As cryptocurrency market continues to gain popularity, more and more people are getting interested in day trading it. Day trading involves buying or selling assets within the same day, taking advantage of the price fluctuations that occur within a day.
However, when it comes to day trading cryptocurrencies, there are several factors that need to be considered. In this article, we will explore the question “Can you day trade crypto?” and provide answers to all the essential questions one might have regarding the topic.
What is day trading crypto?
Day trading crypto is a trading activity in which traders buy and sell cryptocurrencies within the same day. Unlike long-term investment strategies, day trading aims to take advantage of short-term price fluctuations in the market.
This type of trading requires traders to stay alert and make informed trading decisions based on news, technical analysis and market trends.
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Day trading crypto has become increasingly popular in recent years due to the high volatility of the crypto market, which creates more trading opportunities. However, it is important to note that day trading is a high-risk activity. It requires significant knowledge, skills, and experience to succeed.
How day trading crypto works
Day trading crypto works similarly to day trading other assets, such as stocks or forex. Traders use various trading strategies along with technical analysis tools to identify potential trading opportunities, such as short-term price fluctuations, and make informed trading decisions based on market trends.
To start day trading crypto, traders need to open an account with a reputable crypto exchange or broker that offers trading pairs of the cryptocurrencies they wish to trade. Once the account is open, traders can deposit funds into their accounts and start trading.
Usually, a trader can deposit USD or EUR, convert it into stablecoins (e.g. USDT or USDC), and start trading. The most common cryptocurrency pairs are cryptocurrency/stablecoin. For example, BTC/USDT, ETH/USDT, or BTC/EUR.
However, traders can also participate in cryptocurrency pairs made of two cryptocurrencies like BTC/ETH. It is important to note that day trading crypto often involves using leverage to increase exposure to the market, which can amplify potential profits but also increase the risk of losses.
The risks of day trading crypto
Day trading crypto carries significant risks, and traders need to be aware of them before getting involved in this activity. The crypto market is highly volatile, so people can experience rapid unexpected price movements, making it difficult to predict and manage risks effectively.
Additionally, the lack of regulation in the crypto market can expose traders to fraud and market manipulation, which can result in significant losses. Traders need to conduct extensive research as well as develop a sound trading plan to manage risks effectively and succeed in this highly volatile market.
Also read: Decentralized vs centralized crypto exchanges – which one is better?
Trading on centralized exchanges like Binance or Kucoin is the least risky because these exchanges list legit crypto projects with significant liquidity. On the other hand, trading on decentralized exchanges is the riskiest because of higher trading fees and lower liquidity.
What are the benefits of day trading crypto?
Despite the risks, day trading crypto can be a highly lucrative money-making activity. The high volatility of the crypto market creates more trading opportunities, allowing traders to potentially profit by exploiting short-term price fluctuations.
Another benefit of day trading crypto is the flexibility it provides. Crypto exchanges operate 24/7, allowing traders to trade at any time of day or night, providing more flexibility than other markets. Just to compare, the forex market is open 24/5 and the stock market is open for 8 hours a day in a work week.
Additionally, the low fees (on centralized exchanges) and high liquidity of the crypto market make it attractive for day traders. When it comes to technical analysis, the patterns are similar in the crypto market as in the stock market or forex market. That means traders can use these patterns to profit daily if executing trades correctly. Take a look at the most popular chart patterns which appear in markets on a daily basis.
Trading patterns, source: bybit.com
The best crypto trading strategies for day trading
There is an endless number of trading strategies that traders can use, each with its unique features and benefits. One of the most popular as well as easiest trading strategies for day trading crypto includes trend following, which involves identifying along with following trends in the market.
Read more: How to control emotions in trading and protect your capital
When there’s an uptrend, traders try to buy the cryptocurrency and use the daily upswing in their favor. What’s more advantageous than investing is that traders can also use bear markets to their benefit by shorting cryptocurrencies when the market falls.
Example of an uptrend traders can trade, Bitcoin 5m chart, source: tradingview.com
There’s also breakout trading, which involves identifying key levels of support and resistance, then taking positions when these levels are broken.
Look at the chart below to understand better. Specific settings around risk management, stoploss, takeprofit, and leverage are up to a trader.
Breakout zones on Bitcoin 5m chart, source: tradingview.com
Traders should conduct extensive research and develop a sound trading plan that suits their risk tolerance and trading style to succeed in this highly volatile market. Don’t get pumped right away. It is important to be aware that most market participants lose money trading, so don’t repeat their mistakes.
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