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Trading Articles

Day Trading Crypto

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Day trading the crypto markets requires you to be actively trading the leading crypto assets daily, using the most suitable trading strategies. Day trading is most synonymous with forex trading, but cryptocurrencies are also becoming a popular instrument for day traders, simply due to the liquidity and volatility that exists within the crypto market.

Consequently, it is increasingly easier to get your trades matched and the volatility means there is always a chance to take advantage of rising or falling crypto values.

What is day trading crypto?

The goal of a day trader in the crypto markets is to end the trading session with assets that have a higher value than they did at the start of the trading session. Day trading is all about taking small, incremental profits from the markets daily.

The term ‘day trader’ was coined in the conventional financial markets, whereby retail traders began to trade daily during the business days of the week. It doesn’t matter whether you look to day trade crypto, forex or commodities, as a day trader you will never leave positions open in the market overnight. That’s because you aim to exploit price movements during the same trading session, rather than multiple days.

The most efficient crypto day traders will have a solid understanding of the cryptocurrencies they trade. This will provide them with sound fundamental analysis of each crypto asset, with the ability to spot opportunities for positive and negative sentiment to occur in the market.
In addition, crypto day traders will also lean heavily on technical analysis to formulate trading angles. This will usually involve charting and indicators to plot potential entry and exit points for crypto day trades.

First and foremost, you need to decide your crypto day trading style. Will you trade crypto using a cryptocurrency exchange or using contracts for difference (CFDs)? A cryptocurrency exchange may seem like the most sensible option at first glance but trading cryptos daily via an exchange carries inherent risks.

For starters, you will be required to have a cryptocurrency wallet to store the cryptocurrencies you buy and sell throughout the day. There is always the risk that you lose the private keys to your crypto wallet, which could result in losing your crypto assets forever. With crypto CFDs, you’re not required to physically own and handle the underlying cryptocurrency you trade. You simply speculate on the direction of the underlying asset’s price. If you believe the price of a cryptocurrency will rise, you would take a long (buy) position.

Alternatively, if you believe the price of a crypto will fall, you would take a short (sell) position. If the price moves in your favour, you can close out the trade for a profit, less your trading costs.

Given the unprecedented volatility in the cryptocurrency markets – we’re talking the potential for 5%-10% moves in the space of 24 hours – it’s essential to familiarise yourself with risk management tools like stop-loss and take-profit orders to limit your risk.

Crypto day traders typically use scalping as their bread-and-butter trading strategy. This involves the exploitation of minor price moves that occur in ultra-quick time frames, often a matter of minutes or even seconds. Scalpers will take advantage of market inefficiencies or gaps in liquidity between the bid (buy) and ask (sell) spread to take small ticks of profit for the lowest amount of risk.
Range trading
One of the most common crypto trading strategies dependent on technical analysis, range trading is based on the identification of areas of support and resistance for a cryptocurrency. Candlestick charts can show prices where supply outweighs demand and vice versa. A common strategy is to go long on a crypto at its support level and close the trade by shorting (selling) once it’s reached its resistance level.
Fundamental analysis
Fundamental analysis strategies are underpinned by human sentiment rather than technical analysis. It requires day traders to monitor consumer perceptions and reactions to news stories surrounding the cryptocurrency in question. It’s up to you to interpret whether news releases on any given cryptocurrency will generate positive or negative market sentiment.
Some crypto day traders will deploy arbitrage as part of their day trading arsenal. This involves the buying of a cryptocurrency from one exchange and the immediate selling of the asset at a higher price from a different exchange. The difference between the buy and the sale price is the profit from the arbitrage. This is most effective when trading cryptos on multiple exchanges that have consistent differences in their spread i.e. the gap between the buy and the sell price.

Bitcoin is a cryptocurrency with genuine global appeal. It has the highest liquidity of all crypto assets and liquidity is one of the main factors to look for in a crypto to day trade. That’s because liquid crypto markets make it easier to get your buy and sell orders filled. Illiquid crypto assets that are lesser known are prone to gaps in the order book, resulting in you being forced to take a worse price when opening or closing your position.

How much money do I need to start day trading crypto?

It doesn’t matter how much money you have to start day trading crypto, the key is to ensure you manage the trading bank you do have responsibly. This means adopting sustainable risk management with your crypto trades by only taking a 1% risk of your overall bank per trade. This ensures you limit your losses and can grow your capital with a profitable strike rate.

Your next steps

If you’re keen to learn more about the process of trading crypto, be sure to check out these additional guides to further your knowledge:

A look at the most useful CFD trading tips for beginners
As you can trade crypto CFDs right here at Skilling, it’s vital to master the concept of CFDs before you get started.
The volatility of Bitcoin
Learn all you need to know about the volatility of bitcoin and what you need to consider when trading it.
The pros and cons of trading Bitcoin
Get to grips with the advantages and disadvantages of day trading the highest-profile cryptocurrency, Bitcoin.
Solana, Tezos or Terra: Altcoins and Next-gen tokens surging in demand
Some crypto traders are increasingly finding Bitcoin ‘predictable’. Some altcoins and next-generation coins are already garnering interest from crypto enthusiasts. Find out why Solana, Tezos and Terra could be the next big crypto trading options.

Not investment advice. Trading cryptocurrency may not be available depending on your country of residence.

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