Day trading cryptocurrency is highly popular, and with the continued growth experienced by the market, a lot of people have started getting into it. The value of Bitcoin and other altcoins have also significantly increased in the past decade of their existence. Can you imagine that when Bitcoin came out in 2009, its value was less than $1?
You may already be familiar with the terms Bitcoin, cryptocurrency, and trading. But do you know exactly what is day trading cryptocurrency?
Day Trading In The Cryptocurrency Market
Day trading is just one of the many trading strategies in the cryptocurrency market. This type of trading is also being applied to more traditional markets such as the stock exchange. However, there is one striking difference between day trading stocks and cryptocurrency, and that is how the term, “day,” is defined.
The stock exchange is open for just the business hours during the day. The New York Stock Exchange, for example, is usually open from 9:30 AM to 4:00 PM. This means that day traders of stocks must secure all their trade orders before the market closes for the day. Failure to do so would mean the stock would remain open and would be subject to any price movements that can happen the next day.
In contrast, the cryptocurrency market is open 24 hours a day, 7 days a week, 365 days a year. Essentially, the market is always open. Therefore, cryptocurrency day traders have the luxury of trading anytime within 24 hours. This is what counts as day trading cryptocurrencies.
What is Day Trading?
Day trading cryptocurrency focuses on all trade orders that happen within a single 24-hour timeframe. Traders capitalize on price movements to either buy or sell a cryptocurrency asset to earn a profit. These traders use strategies that will help them detect small price movements and trends to find trading opportunities. A lot of day traders make a living out of doing this every single day.
Day trading requires knowledge, skill, and experience. Although day trading is not totally closed off to beginners, it will be very difficult to begin trading with zero knowledge.
Becoming a successful day trader requires an understanding of trading charts, technical indicators, volatility, volume, price movements, and more. It is also important that you know how to weigh your risks and be able to swiftly decide on what action to take when the market becomes increasingly volatile.
Once you understand all these elements that make up day trading, you will be able to earn a profit based on the trades that you execute within the day.
Day traders usually aim for coins that are liquid, meaning that these coins are easily exchangeable with other coins or currencies. This way, each trade that is made can push through. Additionally, highly liquid coins can be easily traded without affecting the market price.
Coins that have low liquidity will be difficult to trade because not everyone will want to acquire that coin. As an effect, when placing a trade order whether to buy or sell, the market price will be significantly altered, and it can result in a loss on your trade.
Day traders want highly liquid coins because the goal is to execute all trades before the 24-hour timeframe is up.
One challenge of day trading is encountering a huge slippage on a trade. Slippage is when the market price of a coin moves because it is not liquid enough. If you put in an order for a coin with low liquidity, the market price will move, and you will end up spending a lot more than the expected price.
When day trading, as much as possible, you want to avoid altcoins that are prone to slippage. Be sure that you are trading pairs that are liquid enough to prevent losses.
The volatility of the cryptocurrency market helps day traders earn their money. Volatility is defined by the swift changes in the market price of a coin. These changes can either contribute to a higher or lower value of the cryptocurrency.
Volatility is defined by how often the price of a coin changes, and how large are these changes. Cryptocurrencies are more volatile than traditional markets. Aside from being a relatively young market, cryptocurrencies are not regulated by any central financial institution, and still have a much smaller market size compared to the stock exchange.
All these factors contribute to the high volatility of the cryptocurrency market, where prices can jump up and down within a single day. Day traders take advantage of this volatility to identify trades that can be made during the day and earn a profit.
Cryptocurrency volume refers to the number of coins that was traded during a set timeframe. For day traders, volume will help them identify which coins have been traded the most during the day.
The volume of a coin will also help day traders form predictions based on the trend. In the trading world, volume creates trends. If you observe a coin that is on an upward trend, this should be accompanied by an increase in volume. This will then indicate to the trader that it is a good opportunity to buy the coin.
Similarly, if a trend is moving downward, and there is a decrease in trading volume, it may be a good time to sell. However, if the trading volume is low but you observe an upward trend, it is possible that this trend is weak or not true. Want more awesome tips on day trading cryptocurrency? Go here!
What is day trading cryptocurrency? Simply put, day trading in cryptocurrency is when traders execute all trades and market orders within a 24-hour timeframe. It is one of the most popular strategies for trading cryptocurrency but is not without risks.
Day trading can be considered a high-risk, high-reward strategy. It is risky because it is still difficult to predict the price movements of each coin. However, if you execute the strategies correctly, you will be able to earn a huge profit from day trading cryptocurrency.