Crypto day trading is one of the ways to make money off cryptocurrencies provided some factors and strategies are considered and put in place. This article provides an explanation of what crypto day trading is and how to make money from it.
There are a few steps to getting started with crypto day trading and as well as making money from it, these include finding a trading platform, selecting a trading strategy and choosing what you want to invest in but what then does crypto day trading mean?
What is crypto day trading?
Crypto day trading is a short-term trading method in which crypto assets are bought and sold on the same day. The phrase “day trader” comes from the stock market, where trading is only permitted on business days.
Day trading is a trading method in which positions are entered and exited on the same trading day. Most financial markets, including stocks, Forex, commodities, and, of course, the cryptocurrency market, have active day traders. These traders are looking for more immediate profit-making opportunities.
Is crypto day trading profitable?
Crypto day trading is profitable, but because of the market’s high volatility, traders can also lose a lot of money. Day trading is a high-risk activity, with the vast majority of day traders losing money, but for those who succeed, it may be lucrative. To be a good day trader, you need discipline, patience, training, risk management and of course capital.
How much money is needed to start crypto day trading?
To begin crypto day trading, no specific amount of money is required. A trader can begin trading with as little as $100.
The amount used to start trading, on the other hand, can influence the profit made at the end of the day. A trader who deals at $3000 per day, for example, will almost certainly benefit more than one who trades at $300 per day. Having known the amount needed to start crypto day trading, the next step will be how to start trading.
How to start crypto day trading
There are a few steps to getting started with crypto day trading, These include:
- Find a trading platform
- Choose your investments carefully
- Select a trading strategy
1. Find a trading platform
The first decision a day trader must make is which platform to utilise. When looking for the best trading platform, keep the following points in mind:
- Number of active years
- Supported Cryptos
- Methods of deposit
- User feedback
Number of active years
The longer an exchange has been in operation, the more stable and credible it is.
The liquidity of a crypto exchange refers to how quickly and easily it can convert one asset into another without impacting its price. The top cryptocurrency exchanges are extremely liquid, which means they can purchase and sell assets quickly.
A smaller exchange with more supported cryptos and trading pairings may be more useful to day traders interested in altcoins than a larger exchange with fewer alternatives.
Methods of deposit
Bank transfers and wire transfers are available on many exchanges, but credit card funding, PayPal transfers, and even gift card transfers are rare.
When buyers or sellers conduct a trade, exchanges impose transaction fees. The transaction cost structure might vary depending on the exchange’s strategy, such as offering no fee for trades for more than $10,000 to encourage large-scale trading.
One of the greatest ways to determine which exchange to utilize is to visit different crypto communities and read user opinions.
2. Choose your investments carefully
After you’ve set up your account on a platform, it’s time to decide what cryptocurrency you want to invest in. Consider the following factors while deciding 0n what to invest in.
- Liquidity of assets
- Volume of trade
- Cryptocurrency of choice
Liquidity of assets
This is a metric that indicates how easily an asset may be turned into cash without altering its value. When a trader performs a trade and the exchange fulfils the order, the price of a crypto asset can vary. Slippage is the difference between the two prices.
A lack of liquidity in the crypto market can be terrible, creating price slippage and raising the danger of a flash crash. When a massive market sell order clears out the top buy bids in the order book, a flash crash occurs.
Traders aim to leave their positions as soon as possible, and if no buy orders are present, the asset’s price can plummet. In the past, flash crashes have resulted in exchanges reimbursing users for millions of dollars in damages.
The unpredictability of crypto price swings is referred to as market volatility. The news cycle, economic statistics, and research reports are all factors that influence market volatility. The same causes have a significant (or no) impact on specific crypto assets in the crypto markets. When compared to more popular and well-known cryptocurrencies like Bitcoin or ether, altcoins with lower market capitalization have the most volatility.
Volume of trade
This is the total amount of cryptocurrencies traded during a set period of time. The trading volume of a cryptocurrency is a measure of overall market interest. A cryptocurrency with a large trading volume has more liquidity and is frequently associated with a higher price and vice versa. Crypto day traders should examine an asset’s trading volume closely to see if it can be sold swiftly and for a higher price than when it was obtained.
Cryptocurrency of choice
What method is used to mine or mint it? Is the coin getting a lot of attention? If the coin’s price does not rise by a specific time, when should you liquidate your losses? These are questions that need answers after a choice has been made on which cryptocurrency to invest in.
3. Select a trading strategy
Day traders employ a variety of strategies to profit from short-term changes in the crypto markets. A crypto day trader should adopt a profitable strategy based on research and have well-defined plans for entering and exiting positions.
While there is no assurance that you will generate money or that you will be able to anticipate your average rate of return over time, there are tactics you can learn to assist you to lock in gains while limiting losses.
The section below gives an elaborate view of some of the different strategies available for crypto day trading
Crypto day trading strategies
There are different crypto day trading strategies employed by traders in their day-to-day activities. Some of these strategies and how they work are discussed below.
- High-frequency Trading
- Range trading
This day trading method entails purchasing cryptocurrencies on one marketplace and selling it at a greater price on another. The difference between the buy price and the selling price is referred to as the spread.
To become an arbitrage trader, you must first create accounts on exchange systems where you are aware of big spread disparities. This means that for the same asset, they will charge various prices. For example, if the price of Bitcoin in Japan was 40% greater than in Canada. Buying BTC in Canada and selling it in Japan will result in large profits for day traders.
Day traders frequently use the strategy of scalping. It entails profiting from minor price movements that occur in short time frames. These can be gaps in liquidity and other market inefficiencies.
Scalpers may frequently trade on margin or with futures contracts in order to increase their profits through leverage. Larger position sizes make more sense because percentage price targets are typically smaller. In fact, most day trading tactics fall into this category.
Scalpers can establish their entry and exit locations for individual trades using strategies such as order book analysis, volume heatmaps, and a variety of technical indicators. Scalping, on the other hand, is often more ideal for skilled traders due to the quick transaction execution and high risk.
High-frequency Trading (HFT)
Quantitative traders (“quant” traders) utilize high-frequency trading as a type of algorithmic trading approach. The strategy entails creating trading bots and algorithms that can quickly enter and exit several positions in a short period of time typically Milliseconds. For a high-frequency trading firm, a few milliseconds of advantage can mean a huge advantage over competitors.
Highly sophisticated tactics could be implemented using HFT algorithms. It is, however, far more intricate than it appears. Backtesting, monitoring and adjusting algorithms to adapt to ever-changing market conditions are all part of high-frequency trading.
Range trading is an easy-to-understand method that is suitable for newcomers. It necessitates a thorough knowledge of candlestick charts, support and resistance levels, and momentum indicators like the relative strength index (RSI) and moving average convergence divergence (MACD).
Range trading is a straightforward approach that relies largely on candlestick chart analysis and the examination of support and resistance levels. Range traders, as the name implies, search the market structure for price ranges and formulate trading ideas based on those ranges.
If the price is ranging between two levels of support and resistance, a range trader might buy the support and sell the barrier. They might, on the other hand, sell short at the resistance level and exit at the support level.
The more times a price touches a support or resistance level, the more probable the level will be broken. As a result, traders set a stop-loss at a level where the breakout from the range is confirmed, in case the market breaks out of range.
Strategies and how to start crypto day trading has been explained, a potential trader might still want to ask what cryptocurrency is best and suitable for day trading.
Which Crypto is best for day trading?
The best crypto to invest in for day trading is totally dependent on the trader himself. However, after considering factors such as liquidity, volatility and trading volumes, these are some of the cryptos you might want to start with.
- Lucky block
- Binance Coin
Lucky Block (LBLOCK), a blockchain game, debuted in January 2022. The platform makes use of blockchain technology to enhance transparency and fairness in online gaming, while also providing high speeds and accessibility to everyone anywhere around the globe.
Bitcoin, which is by far the most popular cryptocurrency, is advantageous due to its high liquidity. Bitcoin trading volumes are extremely high, and they differ between exchanges.
After Bitcoin, Ethereum is the world’s second most popular cryptocurrency. It is quite volatile, which makes it ideal for day trading.
Tether (USDT) is one of the greatest cryptos to day trade because each coin is worth $1. Tether has one of the most active trading volumes on a daily basis. That alone qualifies it as an excellent option for day trading. A large volume of day trading draws new investors, raising the price.
Binance coin, often known as BUSD, is the native coin of Binance Exchange, the world’s largest cryptocurrency exchange. The coin was also designated as a Stablecoin or digital money backed by the United States dollar. It has risen in value significantly over the last few years, becoming the world’s fourth-largest digital currency.
The asset is the top meme coin in the business, and it is notorious for large price swings that provide excellent day trading chances.
DOGE is also a good choice for day traders because it is more reliant on fundamental news than on technical indicators. Because of its volatility, you should only risk a tiny amount of your wealth on Dogecoin.
The value of this cryptocurrency has climbed to new heights. It has a significant level of volatility as well. As a result, profiting from this volatility is conceivable.
This cryptocurrency has a high level of volatility, making it one of the best for day trading.
Ripple is another prominent cryptocurrency that could be a good place for beginner traders to start because it’s considerably less expensive than other options like Bitcoin.
With the knowledge of the different cryptocurrencies and how their liquidity is good for trading, how to make money from trading these assets becomes an important question.
How to make money from crypto day trading
To make money from crypto day trading, a trader needs to have an in-depth knowledge of the different trading strategies, market volatility, liquidity, risk management, technical analysis (TA) to create trade ideas, trade volume, price action, chart patterns, and technical indicators to identify entry and exit points for trades.
The video below might provide a more extensive lesson on how to make money from crypto day trading.
Factors that influence crypto day trading earnings
Some factors can influence the earnings from crypto day trading even though a trader judiciously follows the path on how to make money from this form of trading. A few of these factors include:
A market with an all green candlestick chart will definitely yield more earnings for a crypto day trader than one with mostly red candlesticks.
If you start with $3,000, your earning potential is substantially lower than if you start with $30,000.
Only a small percentage of day traders succeed in only a few days or weeks. Trading methods, systems, and approaches that are profitable might take years to establish.
How many trades can a crypto day trader make in a day?
There is usually no limit to the number of trades a crypto day trader can make. On average, many day traders make tens to hundreds of deals per day, depending on the technique they use. Some day traders can make tens of thousands of individual deals in a single day using algorithmic and high-frequency trading (HFT) systems.
While crypto day trading is profitable and there is no limit to the number of trades, certain factors such as high market volatility and shallow knowledge of the concept can cause, traders to lose a lot of money. To be a successful crypto day trader, you need a sound knowledge of trading strategies, discipline, capital, patience, training, and risk management amongst others.