An Advanced Guide To Day Trading Crypto

With cryptocurrencies all over the news and making headlines in mainstream media for bringing early investors enormous gains, everyone wants a piece of the action. The only problem is, as many investors learned the hard way, that unless you buy in early, the market can be unforgiving with its volatility. Investors who bought Bitcoin in early 2021 saw most gains wiped out by mid-2021. This abrupt change in the short-term trend turned many investors toward day trading. Combined with the Covid pandemic also giving the trading industry a boost, a new generation of day traders were in turn born.

At this point, day traders have learned the ropes, and are now ready for more advanced day trading concepts and tactics. If this is describes where you are as a trader, or where you want to be – or perhaps you’re a pro but are looking for a refresher course – then this guide was designed just for you. Read on for a brief recap of the basics before jumping into the advanced strategies day traders are searching for.

What Is Day Trading Crypto? Make Money Trading Bitcoin, Ethereum, And More

Day trading cryptocurrency assets like Bitcoin, Ethereum, Litecoin, or others, can be a profitable venture depending on one’s skillset, experience, capital level, and emotional control. For those that are able to get the hang of day trading, it can be a great way to make money on the side while you work other jobs, or it could potentially earn enough income to replace a normal nine-to-five and essentially become one’s dream job.

Day traders get the name because typically the trading is done during the day time. This is due to the fact the stock market and other traditional markets and trading desks often close at a certain hour and then reopen the next morning. Futures contracts, for example, allow traders to speculate on price action outside of normal market hours.

How Do Day Traders Make Money?

Day traders make money by either buying or selling assets at highs and lows, hoping to extract a positive net gain from the differences, or by speculating over the future price of an asset using derivatives contracts. Each type of day trading option offers its own unique benefits, with spot trading (buying and selling assets) carrying less risk overall, yet far less potential for profits.

Day traders often both hold spot assets they purchase from a cryptocurrency exchange, then rely on derivatives contracts to bolster holdings with condensed risk by using less capital for greater profits. Day traders often do this from the comfort of a home office, while traveling, or while juggling other jobs and income streams. Becoming successful at day trading, however, isn’t always easy and takes time, effort, natural talent, training, and experience to get right.

Does Day Trading Apply To Cryptocurrency?

Day traders tend to do their trading during the day’s main trading session, from about 9:30AM to 4:00PM coinciding with the United States’ stock market open and close. Every region or market has its own trading hours, however, cryptocurrencies are unique in that they trade 24/7, even on nights, holidays, and weekends.

Because of this, the concept of “day trading” in a traditional sense goes out the window. But when it comes to crypto, simply fitting in small sessions of focused trading constitutes day trading crypto. It also allows traders from any region globally to get a slice of the action by day trading.

How To Day Trade Cryptocurrency

Day trading cryptocurrency requires very little to get started, as most platforms offer very low minimums, or often no minimums at all. Regardless if the trader wants to trade spot markets or derivatives, each type of trading starts with purchasing some crypto assets in the form of Bitcoin (BTC), Ethereum (ETH), Tether (USDT), or USD Coin (USDC). 

Bitcoin and Ethereum are highly volatile assets that can be brought or sold at different intervals at high or low prices, in an effort to benefit financially from the differences in the price swings. Derivatives work similarly in theory, except crypto assets are used as collateral for margin trading contracts that speculate on the price of the underlying asset.

In this example, a trader would send BTC, ETH, USDT, or USDC to a secure crypto wallet. A trader would then open a position using margin, that is often valued significantly higher than the capital would otherwise allow for, using a tool like leverage. Leverage and margin are what make derivatives contracts more profitable, and higher risk, than spot trading.

How Does Day Trading Crypto Get Taxed?

Day trading cryptocurrency requires the trader to take account of all transactions made, and properly report any profits or losses made during a tax year to the proper tax authorities. For example, in the United States, traders would need to report their earnings to “Uncle Sam” or the Internal Revenue Service.

In certain jurisdictions, cryptocurrency transactions are taxed as property and are subject to capital gains taxation. However, day trading crypto could fall more closely under income due to the structure of the US tax law. Crypto investors, tax lawyers and even congressmen all agree – the US tax law in particular is highly confusing.

Be certain to always speak to a certified public account or tax advisor in your region to ensure adherence to all local tax laws related to virtual currency and day trading. Also, discuss ways to use tax loss harvesting to purpose book losses and reduce the amount owed on taxes related to profits. A qualified financial accountant can walk you through such situations. It is also important to wisely choose a platform which offers a detailed Reports section, which detailed account statements for accurate tax reporting.

Factors To Consider Before Day Trading

Day trading can be profitable, thrilling, and rewarding, and can be done from the privacy and comfort of one’s own home or office. The positive benefits are obvious, however, there are some factors that must be considered that everyone should know before getting into day trading that involve hard work, dedication, and a little bit of luck.

  • Volatility. Volatility is the measure of price fluctuation within a trading period. The cryptocurrency market is a highly volatile market where prices are known to plummet, then rally to new highs in a short timeframe. This volatility can catch traders by surprise and be painful to withstand when the market goes in the opposite direction than you had hoped.
  • Accepting Losses. Accepting losses and avoiding things like revenge trading is a must for successful capital growth. Learning emotional control through losses is how winners are made, but it isn’t easy to learn.
  • Practice Makes Perfect. As with all things in life, practice makes perfect. This speaks to the fact that all traders must hone their craft, research, and put their skills to the test and then learn from any mistakes. There is nothing more valuable than time in the market.
  • Picking Targets. Knowing when to take profit isn’t easy. Open PnL stacking up feels exhilarating and greed can be blinding. Picking targets in advance, and setting a take profit order can take a lot of the stress or hesitancy to pull the trigger out of the equation.
  • Setting Stop Losses. Setting stop losses is equally challenging, especially when starting out. Keeping stop loss levels too tight can result in constantly getting stopped out and losses stacking up – which is the exact opposite of the goal of setting a stop loss in the first place. Giving a little bit of wiggle room by setting a stop loss above or below a key level could prove more effective, but it is balance between risk and reward that matters most.

How Much Money Can You Make Day Trading Crypto?

The amount of money that can be made day trading crypto is relative to a number of factors. For example, much more capital on the line can yield greater results. Leverage through margin trading is another profitable alternative if the broker offers it. Because the sky’s the limit on profits when it comes to crypto trading, here are a few real world examples that can give users an idea of what is realistically possible. In one example, an amateur investor turned $15,000 into $1 million, then lost every last drop of his capital in a losing streak to remember. This proves money can be made, but keeping it matters even more.

Dogecoin is a recent example of a cryptocurrency gone parabolic that made thousands of traders rich beyond their wildest dreams. Bitcoin before it was another. All across crypto there are reports of rallies of as much as 800%. With Bitcoin poised to reach hundreds of thousands of dollars per coin, there is still plenty of time left to get involved and the gains could be exponential.

It isn’t crypto, but one day trader turned $1,500 only into more than a million within three years, and this particular story ended happily with them holding onto their returns.

Crypto Day Trading Strategies

Now we have arrived at the moment you have waited for, the more advanced trading strategies for day trading. Choosing the most effective strategy for you will take time but prove to be worth the time investment. The below section of the guide will walk you through the process of making a trade from technical analysis to trade execution using traditional candlestick charts and trading volume analysis, depicting assets from the crypto market. 

  • Scalping. Being a scalper involves going in for smaller trades and getting out fast with limited profits. Profits are secured quickly with trading activity compared to other methods like swing trading. Looking for when an asset is oversold or overbought on the lowest timeframes is a recommended trading strategy for scalping.
  • Range Trading. Range trading is another successful intraday trading strategy that involves longing support and shorting resistance within a trading range and taking advantage of the established range before it breaks. Traders often stagger limit orders at different places within each resistance and support levels to ensure an order fills. After the range breaks, a trader can set trailing stops starting within the former range and move it up or down with the Parabolic SAR technical indicator.
  • High-frequency trading (HFT). High-frequency trading typically involves bots that automate trades and search for arbitrage opportunities within the spread between assets and even exchanges.
  • News-Based Trading. The news cycle itself can act as a short-term indicator in crypto. For example, bullish news breaking that Elon Musk was in support of Dogecoin helped propel the altcoin to stardom. Negative news can have a harmful effect, such as when Musk revealed energy concerns over Bitcoin and crashed the cryptocurrency market.

Advantages Of Day Trading Crypto

The cryptocurrency market offers many advantages over traditional assets, although some of these advantages can also be disadvantages.

  • 24/7 Market. The crypto market is always on, 24 hours a day, seven days per week, including nights, holidays and weekends. This means that there is always a market open and a brokerage willing to take your trades.
  • Volatility Is The Norm. Unlike stock trading, crypto is high volatility all the time. The extremely volatile market always behaves that way, and in the rare occasions that these assets consolidate, an enormous move typically results.
  • Unregulated. The crypto market is unrelated which allows innovation to thrive and for anyone at all to participate. With a low barrier to entry, crypto is for the masses.
  • Transparent And Open Data. Blockchain is based on a distributed ledger that is fully transparent. It makes all data visible to anyone who seeks it out. It is ideal for accounting and for verification purposes.
  • Immature Market. An immature market structure means that it is still very early to enter and make money off of crypto assets. 

Disadvantages Of Day Trading Crypto

The advantages of crypto trading are clear, while the disadvantages aren’t as obvious. Even some of the advantages spill into disadvantages at times, as we’ll explain.

  • 24/7 market. Previously listed as an advantage, the always on crypto market means there is never a break from the stress of trading.
  • Unregulated. Being an unregulated market does carry certain investor risks and there are no formal protections. This also causes a lot of scams and crime to exist.
  • News Cycle. Because cryptocurrencies like Bitcoin and Ethereum are still speculative, these assets are highly susceptible to the news cycle. This can be positive on the way up when news is positive, but negative news can be devastating for these assets.
  • Liquidity. Low liquidity is a blessing and a curse. Without it these assets wouldn’t rise so rapidly, but it also leads to wild price swings and long wicks that can stop you out and make trading more challenging than other markets.
  • A Small Universe. The still relatively small universe compared to the rest of finance puts crypto at a disadvantage. There are less brokers, less support, less regulations, and more.

Cryptocurrency Day Trading Vs Long Term Holding

Day trading is a viable alternative to long-term holding of crypto assets. Some form of the two combined can also be a solid trading plan, however, for the goal of this section of the guide, we are directly comparing the two in the below table:

Day Trading Crypto Long-Term Holding
Extreme profits, high risk Highly profitable, moderate risk
Profits both directions of the market Can often sustain losses during bear markets
Takes skill and effort Takes very little effort or thinking
Involves actively managing positions Involves storing assets in cold storage
Can build capital quickly Capital grows only during uptrends

Cryptocurrency To Consider For Day Trading

There are thousands of different cryptocurrencies available today, but not all of them are worth the time of day, let alone your hard earned trading capital. This section of our day trading guide will help you choose which crypto assets to consider.

  • Bitcoin (BTC). Bitcoin is the first ever cryptocurrency and has the largest market cap out of any crypto assets. It also has the most adoption, making day trading Bitcoin ideal compared to others.
  • Ethereum (ETH). Ethereum trading volume has been catching up with Bitcoin in recent months, as the asset has been taken more seriously by the greater world of finance.
  • Litecoin (LTC). Litecoin is an asset that has performed well in the past, but isn’t as hot during the recent market cycle. However, its chart could be a sleeping giant. It also is among the more commonly accepted cryptocurrencies, even being listed on PayPal and Venmo.
  • EOS (EOS). Another sleeping giant could be EOS, and this one could be the Ethereum killer it set out to be. With other Ethereum competitors starting to gain steam, EOS could be next.

How To Get Started Day Trading Cryptocurrencies

Getting started day trading cryptocurrencies first takes learning some basic technical analysis and building a trading plan. After that, purchasing crypto assets from a crypto exchange would be the next step, or registering to a margin trading platform. It doesn’t take a lot of capital or effort to get started with crypto.

Is Day Trading Crypto Worth It?

Considering the success stories, and the general ease in which day trading can be accessed, it can be worth it for those that are willing to put in the time, learn the ropes, and survive the first year or so of losses.

FAQ: Frequently Asked Questions

Is It Possible To Day Trade Crypto?

Day trading crypto is very possible, it just may take place outside of the typical day trading timeframes due to the always on, global markets.

Which Crypto Is Best For Day Trading?

The more volatile the cryptocurrency, the better it is suited for day trading. However, market volatility is common across all cryptocurrencies due to them being speculative assets.

Do You Need $25K To Day Trade Crypto?

With all types of trading, the more capital on the line makes for higher profits, but such large amounts of capital aren’t required with crypto. PrimeXBT, for example, let’s anyone trade CFDs on crypto with no minimum deposit at all.

Is Day Trading Really Worth It?

Day trading is worth it for those that can dedicate a proper amount of time and research into the practice. Proper technical analysis and trading strategies are a must.

How Much Can You Make Day Trading Crypto?

The amount of money that can be made trading crypto is nearly endless, and depends on one’s skill set, luck, and willingness to learn. Examples of how much money traders have made trading crypto include as much as $1 million or more. However, the earnings potential is exponential.

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