A Beginner’s Guide to Day Trading Cryptocurrency

What is Day Trading?

Day trading concludes on the same day. Profit or loss — no matter what’s in the store, but the report card comes on the same trading day. It’s similar to a 20–20 cricket match where you don’t have much time to think and plan. In fact, it demands prior planning and strategy making.

Sometimes, this strategy is also referred to as intraday trading. The goal of day traders is to use intraday trading strategies to benefit from the intraday price changes of the stock or any other asset. It demands objective decision-making keeping facts and figures on the table.

How do Day Traders Make Profit?

Before putting their money into this crypto trading instrument, here is what every successful day trader does to ensure maximum profit and minimum risk:

Technical Analysis: Day traders learn the market sentiment using descriptive and diagnostic analytics. They perform an analysis of how the market performed in the past, and what caused it to behave like that. Thereafter, keeping in mind the volume and price of the asset at different points of time, they predict the future in the next few minutes and hours, spot the profitable opportunities, and invest accordingly to make the most out of their investment.

Risk Management: Cryptocurrency intraday traders build a strategic risk management plan to cope with any potential surprises and shocks. Here is a guide to risk management processes.

  • Setting objectives

Have a clear vision regarding what you want to achieve, what you have in hand, and how much risk you can tolerate. These aspects should be pre-planned as it helps you take the right step in the right direction.

  • Identifying risks

Compare the volatility of different cryptocurrency markets to identify the underlying risks. Break the risk factors by asset liquidity, chart pattern, impact cost (when impact cost is high, the risk of intraday becomes too high), and much more.

  • Risk assessment

Keeping in mind all the risk factors create your very price sensitivity index. Some cryptocurrency exchanges like PCEX Member provide a detailed dashboard with information like asset price and trading volume changes over the last 24 hours to help you.

  • Defining Responses

This is preparedness to handle the risks. Categorize risks. Chalk out different responses for each type of risk or risk category. The responses may include applying hedging techniques, diversifying or consolidating the investment portfolio based on the situation. It helps you mitigate the risks and maximize the intraday trading profit.

  • Monitoring

How successful were the responses against the risks or events of risks? What markets performed better, and where did you miss? Doing so demands a descriptive analysis of the market movement.

Proven Day Trading Strategies

Scalping

Taking advantage of small price moves over short time frames is called scalping. Such price moves are triggered because of a gap in liquidity, the bid-ask spread, and other market inefficiencies. Interestingly, without investing from your wallet, you can earn money by buying assets using the margin fund, or futures contract. When you use margin funds, you have to commit to paying a certain percentage of the asset worth to the exchange.

Investing in bigger position sizes, you can maximize the benefits from the smaller price moves. It’s important you know the mathematics behind the position size calculation.

Range Trading

Range trading involves crypto trading between a range. Typically, the upper limit of the range is called the resistance limit, and the lower limit as the support limit. Based on the candlestick chart analysis, a range trader makes speculation, and the profit or loss is subject to realization of that. The trader has the flexibility to buy or sell the support and resistance level. S/he can also short the resistance level and exit at the support level.

The movement of the price beyond either of the limits will break the range. The upward movement benefits the trader, while the downward movement results into loss. To gain immunity against the range break, the trader has the option to apply stop-loss at a level where s/he speculates a breakout. It allows you to exit if you see any unavoidable loss. To make big of the range trading, you should be aware of the momentum indicators such as the RSI (Relative Strength Index) or MACD (Moving Average Convergence Divergence).

High Frequency Trading (HFT)

This trading technique is for advanced traders. Knowledge of crypto trading market concepts, data science, and analytics is highly desirable. To benefit from HFT, you have to develop algorithms and trading bots that can quickly enter and exit many positions over a short amount of time. The time frame can be as small as milliseconds. In a nutshell, you have to stay glued to your screen.

Getting Started with Day Trading

Find the right exchange that facilitates 24-hour trading, more market choices, and efficient customer support. Know the liquidity, market capitalization, security features, fees, and other aspects. The next step is to select the crypto markets you are interested in trade-in. The more the merrier.

A word of caution

Your success in cryptocurrency day trading depends upon your efficiency of reading the volatility of the market and taking the right move. It involves a quick and effective analysis of the situation, decision-making, and execution, and hence, there can be some stressful moments as well.

Now you have got a fair understanding of the day trading concept, and the strategies involved. Got any queries or concerns? Drop your comments!

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A Beginner’s Guide to Day Trading Cryptocurrency was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

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