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Published 1 month ago • 5 minute read

How to Day Trade Cryptocurrency and Turn a Profit

When speaking of popular trading strategies, day trading often comes to mind and comes up in conversation.

That’s because day trading allows investors to take part in a variety of different markets, such as crypto markets, commodities, forex, stocks, and bonds.

Considering that cryptocurrency trading is the most popular day trading strategy, is it safe for just anyone to pursue? And, what is the best way for day traders to make money?

To find out whether or not day trading is something that you should do, keep reading as we explore the world of cryptocurrency day trading.

What is Day Trading?

As the name implies, day trading is a trading strategy that requires investors to enter into and exit their positions within a day.

That’s why this trading strategy is also known as intraday trading and the goal is to enable the investor to make a profit on the change in prices which happens during the course of the trading day.

The boys over at the stock market were the first to coin the term “day trader” as a label for those who trade during the day on weekdays when the stock market is open.

Basically, a day trader starts working from the morning as soon as the market opens and then closes their positions right before the market closes so that they can milk as much profit as possible from intraday price movements.

Best Day Trading Strategies

Some of the best ways to make the most out of day trading include:

1. Scalping

Most day traders utilize this strategy because it enables you to identify and take advantage of little price moves that most investors don’t notice because of how quickly they move.

This includes market inefficiencies that often go by unnoticed such as bid-ask spread and gaps in liquidity to name but a few.

As such, scalpers are known to leverage their results by trading futures contracts or trading on margin. This enables them to take up larger positions due to the smaller percentage price targets.

Looking at this strategy at face value, you’d be forgiven for thinking that it’s about throwing caution to the wind but this couldn’t be further from the truth.

There are a lot of risk management principles that one must observe when practicing scalping, such as applying the right margin requirements and position sizing rules.

Scalpers also make use of technical indicators to manage the entry and exit points of their individual trades, as well as other strategies like volume heatmaps and book analysis.

As you can see, scalping is not the simplest strategy out there and it requires a fair amount of skills to execute, especially when considering that it requires extensive use of leverage.

How to Day Trade Cryptocurrency

2. Range Trading

The range trading strategy requires investors to identify resistance and support levels by studying candlestick charts.

Basically, this allows traders to consider all of the different price ranges offered within the market structures so that they can trade accordingly.

For instance, if the price is dandling in limbo between resistance and support levels then they can leverage the support level against the resistance level and vice versa depending on what strategy they feel is best suited to the situation.

Range trading is predicated on the strength of the range edges which are represented by resistance and support. From here, the trader looks to see whether the price will go up due to the lower edge of the range taking precedent, or if it will come down due to the upper edge of the range taking precedent.

With enough time, the level can and does break out of the range and this is a risk-reward strategy that investors must be aware of. All in all, range trading is pretty simple and easy even for beginners to pursue so long as you understand how candlestick charts work and the movement of resistance and support levels.

You’ll also need to pay attention to MACD and RSI indicators and learn how to read crypto charts to stay on top of the momentum.

3. High-Frequency Trading

This trading strategy is based on algorithms and it’s very popular among quantitative traders who are also referred to as quant traders.

These traders develop and use trading bots who use their superior processing power to enter and exit multiple positions at once, oftentimes within milliseconds.

This is what gives quant traders an edge over other traders because GFT algorithms can be programmed to carry out some of the most complicated trading strategies.

That’s why most traders leave it to the experts because high-frequency trading requires lots of monitoring, back-testing, and programming the algorithms to adapt to the changing market. This is not something where you just sit back and relax while the bot does all the trading for you.

No, you must get involved on the back-end and work to not only regularly update the algorithms, but to source the latest high-frequency trading strategies from successful hedge funds and trading firms.

It’s also important to beware of people who offer trading bots as they might not work as well as you might initially think. After all, if someone’s created a gold mine of a trading bot, why would they want to part with it instead of using it to enrich themselves?

It’s best to develop your HFT trading bot if you have the skills required to do so, which involve having a thorough understanding of computer science, mathematics, statistics, and advanced market concepts. Needless to say, this is a strategy for more experienced and seasoned day traders.

Conclusion

Day trading is popular not only in stock trading but is quickly making a name for itself in the world of cryptocurrency as well.

Day traders make use of the market’s known volatility to enter and exit multiple positions per day. They’ll determine trade setups by using technical indicators, chart patterns, and other forms of technical analysis.

As you can see, the most popular day trading strategies that investors use nowadays include scalping, high-frequency trading, and range trading. These are some of the most successful and reliable day trading strategies around.

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