Day Trading Crypto: A Guide To Profitable Trading

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Last updated Jul 02, 2024 | 03:51 PM UTC

Crypto trading can be very dynamic, especially for users who want to make this a constant and regular activity. While you can invest in a particular token and HODL (hold on for dear life) until its value substantially increases, there are other methods like day trading that can offer a more consistent source of income. 

However, strategies like crypto day trading can be complex, and if you’re now familiar with its various aspects, it can lead to significant risks.

This article offers a comprehensive guide to crypto day trading, how it works, and what are the most popular strategies.

Key takeaways 

  • Day trading crypto involves buying and selling within a single day to profit from short-term price fluctuations.
  • Success in day trading requires understanding market trends, technical analysis, and staying updated with news.
  • To make money, choose a reliable platform, learn technical analysis, develop a strategy, and practice on a demo account.
  • Day trading differs from long-term investment in focus, frequency, risk, and analysis methods.
  • Crypto trading operates 24/7 with higher volatility and less regulation compared to stocks.
  • Best times to trade are during high volatility periods and overlapping market hours.
  • Effective strategies include scalping, arbitrage, momentum trading, range trading, news-based trading, technical analysis, and breakout trading.
  • Each strategy requires specific skills and tools to execute successfully.
  • Pros of day trading include quick profits and flexibility, while cons involve high risk, stress, and time commitment.
  • Choose cryptos with high liquidity and volatility for day trading, such as Bitcoin, Ethereum, and Binance Coin.

How does day trading crypto work?

Day trading crypto involves buying and selling cryptocurrencies within a single trading day. Unlike long-term investing, day trading aims to profit from short-term price fluctuations. Traders use technical analysis, charts, and market news to make informed decisions. The primary goal is to end the day with a net profit after several trades.

Unlike most traditional financial markets, crypto markets operate 24/7, providing great opportunities for day traders to potentially make profits around the clock. However, this also means constant vigilance and quick decision-making are crucial. Successful day trading requires a solid understanding of market trends, price movements, and trading volumes.

To achieve this, traders often rely on various tools and strategies. They might use candlestick patterns to predict price movements or apply indicators like the Moving Average Convergence Divergence (MACD) to identify potential entry and exit points. Additionally, keeping an eye on trading volumes helps determine market liquidity and potential price direction.

How to make money day trading crypto

To make money day trading crypto, follow these essential steps:

  • Choose a reliable crypto day trading platform: Select a platform that offers advanced trading tools, low fees, and high liquidity. Examples include Binance, Coinbase Pro, and Kraken.
  • Learn technical analysis: Master the art of reading charts, using indicators, and identifying patterns. Technical analysis helps predict future price movements based on historical data.
  • Stay updated with market news: Follow crypto news sources and social media channels to stay informed about market trends and events.
  • Develop a strategy: Create a trading plan outlining your goals, risk tolerance, and preferred strategies. Stick to your plan and avoid impulsive decisions.
  • Practice with a demo account: Before risking real money, practice your strategies on a demo account to gain confidence and experience.
  • Monitor your trades: Keep a close eye on your trades and be ready to act quickly. Use stop-loss orders to minimize losses and take-profit orders to lock in gains.

Day trading vs crypto investment

Day trading and crypto investment are two different approaches to profiting from cryptocurrencies.

Day trading

  • Short-term focus: Aims to profit from daily price fluctuations.
  • High frequency: Involves multiple trades in a single day.
  • Higher risk: Requires constant attention and quick decision-making.
  • Technical analysis: Relies heavily on charts and indicators.

Crypto investment

  • Long-term focus: Aims to hold assets for months or years.
  • Low frequency: Involves fewer trades over an extended period.
  • Lower risk: Less impacted by daily market volatility.
  • Fundamental analysis: Focuses on the long-term potential of cryptocurrencies.

Both approaches have their merits, but day trading offers the potential for quick profits, while investment aims for long-term growth.

Day trading crypto vs stocks

Day trading crypto and stocks share similarities, but key differences exist:

Market hours

Crypto: Operates 24/7, allowing for continuous trading.
Stocks: Limited to specific market hours, usually from 9:30 AM to 4:00 PM EST.

Volatility

Crypto: Generally more volatile, providing more opportunities for profit but also higher risk.
Stocks: Less volatile, with price movements influenced by company performance and economic factors.

Regulation

Crypto: Less regulated, leading to higher market manipulation risks.
Stocks: Highly regulated, providing greater investor protection.

Liquidity

Crypto: Liquidity varies significantly among different cryptocurrencies.
Stocks: Typically more liquid, especially for large-cap stocks.

Understanding these differences helps traders choose the market that aligns with their risk tolerance and trading style.

When to day trade crypto?

Timing is crucial in day trading crypto. The best times to trade include:

  • High volatility periods: Look for times when the market is most active, such as during major news releases or economic events.
  • Overlap of major market hours: When major markets like the US, Europe, and Asia overlap, trading volumes and volatility tend to increase.
  • Following major announcements: Monitor announcements from cryptocurrency projects, regulatory bodies, or influential figures in the crypto space.

Avoid trading during low liquidity periods, as price movements can be erratic and harder to predict.

Best strategies for crypto day trading

Several strategies can be effective for crypto day trading. Here’s a detailed explanation of each, along with examples to illustrate how they work.

Scalping

Scalping involves making numerous small trades throughout the day to profit from minor price movements. Scalpers hold positions for a few seconds to minutes, aiming to accumulate small gains that add up over time.

Example: A trader notices Bitcoin's price frequently fluctuates between $30,000 and $30,200 within a short time frame. By buying at $30,000 and selling at $30,200 multiple times, the trader makes small but consistent profits.
 

Wazir chart
Image: Crypto scalping technique explained. Source: WazirX

Arbitrage

Arbitrage exploits price differences between different exchanges. Traders buy a cryptocurrency at a lower price on one exchange and sell it at a higher price on another. This strategy requires fast execution and a keen eye on price discrepancies.

Example: Ethereum is priced at $2,000 on Exchange A and $2,020 on Exchange B. A trader buys Ethereum on Exchange A and simultaneously sells it on Exchange B, pocketing the $20 difference per unit.

Momentum trading

Momentum trading capitalizes on strong price trends. Traders enter positions during significant price movements and exit when the momentum wanes. This strategy relies on identifying and riding trends until signs of reversal appear.

Example: Ripple (XRP) experiences a sharp price increase following a positive regulatory announcement. A trader enters a position as the price rises and exits when technical indicators, like the Relative Strength Index (RSI), suggest the trend is losing strength.

Range trading

Range trading identifies support and resistance levels. Traders buy at support (the lower boundary) and sell at resistance (the upper boundary), profiting from price oscillations within this range.

Example: Litecoin's price fluctuates between $150 (support) and $160 (resistance). A trader buys Litecoin at $150 and sells it at $160, then repeats the process each time the price bounces between these levels.
 

Crypto range trading explained Source Tradesanta
Image: Crypto range trading explained. Source: Tradesanta

News-based trading

News-based trading involves making trades based on market-moving news and events. Traders monitor news sources for announcements that could impact cryptocurrency prices and act quickly to capitalize on the resulting price movements.

Example: A major tech company announces it will accept Bitcoin as payment. Anticipating a price surge, a trader buys Bitcoin immediately after the announcement and sells it after the price increases significantly.

Technical analysis trading

Technical analysis trading uses charts, indicators, and patterns to predict future price movements. Traders rely on tools like moving averages, Bollinger Bands, and MACD to make informed decisions.

Example: A trader uses the Moving Average Convergence Divergence (MACD) indicator to identify a bullish crossover on the Bitcoin chart. Recognizing this as a buy signal, the trader enters a position and exits when the MACD indicates a bearish crossover.

Breakout trading

Breakout trading focuses on entering positions when the price breaks out of a defined range or pattern. Traders look for strong volume and momentum to confirm the breakout.

Example: Cardano (ADA) has been trading within a range of $1.20 to $1.30. When the price breaks above $1.30 with high trading volume, a trader enters a long position, expecting the price to continue rising.

Choose a strategy that matches your risk tolerance and trading style, and refine it through practice and experience.

Pros and cons of day trading

Pros

  • Potential for quick profits: Day trading allows for fast returns within a short time frame.
  • Flexibility: Trade at any time, thanks to the 24/7 nature of crypto markets.
  • Control: You have direct control over your trades and can respond quickly to market changes.

Cons

  • High risk: The volatile nature of crypto markets can lead to significant losses.
  • Stressful: Requires constant monitoring and quick decision-making.
  • Time-consuming: Demands a significant time commitment to stay updated and manage trades effectively.

Best crypto for day trading

Selecting the right cryptocurrencies is crucial for successful day trading. Consider the following factors:

  1. Liquidity: Choose cryptocurrencies with high trading volumes to ensure you can enter and exit positions quickly.
  2. Volatility: Focus on cryptos with significant price movements to capitalize on short-term fluctuations.
  3. Market news: Stay informed about upcoming events and announcements that could impact prices.

Top cryptocurrencies for day trading include Bitcoin (BTC), Ethereum (ETH), Binance Coin (BNB), and XRP. These coins offer high liquidity and frequent price movements, making them ideal for day traders. 

More generally, the top 15 tokens by market cap are always good options for day trading because of their wider adoption or higher liquidity.

Final thoughts

Day trading crypto presents an exciting opportunity for traders to profit from the dynamic and volatile cryptocurrency markets. By understanding how day trading works, developing a solid strategy, and staying informed about market trends, you can enhance your chances of success. 

Remember to manage your risks effectively and continue learning and adapting your approach. With dedication and discipline, day trading crypto can be a profitable endeavor.

Frequently Asked Questions

How can I get started with day trading crypto?

To start day trading crypto, follow these steps: Choose a reliable trading platform with low fees and advanced tools, such as Binance or Coinbase Pro. Learn technical analysis to understand market trends and price movements. Develop a trading strategy and practice on a demo account. Stay updated with market news and be prepared to act quickly on trades.

 

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

The amount of money needed to start day trading crypto varies. It is recommended to start with an amount you can afford to lose, typically between $500 to $1,000. This allows for enough capital to make multiple trades while managing risk. Ensure you have funds to cover transaction fees and potential losses.

Is crypto day trading more profitable than HODL?

Crypto day trading can be more profitable in the short term due to frequent opportunities for gains from price fluctuations. However, it also carries higher risk and requires constant monitoring and quick decision-making. HODL (holding) strategies, while less risky and time-intensive, aim for long-term growth and can be more profitable over extended periods, depending on market conditions and the cryptocurrency held.

 

Written by

Mohammad is an experienced crypto writer with a specialisation in cybersecurity. He covers a wide variety of topics spanning everything from blockchain and Web3 to the retail crypto space. He has also worked for several start-ups and ICOs, gaining insight into the mindset and motivation of the founders behind the projects.