How To Day Trade Cryptocurrency

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How To Day Trade Cryptocurrency

Although cryptocurrencies were first invented by Nakamoto as a way to facilitate payments and get rid of financial intermediaries, they quickly evolved into trading assets due to their high volatility. As a result, asset and forex traders from traditional markets began trading crypto, as a way to turn a profit. While there are many ways to make money with Bitcoin and other cryptocurrencies, day trading is one of the more popular options.

What is Day Trading?

Day trading is probably the most basic trading process in existence, whose core principle may be summed up as buying low, selling high. This type of trading is short-term, where you trade within a couple of hours or days. Successful day trading involves traders getting into the market, taking a position, and continuing to monitor this position until they exit, ideally with a profit.

Anybody and everybody can become a day trader, however, turning it into a profession involves a lot of research, including a good understanding of cryptocurrencies and reading crypto charts. It is not uncommon that professional traders operate a faster turnaround, with purchases and sales occurring in a matter of minutes, or even quicker if using bots.

Starting Crypto Day Trading

The very first thing you need before you can start day trading cryptocurrency is a reliable and convenient exchange platform. Whilst there are literally thousands of exchanges, there is a handful which offers the right balance of flexibility, functionality and affordability. You should start by opening an account with:

  • BitMEX – offering low rebate fees and a simple interface, BitMEX is ideal for advanced traders who are looking to day trade Bitcoin and also, potentially, carry out future contracts trades.
  • CEX – a great exchange for buying crypto with fiat currency, offering API solutions to connect your trading bots to it in order to carry out automated trades.
  • Bitfinex – offers a mix of day trade and margin trading solutions with a leverage of 3.3x, Bitfinex is suitable for both beginners and more advanced traders.
  • Binance – as one of the largest cryptocurrency exchanges in the world, Binance is better suited to more experienced traders, offering them extremely low fees and detailed trading charts.

Due to the nature of day trades, consisting of constant buying and selling, fees are an important element when considering which exchange to open an account with. This is especially true if you will be trading large volumes whilst making small profits on each trade.

Once you get set up with one exchange you should consider opening one or two more. Doing this will allow you the option of arbitrage, or, at least, the ability to compare different prices for the same cryptocurrency.

Your Day Trade Strategy

Day trading cryptocurrency is considered a high-risk investment, so before you jump right in you should work on developing your own strategy. In time you would have gained sufficient experience to know what works and what doesn’t, but here are a few tips to help get you started.

  1. As a rule of thumb, you should never put more than 1% of your day trading budget on a single trade. This cautious approach may lose you some big profits on occasion, but generally, it should help you maintain and grow your budget.
  2. If you have had a bad run, potentially losing all the money of a trade, do not overtrade to try and recover your losses. As long as you stuck to the first tip, losing 1% of your budget is not the end of the world, just stop trading for the day, tomorrow will bring fresh opportunities.
  3. Especially when starting out, your focus should be on frequent and small profits. Don’t aim to make massive gains on a single trade. Once you have built some good experience and results you can allocate a very small percentage of your larger budget to put towards the riskier trades which have a higher potential.
  4. Setting stop-loss limits will automatically close your position if the coin’s value falls below a certain value. This automatic feature is offered by a number of exchanges, but you could also simply sell your asset manually if the value drops below the limit you have set. Initially, it is recommended to set this limit to 70% of the coin’s purchase price.
  5. You should also decide on the sell limit, which is the highest price the coin’s value should get to before you sell. Again, many exchanges offer an automatic feature for this, but you can also carry it out manually. To begin with, it is recommended that you sell once the coin’s value increased by 30% of its purchase value.
  6. Don’t let emotions or greed cloud your judgement. Once you set your low and high limit stick to them no matter what.

Following these tips would give you a solid foundation before delving into what is realistically considered to be a calculated risk.

Crypto Day Trading Bots

Trading bots have been around for some time, and are theoretically great at carrying out trades without uncertainty and emotions. Basing themselves on several trading algorithms, these bots have long been used by institutional investors and professional traders, and are today available to anyone.

There are many different types of crypto trading bots, and some are also completely free. However, you should consider that most of these bots are not based on Artifical Intelligence, but simply operate based on their programming. Therefore, their performance varies considerably, and completely free ones are certainly not recommended.

Crypto Day Trading and Taxes

While certainly nobody’s favourite topic, you need to consider tax calculation when planning your crypto day trade strategy. Tax laws on cryptocurrency vary considerably from country to country, but they are generally categorised as short-term capital gains.

Is Crypto Day Trading a Good Idea?

While cryptocurrency day trading has proven successful to many traders, it carries with it risks, just as trading crypto CFDs and other similar investments would. Therefore, before you get started you should consider what budget you could afford to focus on this high-risk investment. The probability is that you will lose money in your initial trades, but if you are able to learn from your mistakes and do proper research, crypto day trading could provide you with a profitable return.

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