Cryptocurrency day trading with the right research and strategy is a profitable endeavor. This is because crypto is one of the most volatile asset classes, sometimes resulting in thousands of dollars of price swings on a single bitcoin each day. For those who have been in the cryptocurrency market for a while, these fluctuations are normal. So much so that the average investor won’t even flinch. To conduct transactions in this lucrative market, leveraging an easy-to-use platform such as cryptoexchange.com can ensure that each transaction is executed on time and with confidence.
What makes crypto perfect for day trading?
Day trading (or intraday trading) is the trading strategy which involves exiting and entering positions on the same trading day. The goal of day traders is to make profits off the short-term fluctuations in an asset’s price. This concept was born out of traditional stock markets, where trading is only open for set hours during the day. A day trader never leaves positions open overnight since prices can drastically change come the morning. Instead, they will analyze the volume, price action, chart patterns, and technical indicators to identify entry and exit points for trades.
Like any other asset that you would day trade, proper timing and good liquidity are both essential. A lot of cryptocurrency exchanges will not offer the liquidity needed to execute a trade. This is evident by looking at the 24-hour volume of the crypto in question. Liquidity is important since exiting a profitable trade will require a buyer/seller.
The second thing to keep in mind is that day traders do not need to trade every day. Instead, it is important only to enter transactions when conditions are favorable to what they hope to achieve.
How to begin day trading
To begin day trading, investors must start by selecting coins with high volatility and high liquidity. Bitcoin is an obvious choice for many traders; however, several other altcoins will meet these criteria. With the coin selected, traders will need to select an exchange to purchase these coins from or choose a broker if they require assistance. The account can typically be funded through various methods, including bank wire, credit card, or debit. Once the balance appears in your account, many traders use a process of technical analysis to determine when the most opportune time to enter a trade will be. Some of this research may even be done before selecting the coin.
Among the most common technical indicators to consider are:
Bollinger bands: Bollinger bands are an oscillator measure and show how average value compares to a price spread. Each Bollinger band includes an upper band, moving average line, and a lower band.
Relative strength index (RSI): The RSI indicator determines an asset’s “true” value by indicating whether it has been overbought and oversold. Using the RSI, traders can determine entry points by considering where an asset is undervalued, and the market will correct itself.
Moving average convergence/divergence: MACD is another popular indicator that can determine whether the short-term price momentum moves in the same direction as the long-term price momentum. This measurement consists of a zero line, signal line, MACD line, and histogram.
Most traders will also set a stop loss that is below the lowest low of the day. If the currency does drop, investors minimize losses if the market takes an unexpected dip.
Setting profit expectations
Some analysts have suggested the potential profit is between 10-15% of your investments, depending on the type of currency you invest in. That said, a long-term hold strategy on some projects has resulted in profits amounting to 100% – 4000%+. Day trading is said to be a profitable endeavor for those who have the time and are willing to put in the effort to set up a dashboard with their chosen indicators. Traders will also need a combination of technical analysis, news analysis, and common sense to enter into these trades successfully.
Every trader should document their trading plan on paper, complete with rules around entering and exiting a trade. If a potential trade arises outside of the documented rules, traders should avoid it altogether. Doing so will ensure traders aren’t acting on a fear of missing out and instead on a well-versed strategy.