How to Day Trade Cryptocurrency: A Beginner’s Guide to Day Trading Crypto

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

Learning how to day trade cryptocurrency can be a valuable skill to acquire. Day trading is a widely adopted strategy among traders, with a significant presence in various financial markets such as forex, stocks, commodities, and cryptocurrency. The practice involves entering and exiting the market within a single trading day, capitalizing on short-term price fluctuations.

While many traders have profited greatly from the volatility in cryptocurrency prices, statistics show that the majority of day traders do not sustain the practice in the long term. Approximately 40% of day traders only engage in the activity for one month. After three years, the figure falls to 13%, and after five years, it falls to 7%.

 Read on to discover how to day trade cryptocurrency and the best day trading cryptocurrency strategies.

What is Day Trading?

Day trading is a trading practice that involves purchasing and selling assets, in this case, cryptocurrency tokens, within a single trading day. It’s a short-term strategy that traders use to earn small profits from minute intraday fluctuations in the prices of digital currencies or whatever asset they’re trading.

It occurs in any marketplace 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. They buy digital assets and hold them for a short period, anywhere between a few minutes and 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 cryptocurrency will lose or gain value. Their main concern is things like coin hacks, new developments, and important partnerships that happen outside of the market.

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, you mustn’t confine yourself to either of these two broad categories.

Other types of traders include:

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

Important Concepts in Cryptocurrency Trading

Stop Loss Limits

The stop-loss limit is commonly known as the "exit strategy." Most exchanges allow traders to set a stop loss that automatically exits a trade at a certain price level. If you buy a cryptocurrency at $200, for example, you can set a stop loss at $180 to ensure that you keep a significant portion of your investment if prices fall.

Limit Sell Orders

Limit sell orders are another important concept in cryptocurrency trading. Unlike the stop-loss order, the limit-sell order automatically closes a trade 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 for 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 anyway. 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.

How to Day Trade Cryptocurrency in 3 Steps

Day trading cryptocurrency can be an exciting and potentially profitable way to navigate the fast-paced world of cryptocurrency. If you’re new to day trading crypto, here are the steps to follow to learn how to day trade cryptocurrency:

Select a Trading Platform

If you are interested in how to day trade cryptocurrency, the first thing you should pay attention to is choosing the right crypto trading platform.

The best online platforms for day trading crypto have advanced features, quick execution, a wide range of research options, low fees, and a strong mobile app for trading on the go.

If you're a day trader (or want to be one), you probably have a good idea of what you're looking for in a brokerage and online trading platform: low costs, innovative strategy tools, premium research, and a comprehensive trading platform.

But what factors should you consider when selecting a trading platform?

Responsiveness

Many crypto day traders overlook a critical aspect of trading: slippage. If after placing a stop-loss order a high-volatility event causes a gap, the order may be executed at a lower value.

Due to the increased volatility, such orders will be executed at the next possible value rather than the desired value. There will always be some price differences, which we sometimes fail to notice.

However, if you use a reputable broker, slippage may occur not only on your stop-loss order (i.e., negative slippage), it may also benefit your take-profit order (positive slippage).

Easy-to-Use Interface

A platform's overall navigation needs to be user-friendly. If a platform provides additional charts and tools, they should be easy to find and use, as well as optimized for the quick opening of multiple graphs at once.

This is especially true for aggressive traders (i.e., scalpers), who rely on the trading platform far more than a moderate or conservative trader.

Reliability

It is also important to make sure that the platform for day trading crypto doesn't crash or freeze often, especially when there is news or an event about the global economy and traders need stability.The reliability of a trading platform should be prioritized over its appearance and feel.

An aggressive trader (i.e., a trader that makes large and frequent trades) needs to use a stable trading platform that is not susceptible to crashes. On the other hand, a trader who is cautious and doesn't keep an eye on the market every time may be more flexible.

Data Security

The most important consideration is not allowing your data to be compromised, so the trading platform you choose should be as secure as possible. Check the type of data encryption the platform uses; this will give you an idea of how well your data will be protected as it is transferred over the internet.

Secure crypto trading platforms use firewalls on both the application and server levels. They also use two separate synchronized servers to store the data, allowing any lost data from one of the servers to be recovered by the other.

Choose Your Investments Carefully

Once you've found the right crypto trading platform, ensure you select the appropriate investments that will suit your day trading goal.

Crypto day traders (unlike traditional investors) thrive in volatile market conditions. If the crypto market is stable, you are unlikely to profit in a single day. Day trading crypto makes traders lots of money due to the volatile nature of the cryptocurrency market and the constant price changes.

To make the best investment decisions, it is critical to understand the fundamentals of various tokens, such as their adoption, utility, and prospects. Choosing the top 15 to 20 coins by market cap is one of the most common day trading strategies.

To figure out how to day trade cryptocurrency and make profitable investments, make sure you thoroughly research all of the crypto assets listed on the trading platform.

Develop a Strategy

Next, you need to develop a solid day trading cryptocurrency strategy.

To develop an efficient day trading cryptocurrency strategy, you need to be self-disciplined and must also carry out a lot of research. A conservative day trading cryptocurrency 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 engage in risky trades to score big.

There’s a thin line between being a smart, disciplined day trader and being a gambler, and you don’t want to cross it.

Best Crypto Day Trading Strategies

Here are a few of the most popular crypto day trading strategies:

Arbitrage

This trading strategy entails buying crypto assets on one cryptocurrency exchange and immediately selling them on another. Pairs of crypto assets play an important role in assisting investors to profit daily.

Arbitrage is a fairly complex financial mechanism that is automated by sophisticated price-monitoring software. As the name implies, this software allows users to keep track of the prices of multiple crypto assets on a centralized platform.

They give users real-time information about how prices are changing, which helps them make good trading decisions.

Bot Trading

Most newbies that want to learn how to day trade cryptocurrency usually use bots.

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 use the services of these trading bots, caution is recommended.

Crypto trading bots are only as good as their programming, and you must 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.

Also, it supports 16 of the biggest exchanges, including Binance, 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.

Bot trading entails the use of automated software that allows investors to buy and sell cryptocurrency at predetermined times or under predetermined conditions. This strategy relies heavily on AI and machine learning to help day traders make good investment choices.

Dedicated crypto trading bots, like the ones offered by 3Commas, help investors make the most money and lose the least.

If you need automated cryptocurrency trading strategies, 3Commas can be used to trade cryptocurrency with a trading bot.

Long Straddle

The long straddle strategy is the simultaneous purchase of a long call and a long put on the same underlying security, with both options having the same expiration and strike price. Since the straddle trading strategy includes both a long call and a long put, the investor should fully understand the risks and rewards of both.

A long straddle option profits when the underlying price moves above or below the break-even point. Significant profits can be realized if a large price movement takes place outside of this range. The position may make money if the implied volatility of the options goes up faster than the value of the options goes down over time.

Range Trading

Range trading is an active investment strategy in which the investor selects a price range and buys and sells within it over a short period of time.

For example, if a cryptocurrency is trading at $25 and you believe it will rise to $30 in the coming weeks, it should trade in a range between $25 and $30. You could try to range-trade it by buying the asset at $25 and selling it if it rises to $30. This process would be repeated until you believed the cryptocurrency would no longer trade in this range.

In range trading, you look for consistent highs and lows, also called resistance and support levels, in markets that don't have a clear trend.

Scalping

Scalping is a common day trading strategy that is well-known in the forex market and is also often used in the cryptocurrency market.

It is done 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.

Technical Analysis

It is a statistical trading strategy that looks for market trends by doing different statistical calculations on price data from the past.Technical analysis is based on the idea that prices in the past have some effect on prices in the future.

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 upcoming news and declarations since you’ll have moments before they affect the values of 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 fondly referred to as "pattern trading," "switch trading," or "pull-back inclining." This strategy has a simple logic in that it focuses on buying and moving day-to-day low and high pullbacks.Therefore, it requires the capacity to anticipate the quality of pull-backs and precisely distinguish between them.

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 sentiment 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 to better time your entries into trades.

How to Day Trade Cryptocurrency: Strategies for Making Money Trading Crypto

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.

You could also hire an accountant to help you out and make your work easier.The following tax overview is U.S.-centric and does not apply to non-U.S. citizens. It is split into two categories: cryptocurrency held for less than a year and cryptocurrency held for more than a year.How much tax you pay is conditional on 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 use fiat currency to buy digital assets, you don't have to pay tax on that transaction.The taxable event occurs 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) method of accounting. The same applies to crypto sales. All profits 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 Crypto Day Trading

Although day trading is a lucrative business or career, you must come to terms with all risks associated with it. It is important to know what these risks are as you learn how to day trade cryptocurrency.

Some of the 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.

So, before you trade, you should find a reliable source of news and talk to people you can trust.

Loss of Capital

Trading can be brutal for beginners, and it 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 Huge Commitment

Day trading is a lucrative career. However, it’s also a full-time job that requires constant attention. That means hours spent on the computer tracking price movements and making adjustments as needed.

As a result, traders who do not want to lose money must deal with stress and a significant time commitment.

How to Reduce the Risks of Crypto Day Trading

Manage Your Risks

As you learn how to day trade cryptocurrency, you need to realize that no trader wins 100% of the time. You're going to lose money. 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.

Focus on Getting the Right Experience

Put theory into practice by signing up for a demo brokerage account and making 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 keep learning how to day trade cryptocurrency to hone your trading skills. Ensure 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 overstated.

Therefore, it’s important not to put all your cash in one basket. Ensure that you diversify your investments and only use a portion of it to day trade. This minimizes the risk of losing all your hard-earned portfolio.

Cryptocurrency Day Trading Tips

Here are some useful tips about cryptocurrency that can help you make more money and lose less.

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.

Don’t FOMO (Fear of Missing Out)

Many new traders succumb to FOMO pressures. 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 steady, slow pace is most beneficial.

Be Careful With Exchange Fees

Exchanges have different fee structures. Therefore, you want to do your research and find ways to 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. Day trading entails sitting at a computer all day, monitoring charts and making trades.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 use third-party signals to initiate trades, greatly improving the accuracy of the trades it executes.

Pros and Cons of Day Trading Crypto

Pros

• The significant price swings in cryptocurrencies are beneficial to many traders. Rapid price movements can provide traders with various opportunities to go long and short to make a larger profit.
• The US stock market's normal trading hours are between 9:30 a.m. and 4:00 p.m. EST, Monday through Friday. Meanwhile, cryptocurrencies can be traded 24/7.
• Although there are lots of professional traders, the cryptocurrency markets are still young enough that traders with more experience have an edge.

Cons

• While the lack of regulation lowers the barriers to trading, it also means there is no authority to appeal to if something goes wrong.
• In traditional markets, earnings cycles often set the tone for the market. The cryptocurrency market has no cycles, and a single tweet can send traders into a frenzy.
• There is no guarantee that those working at crypto exchanges are trustworthy and know what they're doing.
  
  

Summary:

The blog article, "How to Day Trade Cryptocurrency: A Beginner’s Guide to Day Trading Crypto," provides insights into the world of day trading cryptocurrency, updated with information from 2022 and 2023. Day trading involves buying and selling cryptocurrency within the same trading day to profit from short-term price fluctuations. The article explains various aspects of day trading, including the types of traders, essential concepts like stop-loss limits and limit sell orders, and the importance of selecting a suitable trading platform. It also discusses popular day trading strategies such as arbitrage, bot trading, long straddle, range trading, scalping, technical analysis, force, and inversion. The article emphasizes the volatility and risks associated with day trading while offering tips to reduce those risks, including risk management, gaining experience through practice, continuous education, and diversification. It concludes by highlighting the pros and cons of day trading crypto.

Conclusion:

Day trading cryptocurrency can be an exciting and potentially profitable venture, but it comes with significant risks and requires dedication, knowledge, and discipline. To succeed in this highly volatile market, traders must choose the right trading platform, select investments carefully, develop a solid strategy, and manage risks effectively. While there are various strategies to choose from, each trader should find the approach that best suits their risk tolerance and goals.

Furthermore, the cryptocurrency market's 24/7 nature provides ample opportunities, but it also means staying vigilant and informed at all times. Traders should be cautious of false information and be prepared to handle the stress and time commitment that come with day trading.

In conclusion, day trading cryptocurrency can be lucrative for those who approach it with a well-thought-out strategy and a commitment to continuous learning. However, it is not without its challenges and risks, and individuals should be prepared for the possibility of losses. Ultimately, success in day trading crypto requires a combination of skill, experience, and a clear understanding of the market's dynamics.

Conclusion

Day trading cryptocurrency has the potential to yield significant profits. Day traders use intraday strategies to capitalize on market fluctuations and typically close their positions before the end of the trading day.

However, if you want to learn how to day trade cryptocurrency, you need to realize that becoming a successful crypto day trader requires more than just honing one's skills and using a reliable day trading cryptocurrency strategy. With the number of scams and fraudulent platforms in the cryptocurrency industry on the rise, it is just as important to choose a trading platform with a good reputation.

You should be able to find the right platform for your day trading needs with the tips in this guide.