Cryptocurrency is a type of digital asset that is used to purchase goods. This type of currency is also being actively and passively traded in the highly volatile cryptocurrency market. Beginning with Bitcoin that came onto the market in 2009 after the collapse of the housing bubble, the market now has thousands of altcoins, or alternative coins.
Cryptocurrency is being traded in two ways, actively and passively. Passive trading is considered by traders to be a long-term investment, while active trading involves short-term investments or day trading. So, what is cryptocurrency day trading?
Types Of Trading
There are two types of trading that happens in the cryptocurrency market, both of which are discussed in more detail below.
Active Trading
Active trading, or day trading, is the type of trading that conducts all trades during a single day. This means executing trades once the cryptocurrency market opens, and closing all trades made before the day ends to prevent open positions.
Since cryptocurrency is a relatively new currency, the market is still unstable, meaning that prices are fluctuating every day, far more than the rise and fall that can be experienced by more stable markets like the stock exchange.
This volatility in market prices can be advantageous for day traders. Day traders earn a profit by capitalizing on the changes in market prices during the day. These traders buy when the market is low and sell when it is high.
Day traders keep track of all price movements during the day. Constantly watching the market will help traders identify the trends for the day and decide when to buy or sell a coin.
The cryptocurrency market is open 24/7 because it caters to people from all around the world. This market is not regulated by any government or financial institution. Thus, day traders can spend the whole 24 hours of each day, finding opportunities to trade, and capitalizing on these opportunities.
Day trading cryptocurrency can be stressful but also highly rewarding. It will require a trader to view multiple screens at the same time to detect the smallest of profit opportunities. The window to grab these opportunities comes quickly, and traders must act before the window closes.
Passive Trading
Passive trading is usually done if the trader wishes to have a long-term investment. This type of trading involves selecting a coin to invest in, buying the coin, and leaving the investment to grow for many years before selling. For example, some early investors who invested in Bitcoin back in 2009 left their investment to grow, and a decade later, some of them are already multi-millionaires because of this cryptocurrency.
To become successful as a passive trader, you should select a coin that is relatively more stable, such as the coins that have been on the market for quite some time now like Bitcoin, Ethereum, and Ripple. These coins also have high market valuations, which is measured by the number of coins in existence today and the market price per coin.
Passive trading is a good option for people who want to invest in cryptocurrency but do not have the time to consistently check the market trends every day. To know when to sell, it is essential to note the price that a coin was bought at and compare it with the current market prices, to make sure that a profit can be made.
Two Basic Principles to Becoming a Successful Day Trader
Day trading is not for everyone, but if you want to try your hand at it, you can become a successful day trader. This type of trading will require a lot of attention to detail, patience, and self-control.
Set a Limit
Knowing when to buy and when to sell is easier said than done, especially when you have been consistently making profits with your day trades. It is important that you set a limit for yourself, so you do not go overboard making trades and end up with a loss when the day closes.
When on a trading platform or exchange, you can use a Limit or Take Profit order. This order will set your target profit and automatically sell your coins when you reach that price. For example, if you set a limit of 2%, once your coins reach this amount of profit, these will be sold.
This order protects you from possible losses. It also controls your urge to wait for a higher profit. Remember, when day trading, prices change quickly. That 2% profit can suddenly become a 2% loss instead. Setting a realistic limit will help you avoid losses.
Accept your Losses
Any form of trading is at risk to potential losses, even more when day trading. Since you are relying on price movements that happen within just a few minutes during the day, there is a higher risk involved. Before beginning to trade, you must accept the possibility of experiencing a loss.
A golden rule in cryptocurrency trading is to invest the money that you can afford to lose. Don’t invest money that you need to pay for your mortgage or daily essentials. Trading, no matter how good you are at it, is always a risk.
When day trading, you can use a Stop Loss order that will prevent you from suffering a huge loss. This order will make sure that you will only lose the money that you can afford to lose.
For example, you can only afford to lose up to 10% of your crypto assets. Once the price moves below this number, your assets will automatically be sold to prevent further losses. Take note that in trading, waiting for a trend to reverse can sometimes be futile and lead to more losses, making it better to sell sooner rather than later. Discover more about cryptocurrency day trading here!
Conclusion
This article provided you with the basic answers to the question, what is cryptocurrency day trading? Like any other type of trading, you must be diligent in studying the market and strategies to become successful.