Day trading is one of the most common trading strategies in most financial markets, forex, commodities, and cryptocurrency. While it has been shown to work in most cases, it is essential to note that it is different for each application; in this case, cryptocurrency. So, how do you day-trade cryptocurrency?
In this article, you will learn the strategies you can use when day-trading cryptocurrency and a few tips to help you along the way.
Day Trading Strategies
Scalping
Scalping involves taking advantage of small price moves that happen on short timelines. Examples are gaps in liquidity, bid-ask spread, and other market inefficiencies. When scalping, you trade on margin or futures contracts that improve the results with leverage. Since percentage price targets are smaller, large position size adds up more, which is the case with most strategies.
However, this does not mean there are no risks involved. A smart scalper will be aware of margin requirements and follow proper position sizing rules. Scalping brings about fast trade execution and involves high risks; therefore, suitable for skillful traders.
Range Trading
This strategy involves analyzing the candlestick chart and paying attention to the support and resistance levels. Range traders look at the price ranges and create trade ideas based on their findings. An excellent example to explain this is if the price ranges between a support and resistance level, the trader could buy the support and sell the resistance level.
Range trading is based on assuming the range will hold as resistance and support until it is broken. On this note, the lower edge of the range will most likely push the price up, while the upper one will push the price down.
It is not always as smooth as it seems. When the price touches a resistance or a support level, it is likely to break. This is why it is crucial to prepare for the chance that the market can easily break out of the range at any time. Range trading is quite simple and can work well for beginners. But, it requires you to understand candlestick charts, support, and resistance levels.
High-Frequency Trading
This strategy, commonly referred to as HFT, is an algorithmic strategy that quantitative traders use. It involves coming up with algorithms and bots that enter and exit many positions over a short period. The timeframes are really short; think milliseconds. On this note, a few milliseconds of an HFT trading firm’s advantage may bring about a considerable lead over the other firms.
HFT may come across as a simple day-trading strategy, but it is more complicated than it seems. It involves many back-testing, tweaking algorithms, and monitoring every step to adapt to the quick-changing conditions. On this note, you cannot just sit and leave the bot to do all the work for you.
You should note that HFT is quite inclusive, and you might not find high-quality information. This is because the strategies would not work anymore if successful trading firms shared the information. If someone builds a profitable trading bot, why don’t they use it and not sell it? This is why you need to be careful when thinking of buying a trading bot.
To develop a profitable bot, you need to understand advanced market concepts. You also need to have knowledge of mathematics and computer science to create intelligent bots. This, plus the ever-changing market trades, makes this strategy only suitable for advanced traders.
Should You Start Day Trading Cryptocurrency?
Day trading can be considered profitable, but there are several things to keep in mind. One-day trading requires quick decision-making and execution, making it quite demanding and stressful. It can also be quite risky and requires you to understand the market in all aspects. Also, it will require you to keep your eye on the screens for long periods.
If you can handle this weight on your shoulders while considering risks that might happen, you can go ahead and start day trading. You will need to use technical analysis, chart patterns, and technical indicators to point out trade setups. The strategies above can be a great starting point as long as you understand the risks and profits associated with each.