One way to profit from cryptocurrencies is to engage in crypto day trading, but only if certain factors and strategies are taken into account and implemented.
A few steps are required before getting into crypto day trading, including finding a platform, picking a strategy, and picking a cryptocurrency to invest in. However, what exactly is crypto day trading?
What Is Crypto Day Trading?
If you’re looking for a short-term trading strategy, you can use crypto day trading. It is from the stock market, where trading is only allowed during business hours, that the term “day trader” was coined.
Positions are entered and exited within the same trading day when using the day trading strategy. Day traders can be found on just about every financial market, including stocks, forex, commodities, and, of course, the cryptocurrency one. These investors are on the lookout for more immediate ways to make money.
Is Crypto Day Trading Profitable?
Crypto day trading can be lucrative, but it also comes with a high risk of losing a lot of money. The vast majority of day traders lose money, but those who are successful can make a lot of money. To be a successful day trader, you’ll need a combination of traits, including self-control, perseverance, knowledge, and capital.
How Much Can Be Used To Start Crypto Day Trading?
You don’t need a specific amount of money to begin day trading in cryptocurrency. As little as $100 is required to get started in the stock market.
On the other hand, the amount of money used to begin trading can have an impact on the final profit. It is almost certain that a trader who deals in $3000 per day will benefit more than one who deals in $300 per day, for example. To begin day trading in crypto, you’ll need to know how much money is required.
How To Start Crypto Day Trading
1. Find A Trading Platform
A day trader’s first decision is which platform to use. Keep these things in mind as you search for the best trading platform:
Number of active years
The longer the operational existence of a crypto exchange, the higher its level of credibility and stability.
Liquidity on a cryptocurrency exchange refers to the ease and speed with which one asset can be exchanged for another without affecting the value of the latter. It’s easy to buy and sell assets on the most liquid cryptocurrency exchanges.
Crypto day traders who are interested in trading altcoins may find a smaller exchange with more supported cryptos and trading pairs more useful than a larger exchange with fewer options.
Methods of deposit
Many exchanges accept bank transfers and wire transfers, but credit card funding, PayPal transfers, and even gift card transfers are uncommon. These methods are not uncommon.
Transaction fees are imposed by exchanges when buyers or sellers engage in a trade. To encourage large-scale trading, currency exchange may waive transaction fees for trades exceeding $10,000 to attract new customers.
To figure out which exchange to use, you should visit various crypto communities and read user reviews.
2. Choose Your Investments Carefully
Once you’ve created an account with a cryptocurrency exchange, the next step is to choose a cryptocurrency to invest in. Consider the following when deciding where to invest your money.
How quickly an asset can be converted into cash without affecting its value is a metric known as “liquidity.” The price of a crypto asset can fluctuate when a trade is executed and the order is fulfilled by the exchange. The price discrepancy is referred to as “slippage.”
Price slippage and a flash crash are both made possible by low crypto market liquidity. A flash crash occurs when the top buy bids in the order book are wiped out by a large market sell order.
Market volatility refers to the unpredictability of crypto price movements. Market volatility is influenced by a variety of factors, including the news cycle, economic data, and research reports. Specific cryptocurrencies on the crypto markets are affected (or not) by the same factors.
Volatility in altcoins with smaller market capitalizations is greater than that of well-known cryptocurrencies like Bitcoin and Ethereum.
Volume Of Trade
Coins traded in a given period are counted here. A cryptocurrency’s trading volume is a barometer of the market’s overall enthusiasm. The price of a cryptocurrency often rises in tandem with the volume of trading, indicating that the currency has more liquidity.
To determine whether an asset can be sold quickly and for a higher price than when it was purchased, crypto day traders should closely examine the trading volume of that asset.
What mining or minting method is used to extract or produce it? There is a lot of interest in the coin. Do you liquidate losses if the coin’s price does not rise by a certain time? After deciding on which cryptocurrency to invest in, these are the kinds of questions that will need to be addressed.
3. Select Trading Strategy
Cryptocurrency day traders use a variety of strategies to profit from short-term fluctuations. To be an effective day trader in the cryptocurrency market, you must first conduct extensive research before making any trades.
The ability to generate profits or predict your average rate of return over time is impossible, but there are strategies you can learn to help you lock in gains and minimize losses.
Crypto Day Trading Strategy
Using this day trading strategy, you buy cryptocurrency on one exchange and then sell it for a higher price on another exchange. The spread refers to the price difference between buying and selling a security.
Create trading accounts on exchanges that have large spread disparities to become an arbitrage trader. As a result, different prices will be charged for the same asset.
Scalping is a popular strategy among day traders. Profiting from small price changes over short time frames is what it’s all about. Inefficiencies in the market, such as a lack of liquidity, can lead to these gaps.
To increase their profits, scalpers may frequently trade on margin or with futures contracts. Because percentage price targets tend to be smaller, larger positions make more sense. The majority of day trading strategies fall under this umbrella.
3. High-Frequency Trading (HFT)
High-frequency trading (HFT) is used by quantitative traders (quants) as an algorithmic trading strategy. Trading bots and algorithms that can quickly enter and exit multiple positions in milliseconds or less are at the heart of this strategy. Competitive advantages can be gained in a few milliseconds for a high-frequency trading firm.
HFT algorithms allow for the implementation of extremely sophisticated strategies. However, it is far more complicated than it appears. High-frequency trading includes a variety of activities such as algorithm backtesting, market monitoring, and algorithm adjustments in response to shifting market conditions.
4. Range Trading
Inexperienced traders can use range trading because it’s simple to understand. Candlestick charts, support and resistance levels, and momentum indicators such as the RSI (relative strength index) or MACD are required (MACD).
Candlestick chart analysis and an examination of support and resistance levels are the primary tools used in range trading. As the name suggests, range traders search the market structure for price ranges and formulate trading ideas based on those ranges.
Factors That Influence Crypto Day Trading Earnings
Even if a trader carefully follows the instructions on how to make money from crypto day trading, there are a few things that can affect their profits. The following are some considering factors:
For a crypto day trader, a market with an all-green candlestick chart will yield more profits than a market with a majority of red candlesticks.
If you start with $3,000 instead of $30,000, your earning potential is much lower.
The vast majority of day traders fail within a matter of days or weeks. Profitable trading strategies can take years to develop.
There is no limit to the number of trades that can be made in crypto day trading, but certain factors, such as high market volatility and a lack of understanding of the concept, may lead to large losses.
A successful crypto day trader requires a solid understanding of trading strategies, discipline, capital, patience, and training as well as risk management.