Crypto day trading is a technique used to trade cryptocurrencies in pursuit of short-term profit. As the name suggests, crypto day trading involves trading cryptocurrencies to make a daily profit. Day traders employ a broad range of techniques and strategies to make sure that they make a gain on their trading every day.
Crypto day traders typically make several trades a day as they try to take advantage of fluctuations in the price of cryptocurrencies to make a profit. This is a particularly viable strategy in the crypto market because it is a very unstable market. The crypto market also has thousands of projects to choose from, and many of them experience wild price fluctuations. These facts coupled with the low barrier of entry to the crypto market make crypto day trading a very appealing opportunity to many people.
Day trading is not a technique that is exclusive to the crypto industry. Every asset that can be speculated on has a subset of people who are day trading that asset. According to Business Insider, “Day trading is an investing strategy that relies on frequent trades of one or more securities throughout the day to turn a profit. While traditional buy-and-hold investors are concerned with the long-term performance of a company, day traders seek to take advantage of more immediate profit-making opportunities.”
Like all strategies, day trading has its own unique pros, cons, techniques, and strategies through which day traders attempt to take advantage of price fluctuations to make a profit.
(Please note that nothing in this article is intended as financial advice. Always make sure to do your own research (dyor) before investing in anything.)
Everybody who is involved in trading cryptocurrencies must have a working knowledge of market analysis of the crypto market.
According to an article in The Business Plan Shop, “A market analysis is a quantitative and qualitative assessment of a market. It looks into the size of the market both in volume and in value, the various customer segments and buying patterns, the competition, and the economic environment in terms of barriers to entry and regulation.”
Before investing in any project, coin, or token, you need to be able to analyze it and make an informed decision about the direction the price is heading. Market analysis is particularly important for day traders because they are working with relatively short time periods. Day traders need to be able to analyze projects and make decisions about them very quickly in order to decide whether to buy or sell.
There are three main types of market analysis in crypto ad two of them are of particular importance to crypto day trading.
- Technical Analysis
Technical analysis is a type of market analysis that seeks to make predictions about the future price of an asset based on its price movement in the past. Proponents of this type of market analysis believe that you can take advantage of the past patterns of an asset to predict how the price will move in the future.
Technical analysis usually involves making use of tools and data like candlestick charts, relative strength indexes, trend lines, and so on. For an in-depth look at how technical analysis works and how you can take advantage of it, you can read our guide to technical analysis.
- Fundamental Analysis
Fundamental analysis is a type of market analysis that seeks to take into accout every factor affecting an asset in order to arrive at an accurate valuation of the asset. Fundamental analysis is usually contrasted against technical analysis which only concerns itself with the price history of the asset.
Typically day traders do not bother too much about fundamental analysis because making profit in day trading depends on price movements over small periods of time.
- Sentiment Analysis
Sentiment analysis trading takes advantage of the fact that the crypto market is subject to hype and sentiment. This is not surprising since crypto is still an evolving technology. And it is one that is evolving so quickly that no one can keep track of all the developments that take place. Yet, people want to profit from what is happening even if they don’t fully understand it. So, a lot of time people buy into a project, coin, or token due to FOMO or the hype around the project.
Coins and tokens can increase greatly in price simply based on the hype surrounding them. Traders can take advantage of this. They buy a lot of the coins or tokens when the price is low, and sell them when the price increases. In order to do this successfully, you have to be constantly scouring for information. On Twitter, Reddit, Discord, crypto news websites, and so on. The coins that will increase based on sentiment are usually brewing in some corner of the crypto world. And if you can get in early then you can make a lot of money.
While this isn’t a sustainable long-term strategy, it’s a great opportunity for day traders.
Like any other type of investment, people come at day trading using different strategies. You may use one or more of the trading strategies depending on factors like the amount of money you want to trade with and what your goals are.
Here are overviews of the most common day trading strategies.
Scalping is a trading strategy that involves trying to take advantage of small movements in price by making a large volume of trades. This strategy is particularly suited to the crypto market because the prices of assets in the crypto market are constantly moving.
Each trade made in this strategy typically only brings in a small amount of profit. Each trade might yield something like $0.03 in profit. This seems small until the volume of trades is taken into account. 10,000 trades each yielding $0.03 in profit adds up to a total of $300. The higher the volume of the trades, the greater the profit margin.
- High-Frequency Trading
High-frequency trading is very similar to scalping. Here day traders take advantage of very minuscule changes in price to execute a high volume of trades in a small amount of time.
The range of time over which high-frequency trading occurs is typically very small, spanning only seconds most times. This means that high-frequency trading depends on implementing scores of trades every second.
Of course, this is not something that a human being can handle. High-frequency traders depend on software trading bots to execute their trades. According to BLOCKONOMI, “Trading bots work by reacting to the market. It gathers the data it needs in order to execute a trade based on analysis of the trading platform.”
- Range Trading
Range trading involves identifying a range of prices over which you expect an asset to trade for a period of time. You then proceed to buy at the low price point of that range and sell at the high price point.
For example, say you have analyzed a cryptocurrency and you believe that it will trade between $12 and $34 over the next couple of weeks. You can then proceed to buy whenever the price is at $12 or lower and sell at $34 or higher.
Range trading is a bit complex to understand, but here is a post that explains it in the most simple way.
If you are looking to get into crypto day trading using any of the techniques or analysis strategies above, then here are a couple of tips for you. But first, if you are totally new to the world of crypto trading then read The Ultimate Cryptocurrency Trading for Beginners 2022 first.
- Use money you can afford to lose
The cryptocurrency market is incredibly volatile. And as much as that presents opportunities for making much profit, it also presents the possibility of much loss. Due to the volatility of the market, it is wise to only use amounts of money you can afford to lose when trading cryptocurrencies.
- Always take profits
When prices are generally trending up in the market, even cryptocurrency traders can begin to hold on to coins for longer than they usually do. This is not unusual and it is a possibility that every trader needs to account for by having a formula for taking profits. No matter how strong the temptation, try to always take profits to mitigate your downside in the case of a market crash.
- Secure your seed phrase
Security is very important in the crypto world. Perhaps more so than in other financial markets. There are lots of scams and fraudsters in the crypto space and phishing, in particular, is on the rise. Security is one thing you need to take very seriously. And your seed phrase is one of the most important thighs to keep secure. Make sure that it is stored securely and not on say a Google Docs file or the notes app on your phone.
- Use hardware wallets
In the spirit of taking security seriously while navigating the crypto market, you should consider investing in a hardware wallet. A hardware wallet is a physical device on which you can store your crypto assets and access them exclusively whenever you need to. Hardware wallets are the most secure form of crypto wallets. They are much safer than storing your cryptocurrency on a software wallet, or even worse, a crypto exchange.
- Do thorough research
Always research a project as much as you can before investing in it. Too many people in the crypto space have little knowledge of what they are investing in and no coherent trading strategy. Try to find out some important information on the project/coin/token and do some analysis before investing. Information like liquidity, market cap, trading volume, executive team, utility and so on are all important to give an indication of the viability of what you are about to invest in.
Trading cryptocurrencies is always a very risky affair. Cryptocurrencies are a new form of financial instrument and much different from any other type of financial instrument. The risks associated with them are not yet completely clear even to people who work in the crypto space.
Day trading is even riskier because of its very nature. According to an article by Frank Gogol in Stilt, “Day trading can be a lucrative activity. However, it is essential to keep in mind it is also by far one of the most high-risk ways to interact with cryptocurrencies.”
There are people who only have long-term trading strategies in crypto. They only buy very stable coins (like Bitcoin and Ethereum) in large amounts and hold them for long periods of time. The expectation is that the prices will go up over time. These kinds of people don’t have to worry about every random price fluctuation of the assets they own because they have a long time horizon for their investments.
However, day trading is entirely different. In day trading you are trying to make a profit from small changes in price and typically over even smaller periods of time.
This means that for day trading to be successful, the trader has to invest in a lot of smaller coins known as altcoins. This is because the price of the more successful coins tends to be relatively stable, and therefore, the opportunity to make a profit from them is limited.
However, altcoins are very unstable. Their prices tend to fluctuate wildly and often for no clear reason. This provides the opportunity for crypto day traders to earn money when the prices swing up. But, it can also mean the loss of significant amounts of money when prices suddenly go down. It’s the wild west out there for crypto day traders.
And so, typically, crypto day trading is almost like a full-time job. Day traders are almost constantly checking their phones or computers to see what is happening in the market. It can be really exhausting work. But, thankfully, there are ways to make this work easier. And one way, in particular, stands out above the rest.
Getting ahead in the game of crypto day trading can seem like a daunting task but it doesn’t need to be. There are several tools out there built specifically to give traders an edge in the market.
One of the best tools for finding crypto trading opportunities is the Algory crypto scanner. You can start using Algory crypto scanner to improve your crypto day trading because it gives you tons of actionable and insightful tools.
Here is what you get:
- Pre-built crypto scanner libraries created by expert traders
- +100 scanners alert and filters
- A news aggregator that brings you news from +800 crypto sources
- Scanning is done within milliseconds
Access to all the features mentioned in one place