The cryptocurrency market is not just about Bitcoin, Ethereum and other major currencies. New entrants keep popping up, and old players and new projects are adopting the digital currency. This can make it a very lucrative and interesting market to day trade in.
There are two ways to trade the crypto market, short-term and long-term. You can use both approaches, but each has its own pros and cons. In this article, we will walk you through the basic principles of crypto day trading. We will also share some of the secrets that pro traders use to do so successfully.
Short-Term Crypto Trading
If you’re looking to day trade in the cryptocurrency market, then you’ll be looking to make trades on a short-term basis. A cryptocurrency short term or day trading strategy is typically based off of news events and movements in price of the crypto in question.
Cryptocurrencies experience daily price fluctuations due to a variety of factors, some of which may be:
- News affecting the entire industry
- New updates to the protocol
- Sudden changes to laws or regulations
- A new announcement by the cryptocurrency developer
- A change in the value of Bitcoin or Ethereum
- Significantly increased use of specific cryptocurrencies
- A cyberattack
- As a result of a change in mining difficulty
- Storage updates
- A change in the value of fiat money
In order to succeed in crypto trading, you need to be able to identify which coin exhibits the strongest indicators for these short-term trades. Before we delve deeper into this, please keep in mind that the cryptocurrency market is unlike anything you’ve seen. In fact, it’s probably the most tumultuous market in financial history.
Crypto Day Trading
Unlike the stock market, the cryptocurrency market never stops. The cryptocurrency market operates 24/7 and never closes. This means that a “crypto day trader” needs to understand the way this market operates. Things such as the different trading hours, the volume, and other market indicators are essential.
In order to day trade cryptocurrencies, you need quality fundamental analysis skills. Understanding of technical analysis, and the ability to read charts make it possible to trade with leverage.
In other words, crypto day trading requires a specialized set of skills and the ability to apply these skills in fundamentally high-volatile and highly infrequent markets.
How to get started with Crypto day trading
The first step is to find a crypto trading exchange that meets your needs. Remember that crypto markets are segmented and operate under many jurisdictions around the world. To help choose the best platform for you, search on the internet and select the exchange platform supported by your country. Next, deposit your initial capital to kick off your day trading journey and purchase the cryptocurrency of your choice. Now it’s all about strategy.
What are the best crypto day trading strategies?
Even if you’ve got an intuitive crypto trading platform and a winning game plan, being successful can still be difficult. This is because cryptocurrencies are highly volatile. Their prices change constantly. Nonetheless, here are some of the most reliable day trading strategies for crypto traders.
Range trading
In the crypto market Range trading relates to the support and resistance levels identified by the candlestick charts. Support is the price level at which a cryptocurrency is more likely to stop a downtrend and reverse. Resistance is the price level that could stall or reverse an uptrend.
A quick way to identify support and resistance levels is by looking for quality candlestick formations. The hammer and doji are two of the most basic candle formations that indicate potential support or resistance levels.
To be a successful crypto range trader with this strategy, you will need to learn how to read support and resistance levels on a candlestick chart. This is essential when you first enter a trade. You’ll also need to learn to identify strength or weakness of the trend. If a trend is strong, you’ll want to buy when the currency touches support and sell when the currency touches resistance.
This method of trading is actually very simple to grasp and execute. You identify the support and resistance levels and then, you simply wait for the range to be fulfilled. If you buy when the price touches support and you sell when it touches resistance, your success rate will be fairly high.
However, there are so many variables that it is difficult to simply rely on this strategy.
Arbitrage
The cryptocurrency market is not regulated. Hence, there are opportunities to exploit differences in the market. To do this, you will require capital to buy cryptocurrency on one exchange and then selling it on another. You are now generating a profit from the difference in prices. This method is called Arbitrage. You can choose to trade both long and short term, depending on which direction you believe the market is headed.
Arbitraging can also be carried out when purchasing cryptocurrency directly from users. Let’s say a person accepts one cryptocurrency for their good or service. Yet, they charge a higher price for it in another cryptocurrency. It’s then possible to arbitrage between the two and make a profit.
There are very few traders who are able to make a lot of profits through arbitrage trading. Arbitrage is a very tough strategy to follow. This is because you need to take note of the changes in prices of the same asset at several different exchanges, and you need to be ready to trade at any time.
Scalping
This trading strategy is short-term and involves taking advantage of short-term price fluctuations. The scalping approach is applicable to liquid and volatile markets such as stocks, forex, and crypto.
If you are an experienced day trader, you can apply the scalping strategy to crypto. You have to identify potential price changes and profit from the slightest price movements.
The best option is to use a time frame of around 5 – 15-minute. Trading on smaller time periods results in more trades and a higher winning percentage. On the other hand, scalping creates more risks and does not guarantee a profit.
Final Thoughts and Warning
Apart from having a reliable day trading strategy, you will need nerves of steel. It’s true that one should do thorough research and follow a reliable strategy in order to succeed, but this doesn’t guarantee success. Cryptocurrencies are highly volatile because their prices change constantly. Don’t invest what you can’t afford to lose!
