Learn About Bitcoin And Altcoins
Before you start day trading cryptocurrency, one should also have an in-depth understanding of Bitcoin and altcoins.
With over 7,000 coins out there, crypto traders should do their own research and clarify their financial goals. Consider trading volume, market cap, and sentiment when choosing a crypto. Though Bitcoin, Ethereum, Tether, and Rippleare among the safest coins to trade, there are some undervalued cryptos out there with a lot of potential.
That said, some new coins can be risky or even fraudulent. If you have an idealistic view of the crypto world, then its time to remind you of some of the biggest scams in crypto trading. OneCoin, the biggest cryptocurrency scam ever, led to4 billion in losses around the world.
Day Trading Risks Management
Implementing proper risk management techniques can make the difference and turn your trading journey into a full-fledged career. There are many day trading rules related to risk management, but here are the basic ones:
- One percent rule there is a popular one percent rule that says you should never risk more than 1% of your account on a single trade. This can help you protect your trading capital from significant losses.
- Limit loss size using stop-losses will help you reduce potential losses. The stop-loss is one of the most critical risk management techniques, and day traders use it regularly.
- Secure profits another stop order the take profit will help you secure a profitable trade by closing a position before a potential trend reversal.
Even if you have a good strategy, it doesnt mean it will always meet your expectations. Thus, it makes sense to be ready for the worse, even when you think your active positions are doing great.
Ease Into The Process
No matter how ready a trader thinks they are for day trading cryptocurrency, they should tread lightly. This new asset class is filled with potential, but can also be dangerous and unpredictable. Its important that day traders start slowly, and only place small trades in the beginning before they fully understand the market. As a trader becomes more comfortable, they can increase their trades and begin to look into more elaborate strategies.
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Ig Best Crypto Day Trading Platform For Tools And Analysis
IG is a UK-based brokerage site that offers CFDs, forex, traditional shares and funds, managed portfolios, and cryptocurrency trading. You will have access a good selection of crypto-asset CFDs – all of which are traded against the US dollar.
This includes Ethereum, EOS, NEO, Litecoin, Bitcoin and Stellar. There are no commissions to pay when day trading crypto at IG, as everything is built into the spread. This is typically very competitive, with BTC/USD and ETH/USD averages a spread of 36 pips and 1.2 pips respectively.
The IG platform is favoured by technical traders that like to perform in-depth research and analysis. You can also trade via the popular third-party platform MT4. We also like IG as it offers a crypto index that consists of 10 large-cap digital currencies. This allows you to trade the wider cryptocurrency markets as opposed to focusing on one coin.
Your capital is at risk.
How It All Started
Digital currencies have been around for more than a couple of decades in different experimental forms, but the first one to be successfully implemented was Bitcoin.
Bitcoin was created by Satoshi Nakamoto , who released its whitepaper called Bitcoin: A Peer-to-Peer Electronic Cash System in October 2008 and launched the network in January 2009.
Bitcoin has spurred a whole new digital coin class that can now be bought and traded on cryptocurrency exchanges worldwide.
Other than Bitcoin, there are other well-known and recognized cryptocurrencies like Ethereum which is currently trailing Bitcoin in terms of network value and Tether which is the leading stablecoin also in terms of network value.
A stablecoin is a digital asset whose value is pegged to the value of a fiat currency in order to avoid the wild price volatility that is common with other virtual currencies. The majority of successful and professional cryptocurrency traders use stablecoins while mitigating their trading plans.
Currently, there are more than 8,000 cryptocurrencies listed on CoinMarketCap, a leading data aggregator for the cryptocurrency market.
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Day Trading And Scalping
A crypto day trading strategy allows the trader to take full advantage of cryptocurrency assets price volatility. As mentioned earlier, virtual assets are currently extremely volatile, which works to the advantage of a day trader.
The day trading strategy is a game of numbers strategy. A day trader will make multiple trades within a day, buying low and selling high within little gains that compound to large sums by the end of the day. Typically, sometimes it gets hard to perform this manually. To succeed in this strategy, you will need to consider automating your trades using trading applications or crypto trading bots like Coinrule.
Please note: It is not recommended that you begin your trading journey as a day trader. This is because this strategys fast-paced nature will require that you make fast decisions, and there is little room for research between trades.
Scalping is a part of day trading but typically involves concise trading periods. Think minutes.
When either day trading or scalping, many trades will result in both wins and losses. The idea is to make sure that the win/loss ratio is in your favor. Score more wins to consider your strategy a success.
Trading More Than You Can Afford To Lose
Early in their trading journeys, beginners tend to put their entire life savings into cryptocurrency trading, hoping to get rich quickly. Cryptocurrencies are speculative financial instruments that are subject to huge price swings which can change at any moment, and even professional traders do experience significant losses at times.
Day trading, on the other hand, is not a get-rich-quick scheme but a clever strategy to generate income and create wealth over time. It requires adequate planning, proper execution, risk management, and trading skills. Good risk management skills protect cryptocurrency traders from losing all their capital or making significant losses.
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What Is Day Trading Crypto
When you day trade crypto – you are speculating on the short-term value of a digital currency like Bitcoin or Ripple. In a similar nature to forex, you will be trading pairs. For example, if you wanted to trade the value of Ethereum against the US dollar – this would be displayed as ETH/USD.
In this instance, you would be trading a crypto-to-fiat pair. This is because one half of the pair is a crypto asset and the other is a fiat currency. You then have crypto-to-crypto pairs, which will consist of two digital currencies. This might, for example, include ETH/XRP – which means you are trading Ethereum against Ripple.
Irrespective of which crypto pair you are day trading – the overarching objective is to speculate on whether the exchange rate will rise or fall. If you speculate correctly, you will make a profit.
Let’s look at a quick example of how to day trade cryptocurrency:
- You want to trade Bitcoin against the US dollar
- Currently priced at $52,000 – you think BTC/USD is overpriced
- As such, you place a $1,000 sell order at your chosen broker
- A few days later, BTC/USD is priced at $48,000
- This represents a decline of 7.6%
- Therefore, on a stake of $1,000 – you made a profit of $76
As you can see from the above, you placed a sell order on BTC/USD as you were speculating on the pair going down in value. However, if you thought eh pair would rise in value, you would have placed a buy order.
How Does Cryptocurrency Work
Cryptocurrencies are digital assets that are powered on the blockchain. Blockchain technology stores a ledger of every transaction of the cryptocurrency on every node powering the blockchain. Nodes are computers that are connected to Bitcoins network to mine Bitcoin. If one of these miners tries to enter false transactions, it will be nullified by the correct ledger.
The correct ledger is determined by the majority of miners records. In theory, you could hack a blockchain by controlling 51% of the cryptocurrencys network in a process called a 51% attack. However, this process is economically infeasible and would require an extremely choreographed hack with billions, if not trillions, of dollars worth of computer hardware.
To transact with a cryptocurrency, you need to have a set of public and private keys. These keys are like passwords generated by your cryptocurrency wallet. Your public key is connected to your wallets address and allows people to send you cryptocurrency. Your private key is used to approve transactions being sent from your wallet only you have access to your private keys.
Contrary to popular belief, many cryptocurrencies dont have a finite supply. Bitcoins total supply is capped at 21 million coins, but many altcoins have a set inflation rate with no cap on total supply, like Ethereum.
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Create An Effective Risk Management Strategy
To learn to day trade, you have to learn to manage risks and embrace losses. Exit strategies are crucial to success. You should set proper stop and limit orders.
Lets give an example: imagine you are a crypto day traderinthe UK interested in a crypto-to-fiat pair. If you buy an order at $5,000 but dont want to risk more than 10%, youll have to set a stop-loss order at $4,500. If things dont go as planned, your broker will exit on your behalf before the value of your pair goes down to $4,500.
Note that experts suggest setting a stop-loss near the entry point, which is a suitable tip for less experienced cryptocurrency day traders.
A Quick Introduction To Day Trading
Day trading is the process of speculating on financial products and assets over the span of a single day. Day traders will often buy and sell any number of financial instruments in the span of several hours, or less, and profit from speculating on short-term price movements. Day traders stay up-to-date on what moves markets in the short term and can place hundreds of orders in a single day to profit in the long run.
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Dumb Money Still Dominates
Because the cryptocurrency markets are still relatively new, there is still an abundance of dumb money in the system, which means much of the market movements seen are driven by emotion, and hasty decisions based on recent news and rumors.
This makes cryptocurrency trading much more appealing to the casual trader since there is still little smart money consisting of algorithmic trade bots, machine learning algorithms, and sophisticated hedge funds.
Beyond this, the cryptocurrency market is not yet dominated by hedge funds and career traders, meaning anybody entering the market with a well-thought-out strategy will already be leaps and bounds more successful than the casual trader.
Volatility Is The Norm
When it comes to cryptocurrencies, you should be aware that the market is very volatile. Bitcoin can start the day at $12,000 and not even a couple of hours later the price has crashed to $10,000 and veteran traders will not even flinch. If you want to start day trading though, this volatility can be a very lucrative instrument as the opportunities to profit are many.
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What Is The Tax Rate Of Crypto Day Trading
Governments around the world are scrambling to create regulatory frameworks for cryptocurrency. In the United States, the legal classification of cryptocurrency as securities, commodities, currency, or property remains somewhat ambiguous. However, the Internal Revenue Service does already recognize gains in the value of cryptocurrency as taxable. Visit their website here or contact the agency directly for more information.
How Much Can I Earn With Day Trading
How much you earn as a day trader depends on several factors, including your trading strategy, commissions, amount of capital and risk management practices. There are plenty of examples of people making a full-time income with day trading. However, there are also plenty of examples of people losing funds. Those that wish to be successful must be patient and develop a winning strategy slowly. It is not a get rich quick opportunity.
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Steady Incremental Profit Accumulation Strategy
As a day trading newcomer, it’s advisable to try to minimise the chance of market swings and fluctuations. That can be tough when dealing with volatile instruments like crypto, but there are some measures you can take. This is where a good conservative strategy like SIPAS comes in.
What Are The Downsides Of Day Trading Crypto
Many fortunes have been made in cryptocurrency, but it is important to always keep in mind that many, many more have been lost. The flip side of unprecedented price surges of several hundred percent is sudden drops. The very high volatility of crypto prices is a double-edged sword, and you need to keep this in mind. Making a loss is a matter of when not if. A good strategy will determine whether that loss is ruinous or merely unfortunate.
In addition to price risks, the cryptocurrency space also presents some unique security risks that are not present in traditional financial markets. Security breaches at centralized cryptocurrency exchanges are risks that you should understand.
Finally, trading fees can be quite high, especially for strategies that employ a very high frequency of transactions. It is important to understand the costs of actually using a trading platform before investing in it.
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Crypto Day Trading Strategies
The difference between gambling and trading is an effective strategy. A good strategy can be the difference between one or two lucky streaks and consistent long-term returns. You can apply different trading strategies in different situations, depending on the nature of the market and your competencies. It is up to you to understand the market and decide when it is appropriate to apply a given strategy.
Here are a few crypto trading strategies you could use to understand how to day trade crypto in more detail.
Tip : Stick To The Popular Cryptos
All cryptocurrencies are not created the same and therefore do not have the same characteristics. You cannot compare cryptocurrencies like Bitcoin, Bitcoin Cash, Ethereum, Monero and Ripple which are ranked by TradingBeasts as the best cryptocurrencies to day trade with deadbeat coins that are probably listed on one deadbeat exchange and which hardly even gets a look-in from the trading public.
The popular cryptocurrencies are your money-makers. They have more volatility, greater trading volume and therefore are more likely to deliver the kinds of movements you need to see within a few hours to make profitable intraday trading possible.
It is best you stick to pairings that feature the cryptos mentioned above, so you can be sure you have a good range of movement to make your crypto trading profitable. You can also scan the markets to see which of the listed cryptocurrency pairs on your platforms are doing very well in terms of range of movement.
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Learn Advanced Trading Analysis
In order to learn how to day trade and understand all the factors that influence cryptos and price fluctuations, one has to learn different types of analysis. Two of the main analysis methods that crypto traders use are fundamental and technical analysis.
Fundamental analysis is a complex method that involves the analysis of different markets, global events, interest rates, and many more. Technical analysis, on the other hand, deals with statistics, data, trends, and volumes all factors moved by supply and demand principles. Here we should note that momentum analysis, which is defined as the ability of the crypto market to maintain certain trends within a given timeframe, can be used as well.
That said, sentiment analysis is also vital, and often used by day traders. Basically, it tackles how people feel about cryptocurrency. And we all know that cryptos can be an alternative to banking as they are decentralised and transparent. Quite appealing, right?
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“One of the main ways that traders lose money is by losing discipline and chasing losing trades or by doubling down’ on positions that are going against them,” he said
“This is the market controlling you and taking your money right in front of your eyes.”
Traders should choose their marketplace carefully and make sure liquidity, reliability, and if possible market regulation is at the top of their list before entering any trade.
When entering a trade, traders are advised to identify their entry price, stop loss level, and target price.
Do not enter a trade without a stop-loss, without fail, DailyFx said. Even better if your provider can offer you a guaranteed stop-loss normally for a small premium you should consider it carefully.
Traders should also consider Contracts for Difference very carefully before using them. The market has enough volatility of its own and will continue to offer opportunities to trade profitably.
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