Crypto Trading 101 | Day Trading Cryptocurrencies
Cryptocurrency assets are growing in popularity as investment vehicles. While ground-breaking developments are taking place on the regulatory side, the industry is experiencing soaring volume in trading and investments.
Along with this growth, different trading styles of traditional markets are also now being applied to leverage profits in the crypto market. One of the trading styles is the cryptocurrency day trading strategy.
A beginner just stepping into the cryptocurrency market may wonder if day trading cryptocurrency is profitable. More importantly, which tools can be applied for best day trading strategies?
In this cryptocurrency day trading guide, we have decoded the different methods of day trading with cryptocurrency, which tools can be leveraged, and what are the tips that an investor should take into consideration.
What is Day Trading with Cryptocurrency?
As the name suggests, day trading refers to opening and closing a cryptocurrency trade on the same day. A trader intends to buy low and sell high on the same day so as to generate profits from the cryptocurrency asset.
Day trading with cryptocurrency assets is increasingly popular. Apart from the rising interest in crypto investments, traders are looking to leverage volatility in digital currencies. Another aspect that plays importance is the liquidity factor. Because trades open and close on the same day, day traders need to ensure high liquidity is available in a particular cryptocurrency and on the platform they trade. Moreover, the absence of liquidity prevents a trader from closing the trade even if the desired price is attained.
Day traders primarily use technical analysis tools to understand the price movements of a cryptocurrency. Chart patterns and technical indicators assist in finding the best positions for opening and closing a trade. Cryptocurrency day traders also leverage
fundamental analysis to follow the short-term impact of the latest news on a particular cryptocurrency asset.
Cryptocurrency Day Trading Strategies
Cryptocurrency day trading incorporates different strategies aimed at generating profits in short-duration by trading cryptocurrency assets. Traders also trade using cryptocurrency CFD instruments which allow trading using contracts with brokers and, not on the actual asset. There are different kinds of cryptocurrency day trading strategies and tools that are used by traders so as to maximize their potential for profits.
Scalping is a trading style that involves placing trades by entering and exiting the market with small profits. Day traders, in this style, leverage short-term price differences in crypto assets caused by market inefficiencies and liquidity gaps.
While scalpers open and close a trade in a small duration, they place numerous trades throughout the day. Hence, their trading volume at the end of the day is at a substantial volume. Scalp traders also use leveraged trading in cryptocurrencies as the investment amount is small. Some scalpers also use crypto trading bots to execute trading at precise conditions.
However, this strategy requires a great amount of skill, focus, and speed. Moreover, even in small amounts leveraged trading is risky. Cryptohopper offers Volatile Trend Scalper strategy which uses technical indicators for trading in cryptocurrency markets.
2. Range Trading
In cryptocurrency day trading, another popular strategy is range trading. In this strategy, day traders monitor price ranges of a cryptocurrency asset and subsequently form their trading idea. Day traders use chart patterns to identify a trend like finding support and resistance levels of a digital token.
In range trading, one of the popular ideas is that a trader opens a trade at the support level and closes it at the resistance level. However, both these points may mean that the price of an asset may break support or resistance levels. Hence, it is always a safe bet to place limits and stop losses to minimize trading risks.
3. Automated Crypto Day Trading
Automated trading has become very popular among day traders. As the name suggests, traders leverage cryptocurrency robots to automate their day trades. Cryptocurrency bots like Cryptohopper analyze vast amounts of data using algorithms and advanced technological tools. It finds potential cryptocurrency trades that can facilitate optimum profits and opens and closes the trade without human intervention.
Day traders use crypto bots for placing manual trades and also to backtest their trading strategy. With Cryptohopper, a trader can analyze existing trading strategies against historical data and further improvise. When manual trading, day traders can specify the precise points to enter or exit a trade along with customized settings like stop-loss and not constantly monitor the markets.
Cryptocurrency Day Trading Tips
While trading and investments in cryptocurrency markets are gaining attention, a number of traders are now leveraging popular strategies in cryptocurrency day trading. However, as markets are volatile, it carries a certain amount of risks.
Here are some tips for traders to keep in mind while practicing day trading with cryptocurrency.
Set a stop-loss: A stop loss is a price at which you want to automatically close a trade. It is always a good practice to set up a stop-loss in order to minimize your losses.
Start small: If you are a beginner, invest in small amounts in any cryptocurrency trade. With practice, you can improvise your trading strategy and build your cryptocurrency portfolio gradually.
Avoid crypto assets with low liquidity: Avoid assets or exchange with low liquidity, especially in day trading. This is because you may not be able to exit a trade at a precise price point.
Research: Perform research and understand various strategies as well as technical indicators used by day traders.
Remember fee structures: If you open and close multiple trades in a day, remember to account for the exchange fee that you have to pay with each trade.
Practice demo trading: You can practice demo trading on robots like Cryptohopper. If you are a beginner, this will allow you to familiarise yourself with trading in cryptocurrency markets.
While day trading holds the potential for profits, it might not work for everyone. It is essential that a trader is aware of all the risks of day trading with cryptocurrency. Moreover, you should always conduct due diligence and study various strategies before outrightly venturing into it. Traders should learn and practice cryptocurrency day trading to improve their trading strategies. Last but not the least, only invest what you can afford to lose.