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Cryptocurrency usually indicates a set of decentralized digital coins, the creation, and control of which are based on cryptographic and mathematical methods. Bitcoin is the first and most known cryptocurrency. Over the past years, a huge amount of altcoins has been created based on similar principles.
The functional principles of any cryptocurrency are based on blockchain technology. It is possible to exchange one cryptocurrency for any other virtual coin or fiat money on cryptocurrency exchanges. Trading with virtual currencies is one of the primary ways of acquiring virtual coins. With the correct approach, cryptocurrency trading may provide a decent source of income.
Crypto trading is similar to transactions using other financial assets, like stocks, shares, and options. A day trader needs to determine the right moment to enter a trade when a cryptocurrency price is low in order to buy it thereby making a profit sometime later. This is also the basis of any day trading cryptocurrency strategy.
What Is Day Trading?
Day trading is a type of speculative trading on exchanges in which a trader completes all open trades during a day without postponing them for the next day. In simple words, it is trading within the same business day.
Making small but fairly frequent transactions, a trader has an opportunity to make a profit, while avoiding significant losses. The profit from one trade may be small enough, but it can be regular and thus profitable.
Crypto trading has gradually become a more common way of day trading. This means that it is possible to apply traditional day trading strategies to transactions using cryptocurrencies.
Digital currency features hyper volatility. In just one day, a virtual coin may grow in price by 10-15% or even double in value. On other days, it can fall by exactly the same amount. Of course, such movements do not happen every day, but they are possible.
Why You Need Day Trading Cryptocurrency Strategy
The selection of an appropriate day trading cryptocurrency strategy is the key to success in both the stock exchange market and crypto exchanges. Here are the most common strategies for day trading:
- A trend-following strategy means that if the price goes up, a trader should find a cheap entry on drawdowns and sell after the price goes up the drawdown a bit. Then, a trader waits for the next higher low to be formed and reopens a position. Later, a speculator closes the trade when the next peak appears. It works similarly with short positions as well. A trader waits for a pullback up after the next bottom and opens a position to sell. This may be one of the best day trading strategies for beginners to use.
- A scalping strategy uses short intervals and minute charts. Traders often apply significant leverages. At the same time, they take high risks and psychological stress to get a relatively small income. So, a trader needs to have proper training and experience to work with this type of strategy.
- A strategy using hourly intervals allows a trader to apply technical analysis for increasing profit from transactions. It is possible to use smaller leverages as well. This strategy can offer decent benefits, and it does not assume a heightened psychological pressure.
Tips That Will Improve Your Day Trading Cryptocurrency Strategy
It is interesting to note that different traders may use the same day trading strategies in different ways. Everything depends on the personality characteristics of traders and their work schedule. That is why even professional speculators cannot recommend the most effective strategy. They should be chosen and mastered individually.
Only one common rule is valid for all successful strategies. So, if the profit/loss ratio is about 3 to 1, then you have chosen the best day trading strategy.
It can be stated that some trading opportunities appear on every crypto exchange almost every day. A trader should think about the right entry point at first. The easiest method is to select it near the trend line. It will minimize risks and maximize profits. Secondly, it is vital to use a stop-loss below the support level in order to escape being trapped if the market starts to fall.
Day Trading with Cryptocurrency vs Stocks
Building an individual cryptocurrency strategy lets you broaden your spectrum of trading. If you are a good strategist in cryptocurrency day trading, there is a big chance that you will also be good at intraday stock trading. Moreover, day trading using virtual currency also has many disadvantages, which are namely:
- Day trading using stocks has a much longer history.
- There are tons of training videos and webinars are available on the Internet.
- You can hardly find any useful tips provided by successful cryptocurrency traders or experienced mentors.
Cryptocurrency is often much more volatile, less predictable, and news dependent than stocks. Most crypto exchanges don’t allow using any leverage for trading. That is, this means you can trade only crypto coins you possess.
The crypto market provides more opportunities to earn, but also to lose significantly. Crypto exchanges work 24/7, and traders have to monitor price changes all the time. It increases the psychological load thereby increasing stress.
And finally, when using any cryptocurrency for trading purposes, you need to take additional measures to protect your account from hacking, erroneous transactions, and much more.