Day Trading Crypto: Strategies and Best Practices
Crypto day trading involves buying and selling cryptocurrencies based on short-term market movements. Crypto day traders make profits by capitalizing on crypto’s market volatility and price moves. The difference between buy and hold crypto investors and crypto day traders is long-term investors are not concerned with the daily crypto price swings. Rather, they hold their crypto investments in hopes that they will increase in value over the long term. Day traders on the other hand make buy and sell trades in the short-term, either on a daily basis, a few times a week, or even a month. They make trades based on whether the value of cryptocurrencies will move in the short term.
- Crypto day trading means you are opening and closing a position in the crypto market on the same day.
- The goal of each crypto trade is to sell your position for more than what you bought it for.
- You have to make sure you are trading crypto that is both liquid and volatile so you can capitalize on the crypto’s price changes.
- Bitcoin is one of the best cryptocurrencies to trade because it is the most traded crypto globally which means there is a large number of participants who are willing to buy it.
- When day trading cryptocurrency, it’s important to have a strategy so you know how to respond in different crypto market environments.
How to Day Trade Crypto?
The goal of a crypto day trader is to place buy and sell orders in the crypto market with the intention of making a profit off of these trades. In order to accomplish this, you need to take advantage of cryptocurrencies’ short-term price changes, which is similar to day trading in the stock market.
The market condition that must be present for a day trader to make a profit is market volatility. Volatility is normal in the crypto market, but sometimes, there can be excessive volatility which increases your risk.
Some key differences between day trading in the crypto market and the stock market are that stock performance is based on how profitable a company is, while crypto performance is based on its popularity and future use cases. Stocks are regulated by financial authorities but cryptocurrencies are largely left unregulated. Unlike the stock market which is open during the weekdays from 9 am EST to 4 pm, the crypto markets are open 24/7.
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Pros and Cons of Day Trading Cryptocurrency
- Anyone with access to a crypto exchange can freely trade it.
- There are thousands of cryptocurrencies to choose from.
- The crypto markets are open 24/7, all year around. This means more opportunities to make trades.
- Cryptocurrencies are decentralized, which means no intermediary is needed for payment processing.
- If you are an inexperienced trader, there may be a chance to lose a lot of money.
- The crypto market’s lack of government oversight means no investor/trader protection for hacks or cyber-attacks that may occur on exchanges, institutions, and traders.
- Anyone can be a victim of pump-and-dump schemes or wash-sales
- Trading fees in the crypto markets can be high, especially if you are making frequent trades.
What is the Best Day Trading Cryptocurrency Strategy?
There are many crypto day trading strategies you can implement. Here are a few examples:
- Range trading is when crypto prices move within a certain price range within support and resistance levels. When a cryptocurrency reaches either a support or resistance level, you may want to either buy or sell the crypto you are trading.
- Scalping involves making crypto trades based on small crypto price changes in a short period of time.
- A high-frequency trading strategy also known as bot trading involves using an algorithmic program that quickly executes a trade based on the desired strategy.
- Bot trading is usually done by advanced crypto day traders since you need experience with how the crypto market works and may not be suited for a beginner crypto day trader.
What is the Best Crypto to Day Trade?
The best type of cryptocurrency to day trade is one that has liquidity. Liquidity means the ability for a cryptocurrency to be converted into cash. When there is high volatility, a cryptocurrency is less volatile. You want to make sure the cryptocurrency you are trading has a stable level of liquidity so you can trade the changes in crypto prices. Liquidity also means day traders can move in and out of crypto trades easily since there are a large number of market participants who can fill the trade orders. Liquidity is important in the crypto market because it can help you determine your exit strategy. Since there is a lot of activity in a liquid market, it reduces your trading risk because you can easily sell when you want to get out of a trade.
What Should You Know Before Day Trading Bitcoin?
Bitcoin is the most popular cryptocurrency and most widely traded. It has the largest market capitalization among all existing cryptocurrencies and has a high daily trading volume, which means its liquidity is high, making it a great cryptocurrency to trade. Like many cryptocurrencies, the price of Bitcoin is volatile, which is an important feature for crypto day trading but can also be risky.
You should also know that the price of Bitcoin is volatile. Bitcoin’s price can be influenced by the news, global events, the Bitcoin supply and many other factors. As a Bitcoin day trader, you should be aware of these events because it can help you determine when to buy and sell Bitcoin.
FAQ: Everything you should Know about Crypto Day Trading
Is day trading crypto worth it?
Day trading crypto can be worth it if you have a crypto day trading strategy, pick a cryptocurrency that is liquid and volatile and you are familiar with the risks associated with crypto day trading.
Are there day trading crypto taxes?
Yes, if you buy and sell a cryptocurrency for a profit, this is a taxable event. If you hold on to the cryptocurrency for more than a year before selling it, this is classified as long-term capital gains. If you sell the crypto asset in less than a year of holding it, then that is short-term capital gains. Learn more about crypto taxes in our Ultimate USA Crypto Tax Guide 2022
Is there a day trade limit on the crypto?
Crypto day traders don’t have to worry about day trade limits since, at the moment, the crypto market is unregulated.
What is the best app for day trading crypto?
There are many cryptocurrency exchanges for you to choose from. The best one is an exchange that offers the cryptocurrencies that you are interested in trading.
Can you make money by day trading crypto?
You can make money in crypto day trading by selling a cryptocurrency for a higher price than what you bought it at.
How to make money by day trading crypto?
Making money by day trading cryptocurrency can be done through a variety of crypto day trading strategies such as range trading, scalping or high frequency or bot trading.