Day Trading Cryptocurrency and Common Strategies.
Day traders take small profits, or losses, within 24 hours. Day trading is used interchangeably with intraday trading. Traders using this trading policy target profits emanating from price fluctuations of digital currencies like Bitcoin.
Although these trades can be left overnight, crypto day traders aim to take advantage of a virtual currency’s price shifts during the day.
Can You Day Trade Bitcoin? Yes. However, to make money off the practice, you need to understand what moves the Bitcoin price. Usually, a day trader’s ability to technically analyze market conditions that influence price shifts along the day shapes their first decision.
Often called technical analysis, it decides a trader’s entry and exit points by considering a digital asset’s, such as Bitcoin’s past volume, candlesticks’ arrangement on a chart, price action, etc.
Unfortunately, not every cryptocurrency fits the day trading menu. Why? Because the practice needs coins with good liquidity and volume to avoid slippage and enhance trading speed.
Price slippage, which is caused by lack of liquidity, is one of day traders’ greatest enemies. These traders can either concentrate on a single cryptocurrency pair or develop technical indicators to guide them on which asset fits the day trading bill.
Day Trading Strategies
Although it boils down to the opening and closing of a trading position within the day, profitable day trading requires informed tactics. Some of them include: Scalping, Range
Scalping is among the top strategies used by day traders. Here, traders focus on miniature price shifts in short periods. Traders can scalp on liquidity gaps or other inefficiencies in the market.
One factor that distinguishes scalpers from other day traders is their love for products synonymous with leverage. Leveraged scalping amplifies traders’ profits, which are usually low, for the practice to make economic sense.
Note that small time frames mean fewer risks. However, risk management rules need to be part of the trading move. For instance, leverage trades come with a possible liquidation.
Therefore, they need to size their positions adequately. Sizing helps determine the amount of funds to allocate to a single trade. If they follow the rules in the conventional financial sector, scalpers need not give more than two percent of their accounts to a single trade.
This day trading strategy relies on the appearance of candles on a chart. The term comes from traders’ behavior to look for profit between an asset’s resistance and support levels. For example, range traders can buy Bitcoin or any other crypto on its support level and sell on the resistance zone.
On the other hand, short-range traders open a position at the resistance and close it at the other end of the range.
Since cryptocurrency prices are so slippery, using range trading requires anticipating possible breakouts at either side of the range. Traders hedge against these points by placing a stop-limit order.
To make it through day trading cryptocurrency using this strategy, you need to be at home with resistance points, support levels, and analyzing candlestick charts.
High-Frequency Trading (HFT)
High-frequency trading is a trading game plan powered by algorithms and bots. Those using this approach are often called quant or quantitative traders. Notably, the algorithms and bots must be capable of opening and closing multiple trades at a fraction of a second. Yes, you heard that right, in milliseconds.
While this seems like your ideal choice of an intraday trading approach, it involves monitoring, backtesting, and updating the algorithms to capture rapidly evolving cryptocurrency market conditions.
Additionally, HFT tends to be set aside for the chosen few. This is because high-value information to bake into the algorithms isn’t readily available. Those already using this strategy, such as hedge funds, jealously guard their ingredients.
Additionally, building a bot requires advanced knowledge in computer science and mathematics. Therefore, if someone claims to sell you a profitable HFT bot, take the offer with a lot of salt, not a grain.
Momentum trading is a crypto day trading strategy centered around market news. In the crypto space, positive news usually drives the price up. As such, a day trader using this approach must observe the news’ effect on the price to know when to exit a position.
Although day trading seems like something you can easily pull off, especially with scalping and range trading strategies, you need a trusted companion. Unfortunately, scalping platforms saturate the market with each claiming to offer superior services. However, amidst the crowd, Bitscalp sets itself apart thanks to its open fee structure and wide range of services.
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