Day trading is one of the most practiced strategies in the world of cryptocurrency trading. It involves trading within a limited timeframe of just one day. A lot of people try their hand at day trading because it could possibly earn you a lot more profit than passively trading cryptocurrency.
If you want to discover how to do day trading in cryptocurrency, this article will help you learn the best strategies to become a successful day trader. Just like in any type of trading, you will need to first build your knowledge on how to trade before making any actual trades.
Why Choose Day Trading?
Compared to the stock market, day traders in the cryptocurrency market have more flexibility. Why, you may ask? The cryptocurrency market is open 24/7, all year round!
The market does not close because it caters to traders from all over the world. Thus, day traders have more opportunities to buy and sell coins within 24 hours. Unlike the stock market that opens in the morning and closes at night, cryptocurrency day trading can be done anytime during the whole 24 hours.
Day traders in the cryptocurrency market can make a good profit and earn anywhere from $100 to $1,000, or even more, within a single day. Profits can rise to as much as 10% when day trading, especially when the cryptocurrency market is extremely volatile.
The volatility of the market refers to the swift changes in the market price of crypto assets within a single day. When the market is highly volatile, day traders can earn a lot. These traders capitalize on the price movements throughout the day by identifying when it is time to buy or sell based on these movements.
The changes in the prices of each coin will determine if day traders will be interested to buy or sell that cryptocurrency. Cryptocurrencies are considered to be more volatile than traditional markets like the stock exchange. This is because cryptocurrencies remain largely unregulated and decentralized.
The high volatility of the market also contributes to the high level of interest coming from seasoned traders and newbies alike. This also led to a lot of people choosing day trading as their main strategy when it comes to dealing with cryptocurrency. You can certainly hit the jackpot when day trading in an extremely volatile market.
Over time, the cryptocurrency market is expected to mature. Along with this maturity, volatility will decrease. There is also the possibility that cryptocurrencies will be subjected to some form of regulation in the future.
Volume refers to the exact amount of crypto assets that is being traded daily. This is related to demand; the higher the volume being traded, the higher the demand. In day trading, knowing the volume is important to understand the trend of a certain crypto asset.
Based on the Dow Theory, volume confirms trends. What does this mean? Simply put, the volume will move along with the trend. If it does, then the trend is legitimate and can be used as a basis for trading.
Take for an example, you observe an upward trend in Bitcoin for 10 hours during the day. If this trend is legitimate, then the volume of Bitcoin must also be increasing, meaning a lot of people are trading Bitcoin while this trend is observed.
Volume is important because trends are usually used as a basis to execute a trade. This is also applicable to day traders, who can observe coin trends in minute or hour intervals.
Day Trading Strategies
Here is a quick overview on the different day trading strategies that you can use.
Scalping is one of the most popular and common strategies used in day trading. This strategy will help traders earn small profits all throughout the day. Day traders who use this strategy look for small price changes and capitalize on these immediately.
Scalping is also a good strategy for day trading because you will just be looking for a small price change before buying or selling a coin. Although, scalping can be a bit challenging to do at first when you are still unfamiliar with the different technical indicators. Once you know how to use this strategy, it is great to use daily for you to earn a profit.
Range trading is also a popular strategy for day traders, both old and new. This strategy involves the use of technical indicators, called support and resistance. Day traders who apply this strategy use these indicators to create a price range within which they are willing to buy or sell an asset.
Support levels refer to the bottom price in the range, while resistance levels refer to the top price within the range. The assumption that is being made by day traders using range trading, is that these support and resistance levels will not move immediately.
Thus, once the price action hits the support level, traders start buying because the assumption is that the price will begin to increase until it reaches the resistance level at the top of the range.
This is a good strategy to use if you play it smart. If the trend of a coin is moving upward, you can make your move to buy the coin immediately. Then, before it hits the resistance level or the peak price in the range, you can already sell the coin at a profit.
When getting started, you will need to familiarize yourself with the different technical indicators used in the cryptocurrency market. Since day trading occurs within 24 hours, traders who use technical analysis need to study the historical data on price movements of the coin.
These price movements are analyzed, and day traders attempt to predict how the next market trends will go, and what factors these movements are based on. This strategy is recommended for more seasoned traders who already have a lot of experience trading cryptocurrency. Want more awesome tips on crypto day trading? Go here!
Learning how to do day trading in cryptocurrency is just the tip of the iceberg. You need to practice and test a strategy that works for you, and invest just enough money to make a profit. Always remember one of the rules when trading cryptocurrency, never invest more than you can afford to lose.