Crypto day trading has been a common form of trading among traders in recent years, especially among those active in financial markets. But what exactly is crypto day trading, and what are the best strategies to get ahead in this type of trading?
What is crypto day trading?
Crypto day trading is a form of trading that entails entering and exiting a position in the market on the same day. Some call it “intraday trading,” as trades are typically opened and closed within the span of a day.
Day trading cryptocurrencies is all about profiting from small market swings. And since cryptocurrencies are quite volatile, day trading might not be a bad idea. A typical stock or commodity seeing a 10% increase in value in a single day is scarce, but spikes like these happen all the time in the crypto market.
Day trading has many advantages. For example, you avoid the complexities of buying and selling cryptocurrencies, and quick gains can even be made by betting on short-term price fluctuations. Let’s take a look below at some of the best approaches to day trading crypto.
Best Strategies for Day Trading Crypto
Crypto day trading can be really profitable, but there are trading strategies and risk management rules to stick with if you want to come out of a trading day with tangible profits. These strategies aren’t necessarily complicated; as long as you diligently apply the right approach, you should see positive results.
Arbitrage has a long history and for good reason. It is widely implemented because it is both proven and relatively straightforward. All you have to do is purchase a coin on one platform and sell it on another, taking advantage of the price difference between the two.
For example, the price of Bitcoin at the time of writing is $29,840.89 on Binance and $31602.445 on Coinbase. If you buy 1 BTC on Binance and sell it on Coinbase, you would take home the difference as profit within minutes and without any technical knowledge.
Arbitrage does have its downsides, though. For example, fees, i.e. withdrawal fees, on most platforms are sky-high, so if you are not moving a substantial volume of crypto assets, you will lose a large portion of your profits to withdrawal fees. Hence, to make it work for you, you have to take note of the precautions to take while arbitrage trading.
Scalping is similar to arbitrage in some ways, except that in scalping you stay on one platform and profit from a higher trading volume. In scalping, you exit trades minutes after entering them with the aim of making tiny profits in the process. Traders who use this approach place anything from ten to hundreds of trades daily, believing that minor price changes are easier to catch than major ones.
A scalper’s goal is to spot little increments, so he is always found “scouring” the market for tiny gains. Below is a hypothetical example of a trader who, through scalping, profited from price changes in stock X, which initially traded at $7.
The trader bought a large number of X shares, say, 30,000, in the hopes of a small price increase later. A few hours later, the stock rose to $7.05, and the trader sold his shares immediately, creating a profit of $1,500 for himself.
3. High-Frequency Trading
HFT is a type of algorithmic day trading where quant traders use trading bots and algorithms to enter and exit the market swiftly. Market swings in crypto trading happen in moments, so traders employ computers programmed with intricate algorithms to detect and profit from those rapid swings. Their systems monitor and analyze cryptocurrencies in real-time across many exchanges to detect trends and other trade triggers.
The only drawback is that building such bots necessitates a deep comprehension of computer science and mathematics and a profound understanding of complex market concepts. As a result, this approach is mainly used by skilled traders.
4. News and Sentiment Analysis
This strategy is similar (although not entirely) to technical analysis because it involves forecasting. It differs because it is based on human reactions and behaviors rather than price movements. Day traders use this method to predict if the demand for specific cryptocurrencies will rise or fall by examining numerous information sources to gauge the social consensus on the currency and predict people’s actions.
There are many tools and sources from which useful sentiment analysis data can be acquired. Press, social platforms, customer service call center data, customer feedback, public information, employee interaction data, and electronic health records are all examples.
5. Range Trading
The spread between the lower and upper prices for an asset during a given period is referred to as range.
Therefore, range trading is a simple strategy where the analysis of candlestick charts is used to select a suitable range within which a trader can buy in and buy out over a short period. In range trading, support and resistance levels are employed.
If the price ranges between two support and resistance levels, a range trader might buy the support level and sell the resistance level. Conversely, they might sell short at the resistance level and exit at the support level.
Traders usually rush out to buy companies’ shares when they release terrific earnings reports. This then drives their stocks to achieve new highs. However, once the hype fades, demand isn’t usually sturdy enough to sustain the highs, so the stocks begin to trade slightly lower. For the following few weeks, the stock may trade between the current month’s high point and its prior low point.
So if a trader believes the stock will remain within a certain range for the next, say, three weeks, they could buy the stock when its price falls close to the low and sell around the high.
Crypto day trading can be profitable for those ready to learn and take action. To day trade well, you need a delicate balance of technical analysis, news analysis, and common sense, and it can be difficult to strike such a balance.
However, there are several things you can do to make day trading easier for you. Everything can be automated, for example. You can create a cryptocurrency trading bot to execute your transactions 24 hours a day, seven days a week.