The cryptocurrency market has recently become one of the most popular trading markets for skilled traders. Unlike regular markets, Crypto markets stay open 24/7. In addition, day trading cryptocurrency does not require a brokerage or margin account, making it easier to engage in short-term trades than stock exchanges.
On the other hand, Day Trading Cryptocurrency can be defined as a short-term trading strategy in which crypto assets are traded on the same day. It is a high-risk endeavor made feasible by the cryptocurrency markets’ extraordinary volatility and liquidity.
Unlike traditional markets, Day Trading Cryptocurrency necessitates a deeper understanding of crypto and blockchain technology to achieve consistent success.
What is Day Trading?
Day trading is an investment strategy to gain profit by making multiple trades of one or more securities throughout the day. While typical buy-and-hold investors are focused on a company’s long-term success, day traders look for more quick profit chances.
To gain profit from short-term price changes of stocks, bonds, currencies, and cryptocurrencies, skilled day traders use various resources, strategies, and tools. Day trading is quite a challenging technique that involves attempting to gain profit from price movements in a short period of time. Consequently, the risk connected with day trading is substantial.
Top 5 Strategies for Enhancing Day Trading Cryptocurrency:
To gain profits and minimize the chances of loss, take a look at top 5 strategies for Day Trading Cryptocurrency. Day traders use a variety of strategies to profit from short-term changes in the crypto markets.
A trader should develop a profitable strategy based on research and have a well-defined strategy for entering and exiting positions. Some of the most popular strategies for day trading cryptocurrency include:
Bot Trading is a software application that allows investors to purchase and sell financial products at a predetermined time or when conditions are suitable to optimize earnings.
Crypto trading bots are intended to boost earnings while lowering the risk factor and losses. In addition, the strategy can speed up the process of analyzing price changes, exchange costs, and the potential to benefit from deals in the short term.
Bot trading software is a feature of stock exchange brokerages. Traders familiar with software development and APIs might consider leveraging this knowledge to their advantage as day traders.
Scalping is one of the leading trading strategies in today’s era. The strategy is quite well-known to traders due to its fastest turn-around feature. In this, traders take advantage of high volumes of liquidity to gain profit from even minor price movements.
Purchasing or selling of cryptocurrencies over the course of a few hours and cashing out on minor percentage gains at the end of the day and frequent transactions based on signals or technical indicators – are examples of a scalping strategy.
This strategy is popular among day traders because of its simplicity of automation for bots, minimal risk, and possible reward. In addition, trading bots can reduce the anxiety and tension associated with trading.
Scalping allows traders to analyze their wins or losses at the end of the day rather than investing for the long term. Due to market volatility, traders can consistently earn quick profits over time, which can add up to significant returns in the long term.
One of the frequently used and popular strategies for Day Trading Cryptocurrency is Range trading. In this, the Day traders take benefits of sideways markets by identifying consistent price movement, which is indicated as resistance and support levels on charts.
Traders choose a period when a crypto asset is oversold (at a low price) and then sell it at a higher value to gain profit. Online screeners can help crypto day traders choose the proper crypto asset for this strategy. Like other trading strategies, Range trading can also be used in markets other than cryptocurrency.
Crypto day traders excessively use range trading because it has clearly defined entry and exit points, which can reduce losses and help in managing risk factors. The trader minimizes losses caused by market circumstances by generating small profits over a short period of time.
The long straddle is a day trading strategy that involves buying put and a call order. In a long straddle, both call and put orders are on the same cryptocurrency, strike price, and expiration date. The strategy is often referred to as the buy straddle, option straddle, or straddle strategy.
Because of the volatility in the cryptocurrency market, the long straddle is quite a popular and most used strategy among day traders. This approach involves a day trader speculation on the price of a changing crypto asset.
In the long straddle strategy, the day trader makes a profit whether the price increases or falls. However, the trader will have to suffer loss if the price does not change.
The examination of financial data such as past price and volume data points to uncover statistical trends in the markets is known as Technical Analysis (TA). The strategy teaches traders how to use science to find profitable trading chances.
If there is any previous trading data available, technical analysts may apply their method to any market or securities. For example, in the cryptocurrency market, the strategy can be used to assess how previous performance might predict future gains or losses.
The application of TA in the crypto markets has a mixed response among traders. Many people argue that crypto is incompatible with Technical Analysis due to the lack of worldwide laws and a large number of exchanges. However, others feel that metrics such as the relative strength index (RSI) are helpful.
The RSI indicator assesses the link between a cryptocurrency’s price and actual demand. This can help traders map entry and exit points based on the momentum by determining whether an asset is overbought or oversold.
The best method to use technical analysis in crypto is to combine it with other strategies. Day traders should have enough knowledge about TA and have it in their toolkit, but they should combine it with other market drivers such as news, fundamental research, correlation arbitrage, etc. The emphasis on creating a thorough plan for when to join and exit positions is the best feature of Technical Analysis.
Read our Blog Top 7 Best Technical Analysis Books.
Advantages and Disadvantages of Day Trading Cryptocurrency:
Any cryptocurrency investment is a mixup of high-risk and high-reward propositions. Therefore, traders should set aside time to become familiar with the impending laws and regulations governing the taxation of crypto earnings.
For instance, crypto is not exempted from short-term capital gains tax. The sale of any cryptocurrency held for less than a year is taxed as marginal income for day traders. Apart from this, Day Trading cryptocurrency has a few advantages and disadvantages which every trader should consider before trading.
Take a look at a few advantages and disadvantages of Day Trading Cryptocurrency:
Advantages of Day Trading Cryptocurrency:
Universal Access: Anyone with a cryptocurrency exchange account is free to trade. There are no further limitations to entry for retail investors or day traders to access other than authenticating their identification and funding their exchange account. In addition, those who wish to acquire crypto but cannot afford to pay $60k or more can purchase and sell a portion of any cryptocurrency.
24/7 Availability: The crypto markets are open all year round, 24 hours a day, 7 days a week. With 24/7 availability, traders can buy and sell without restrictions. The convenience of being able to trade anytime is one of the benefits of cryptocurrency trading.
Low Transaction Cost:
Cryptocurrencies and blockchain technology are decentralized. It keeps users anonymous while also allowing them to conduct payments without the involvement of a middleman. In addition, the lack of government taxes and fees makes dealing crypto incredibly inexpensive for day traders on a controlled exchange.
Disadvantages of Day Trading Cryptocurrency:
High Chances of Loss: As it’s so simple to get started trading cryptocurrency, there are high chances that a new or inexperienced trader can suffer losses just as quickly as they can gain profit.
24/7 Availability: The market is a two-edged sword as it is open 24 hours a day, seven days a week. Crypto day traders may find themselves riveted to the charts for more extended periods of time than they would in traditional markets, seeking the best time to make a deal. This makes it more difficult to see patterns, and a brief day trading session can quickly evolve into a night trading session.
Riskier Market: You might fall into pump-and-dump scams or wash-sales if you trade cryptocurrencies. This happens when a group of individuals works together to artificially inflate the price of a cryptocurrency in order to lure in novice traders. Then, after profiting, the traders sell the cryptocurrency, causing the price to plummet.
Which is the Best Broker for Cryptocurrency Trading?
If you’re searching for the best broker for Cryptocurrency trading, ABInvesting is our top recommendation. The broker offers a comprehensive trading platform that provides you with low-cost access to a wide selection of assets.
With access to a range of worldwide marketplaces, you can buy assets from all over the globe from the comfort of sitting at your own home or workplace. ABInvesting is an excellent option for traders who are new to cryptocurrencies and don’t want to use social trading platforms.
Cryptocurrency trading is getting popular with each passing year as investors become more familiar with blockchain technology and exchange platforms.
On the other hand, Day Trading Cryptocurrency is a high-risk approach that involves buying and selling cryptos, often hoping to make a quick profit. Therefore, anyone interested in day trading cryptocurrency should have a clear idea of where they intend to trade, develop a precise day trading strategy, and stick to their entry and exit points.
It’s also worth noting that most day traders lose money while trading. The crucial differences between Day Trading cryptocurrency and gambling include:
- Setting aside time to focus only on your transactions.
- Calculating earnings and losses.
- Sticking to a full-fledged plan.
There are plenty of ways to profit with cryptocurrency, and day trading is one of them.
How to Earn Money by Day Trading Cryptocurrency?
Due to high volatility, Day Trading cryptocurrency can be very profitable. Even if volatility is low compared to other assets, it is still high enough to allow you to make a little profit on your trades.
Which is the best cryptocurrency for Day Trading?
As Ether (ETH) is available on most exchanges, you can trade it at any time and from any location. Many traders believe ETH to be the ideal cryptocurrency for day trading as it has one of the highest liquidity rates.
What is the Minimum Amount for Day Trading Cryptocurrency?
To file taxes as a day trader, they must have a $25,000 or more brokerage account balance and complete additional requirements.
Is Day Trading legal?
Day trading, the most common strategy in the foreign exchange and stock markets, is the legal process of purchasing and selling a financial asset within a single trading day.
Is it Possible to Start Day Trading with $500?
With merely $500, you can start Day Trading. However, when you increase your initial investment, a few factors to keep in mind. First, you can reduce day trading risks and increase your chances of success by learning the basics, practicing, and using the proper strategies.