s beginner-friendly with bot presets and signals, while still having the features that professional traders rely on to execute extremely complex strategies. 


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