One of the most popular trading methods is day trading. Most financial markets, including those for stocks, foreign exchange, commodities, and, of course, cryptocurrencies, have active day traders. But is it a good idea for you to trade cryptocurrencies every day? How are day traders able to profit? Do you want to begin day trading?
These questions unfortunately have no single answer, but this post will clarify what you need to know about day trading crypto.
What Is Day Trading?
Day trading is a type of trading method where positions are entered and exited on the same trading day. This approach may also be known as intraday trading because the trading takes place throughout the same day. Day traders try to make money off of changes in a financial instrument’s price using intraday trading tactics.
The phrase “day trader” comes from the stock market, where trading is only available during normal business hours. Since their goal is to profit from intraday price swings, day traders never leave positions open overnight in this situation.
How are day traders able to profit?
There are more than a billion users who routinely visit the internet and are knowledgeable about how it functions. However, everybody on the planet is accessible (PES, 2019).
Successful day traders will have substantial experience and a thorough understanding of the market. Technical analysis (TA) is frequently used by day traders to generate trade ideas. To choose entry and exit locations for trades, they typically employ volume, price activity, chart patterns, and technical indicators. Risk management is crucial for day trading success, just like it is for any trading technique.
Day traders may not be concerned with fundamental analysis because fundamental events may take a while to play out (FA). However, some day traders build their approach around “trading the news.” This entails identifying assets that have high volume as a result of a recent release or piece of news and profiting from the brief increase in trading activity.
Day traders seek to profit from market turbulence. Volume and liquidity are therefore essential for day trading. After all, day traders require strong liquidity to complete trades quickly. When it comes to leaving a position, this is particularly true. One trade’s significant slippage can have a catastrophic effect on a day trader’s trading account. Due of this, day traders frequently trade pairings of an extremely liquid market.
Some day traders won’t trade anything but one market pair, like BTC/USDT. Others will compile a watchlist based on fundamental, technical, or both characteristics, and then select the instrument to trade from that list.
Day trading strategies
Among day traders, scalping is a very popular trading method. It entails capitalizing on swift price changes that occur on shorter time scales. These include the bid-ask spread, liquidity gaps, and other market inefficiencies.
Scalpers frequently use futures contracts or margin trading to increase the power of their leverage. Larger position sizes are preferable because the percentage price targets are frequently lower. In actuality, this is usually true for day trading tactics.
Leveraged trading does not, however, imply that risk management rules are ignored. A successful scalper will be knowledgeable about margin needs and follow the right position sizing guidelines. Visit How to Calculate Position Size in Trading to learn a straightforward method for position sizing.
Scalpers may choose to set their entry and exit locations for specific trades using techniques like order book analysis, volume heatmaps, and various technical indicators. Scalping is typically more suitable for experienced traders due to the quick trade execution and significant risk. In addition, a few unsuccessful trades can easily wipe out a trading account due to the excessive usage of leverage.
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The inspection of candlestick charts and the examination of support and resistance levels are key components of the straightforward range trading method. As the name implies, range traders search the market structure for price ranges and base their trade ideas on those ranges. A range trader might purchase the support level and sell the resistance level, for instance, if the price is fluctuating between those two levels. On the other hand, they might sell at the resistance level and buy back out at the support level.
The premise behind range trading is that the range’s edges will act as support and resistance up until the range is breached. This implies that the price will most likely be pushed upward by the lower range edge and downward by the upper range edge.
However, the likelihood that a support or resistance level will break increases the more times the price meets it. Because of this, range traders will always be ready for the possibility that the market would depart from the range. This often entails placing a stop-loss order at a price where the breakout from the range has been validated.
Range trading is a simple method that can be appropriate for beginners. It necessitates an in-depth knowledge of candlestick charts, levels of support and resistance, and possibly momentum indicators like the RSI or MACD.
High-frequency trading (HFT)
Quantitative traders frequently employ high-frequency trading as a type of algorithmic trading approach (“quant” traders). It entails creating trading bots and algorithms that can quickly enter and exit a large number of positions over a brief period of time (Academy Binance, 2021). How brief are these periods of time? Consider a nanosecond. A high-frequency trading firm may have a huge edge over other enterprises in just a few more milliseconds.
Highly sophisticated strategies may be implement using HFT algorithms. High-frequency trading may appear to be a seductive day trading method, but it’s actually a lot more sophisticated than that. In order to adjust to the constantly shifting market conditions, high-frequency trading involves a lot of backtesting, monitoring, and algorithmic tweaking. Therefore, if you believe that a trading bot can perform all the work while you sit back and relax, that is probably not the case.
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Day trading is a popular trading method that works for both stocks and cryptocurrencies. Traders rarely hold positions for more than one day and instead try to capitalize on market volatility by using intraday trading tactics.
Day traders find trade settings by using technical analysis, chart patterns, and technical indicators. Scalping, range trading, and high-frequency trading are a few of the day trading tactics that are most frequently use.
Academy bianance (2021). A Beginner’s Guide to Day Trading Cryptocurrency. https://academy.binance.com/en/articles/a-beginners-guide-to-day-trading-cryptocurrency
PES (2019). 190 Million Gone Forever A Nightmare For Cryptocurrency Investors. https://www.professionalessayservice.co.uk/190-million-gone-forever-a-nightmare-for-cryptocurrency-investors/