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The Novice’s Guide To Cryptocurrency Day Trading

The trading of cryptocurrencies tends to attract many people who want to turn it into their full-time job. Becoming a crypto day trader is a viable choice, assuming one has a basic understanding of these markets. It is a common trading strategy for any market, yet cryptocurrencies warrant a slightly different approach.

The Idea Behind Day Trading

Most people will have heard the term “day trading” before yet may not be too sure about what it entails. As a trading strategy, day trading is mainly about buying financial assets and selling them the same day for a profit. It may sound easy and straightforward on paper, but the reality is often very different. Day trading is a very time-consuming approach to financial markets, even though there is good money to be made by following this approach.

Finding the right trading strategy to make day trading successful is of the utmost importance. The more volatile a market is, the more challenging it becomes to analyze data correctly and profit. Taking cryptocurrencies as an example – which are notoriously volatile – the concept of day trading may have a bigger draw than other sectors. Wild price swings can yield quick profit but also steep losses if one enters the wrong position at the wrong time. 

One crucial aspect to keep in mind is how, as a day trader, you can never leave market positions open overnight. It can be lucrative to do so, but those who commit to this type of trading must always exit their positions before logging off for the day.

Making Money In Choppy Markets

Anyone who has ever seen a cryptocurrency price chart up close will know the prices go up and down nearly every second. Bitcoin and alternative crypto assets create many money-making opportunities, yet one has to time the markets correctly first. Without a deep understanding of the market, it is impossible to make any real money. 

To gain a better understanding of the markets and their current sentiment, performing technical analysis is advisable. It will help identify recent market cycles, trends, and patterns, allowing traders to act upon the momentum. Using the correct technical indicators on any price chart will be a valuable ally, as crypto markets can often forego common sense and expectations.

By leveraging all of the tools at one’s disposal, day traders can gauge external and fundamental events’ influence. A project announcing an announcement of news can often trigger short-term bull markets. However, when the news is finally announced, markets can turn in a bearish direction as well. It is essential to analyze what the market may have in store next, as the outcome isn’t always straightforward. 

Whatever the reason for market volatility may be, it creates an opportunity for day trading. Short-term price changes can yield significant profits over time, assuming one can enter and exit positions at optimal times. Doing so requires markets with sufficient liquidity and trading volume, particularly when handling larger volumes of trades.  

Finding The Right Day Trading Strategy

Regardless of how one wants to approach crypto trading, it all comes down to building and fine tuning a strategy that works for you. Blindly placing buy and sell orders can work during a bullish trend, but it is not a viable long-term approach. Every day trader needs a long-term plan of action, whether it is scalping, range trading, swing trading, or otherwise. 

High-Frequency Scalping

One of the most common day trading strategies – particularly in the crypto world-  is high-frequency scalping. The approach is simple: enter and exit market positions as quickly as possible when profit opportunities arise. Exploring gaps in liquidity, the bid-ask spread, or other market “inefficiencies” can help traders scalp small profits with ease. Be wary of trading fees, however, as those may negate the profit from scalping altogether. 

For those who are mesmerized by high-frequency scalping, it can prove worthwhile to use leveraged market positions. Through futures contracts, one can enter a position with leverage and increase scalping profits by 50x. Higher leverage also brings more risk to see positions liquidated if the market suddenly heads in the other direction. 

Every successful scalper will ensure their positions cannot destroy a large part of their portfolio. As cryptocurrencies are far more volatile than any other assets, appropriate leverage and order sizing are mandatory. Moreover, day trading requires a constant focus on the markets and screen to maximize one’s potential. 

Range Trading

As the name suggests, range trading is relatively simple to execute but still hard to master. By using the candlestick chart as a base guideline, traders can perform technical analysis to gauge potential price ranges for a specific asset. To determine these ranges, traders have to identify possible support and resistance levels. Correctly timing the trades can prove profitable, assuming the support and resistance levels have been identified correctly.  Another option is to short a market near the resistance level and maintain that position until [one of the] support level[s] has been reached.

One potential pitfall of range trading is the assumption of how these support and resistance levels will remain in place. While that may work in some cases, cryptocurrency markets tend to be far more volatile than stocks, precious metals, or other assets. Markets will break out of these ranges regularly, which may prove either beneficial or catastrophic. Once a market breaks this range, traders need to plot for future support and resistance levels.

The essential part is figuring out when the asset may break a range. If a market hits the support or resistance levels multiple times in a row, it is often a matter of time until that level gives way. Using special order types, such as stop-loss orders at certain levels, can help negate the range’s break a bit.  

In essence, range trading can be a viable approach for novice day trading enthusiasts. With a good understanding of candlestick charts, technical indicators, and support/resistance levels, anyone can use this strategy to make money. The results may vary, depending on your skill, knowledge, and dedication to day trading. 

High-frequency Trading

The difference between scalping and high-frequency trading may not be apparent to novices right away.  The purpose of both methods is the same: making as much money in a short period. However, high-frequency trading is not something one can do manually, as it is best done through algorithms and trading bots.  Software-based solutions can operate 24/7 without needing a rest, whereas the human brain doesn’t cope well with exertion. 

To create a high-frequency trading algorithm, experts have to develop complex strategies to cater to a market’s needs. With cryptocurrencies, the market trends and tendencies are very different from other markets. Moreover, these strategies need to be backtested, monitored, and tweaked accordingly. It is one reason why this approach isn’t mass-adopted, as there is no “automation” to speak of. Traders need to remain on their toes continually to make sure their algorithms adapt to the market.

Taking this approach is not possible without the right data sources. Finding reliable and trustworthy data is very challenging, as the institutions who make good money off this data will not share it with the public free of charge. More specifically, most institutions will not share this data at all, as they don’t want more people competing for profits.

Although there are many paid trading bots and algorithms on the market, the results may vary. After all, why would anyone sell a product that makes them money to someone else, reducing the initial trader’s chance of making a profit? A high-frequency trading bit can be a tricky creature,  as you never know upfront what to expect. 

Starting The Education Journey

Before one can decide to begin day trading, it is essential to get the basics sorted. Educate yourself on the markets, trading strategies, indicators, and technical analysis tools to make the most of your trading career. There is a lot of information to take in, so it is best to think about it one guide at a time.   Never try cutting corners or jumping the gun, as the financial repercussions of day trading are not to be taken lightly. 

Finding the right platform to execute your day trading [practice] is equally crucial. Always look for exchanges with sufficient trading volume, but be wary of their fees for placing orders and completing trades. As you pay more fees, your profit margins need to be higher to make any money. It can add another significant stress factor to the concept of day trading. 

Can You Make A Living From Day Trading?

The leading question traders need to ask themselves is whether they can and want to make a living from day trading. Finding the answer to these questions isn’t necessarily straightforward. Making a living from day trading is possible, but not everyone will succeed. Significant profit potential awaits, but one has to consider the costs and investments that go with it.

For those who take the manual approach, it is essential to make decisions fast and execute even faster. Every second counts when scalping or range trading, as cryptocurrency markets can turn around on a dime. It is not uncommon to see one’s ranges invalidated within minutes of buying or selling an asset, as there is always tremendous volatility and trading volume. Without a good understanding of the overall industry and individual markets, there is no reason even to attempt day trading.

Furthermore, traders often ignore the toll day trading takes on both body and mind. Putting oneself under tremendous pressure to perform every single day can grow exhausting very quickly. Especially when several trades do not play out as expected, people can lose hope and overcommit to negate the losses, resulting in even more financial problems. 

Always consider the different options on the table. There is no free and automated way of making money with cryptocurrencies unless one wants to put in hours of work every day. Even then, success is never guaranteed due to the volatility and trading competition in these markets. Despite the profit appeal of day trading, there are limits as to what one can achieve without losing sanity.

Closing Thoughts

The idea of day trading cryptocurrencies seems appealing to many people, and for a good reason. It is the only market type that lends itself to placing multiple orders per day to come out ahead. With sufficient trading volume and overall liquidity, anyone can succeed at this method, assuming they take the necessary precautions and preparations. It is a very common method of trading both stocks and cryptocurrencies, yet starting with paper trading will always be advisable. 

Succeeding as a day trader is entirely up to the user. Whichever approach or method they decide to explore, there will always be specific requirements and trade-offs to consider. Getting addicted to trading cryptocurrencies can be a real problem in the long run. Always do things in moderation, especially when [a lot of] money is on the line.

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