Have you tried trading and can see doing it as a job? Or maybe, you have heard it can make you a quick buck? No matter the amount of your experience and expectations, read our guide to crypto day trading, where we will explain how it works and what to expect. Of course, along with practical tips to guide you to success!
Key Takeaways
- Day trading means engaging in trading that is characterized by frequent transactions and holding assets short-term. Day traders also spend their time monitoring the news and applying technical analysis to markets of interest.
- Day trading crypto is not only possible but rather popular thanks to the volatile nature of cryptocurrencies that lets traders score more on short-term price fluctuations. Nevertheless, the most popular assets to day trade crypto are the most liquid and relatively stable: BTC, ETH, and BNB, to name a few.
- There are many day trading strategies applicable in crypto: from scalping and range trading to copy trading and high-frequency trading, anything goes! The key is to manage risks and find the strategy that suits you.
What is Day Trading (and What It Isn’t)
Let’s start by defining the kind of trading we are going to talk about. Day trading is a type of trading activity where individuals buy and sell financial instruments, such as stocks, currencies, or commodities, within a single trading day. Unlike long-term investing, day traders aim to take advantage of short-term price fluctuations to make profits.
What do day traders do? How does it work? Day traders closely monitor the market throughout the day, looking for patterns, trends, and indicators to help them identify potential opportunities for quick trades. They often use technical analysis tools and strategies to make informed decisions about when to enter and exit positions.
The main goal of day trading is to capitalize on small price movements, typically aiming for quick profits rather than long-term investments. Day traders execute multiple trades within a single day, sometimes holding positions for only a few minutes or even seconds. This fast-paced style of trading requires constant attention and needs traders to be skilled in risk management and decision-making under pressure. Therefore, jumping straight into it is not recommended for beginners: if you must, start by dipping your toes — we will touch upon more tips later.
Of course, day trading is more than staying glued to your screen looking at charts, and flipping assets back and forth. It is an activity that will require time investment and may be quite taxing on your nerves. In other words, day trading is definitely not an easy way to make money. Let’s focus now on the things that day trading can help you with and what drawbacks you need to consider before doing it.
Firstly, day trading profitably is a valid way to earn money and is an occupation for some. Bear in mind that it is far from guaranteed and requires a solid understanding of the market, effective strategies, and proper risk management techniques. Secondly, day trading as an occupation is attractive to those who want a more flexible and free lifestyle. Thirdly, due to a higher degree of involvement in the market’s conditions, it presents almost constant learning opportunities. The last point can be a little bittersweet, as not all learning opportunities equal successful trades.
There are even more things that are not obvious and might turn you away from day trading. For one, day trading involves significant risks. The fast-paced nature of day trading means that decisions need to be made quickly, and there is a higher chance of making impulsive, emotion-driven trades. Another major drawback of this pastime is psychological stress. The pressure to make quick decisions and the potential for financial losses can lead to stress, anxiety, and even burnout. Not to mention, day trading requires a significant time commitment. It involves actively monitoring the markets and constantly analyzing data. No wonder it can easily turn into a full-time job or worse: you may even lose track of time trying to break even after a bad day.
Is Day Trading Cryptocurrency Possible?
By definition, day trading is more about the style of trading rather than markets. You can do it with stocks, currencies, futures, and options. And of course, day trading cryptocurrency is feasible and even quite popular. It has a few features that make it stand apart from day-trading stocks or foreign currencies.
Cryptocurrencies are known for their high volatility, meaning their prices can experience significant fluctuations within short periods. This can create more opportunities for day traders to profit from price movements. At the same time, it increases the risk of losses as well, since price movements can quickly and often unexpectedly change direction.
Unlike traditional stock markets or foreign exchange markets that have specific trading hours, the cryptocurrency market operates 24/7. This continuous trading can provide day traders with more flexibility in terms of when they can trade, not to mention being accessible no matter where they are. Of course, it also means that the market is active and volatile at any time, including weekends and holidays.
These days cryptocurrency markets are still less regulated compared to traditional financial markets. Some might say this is an added benefit, but there is undoubtedly less protection for traders in case things go awry. Even in the usual circumstances, scams and market manipulation are all too common.
Another critical point of crypto day trading is that cryptocurrency markets may have lower liquidity and market depth compared to traditional markets. Large orders can have a more significant impact on prices, potentially leading to slippage and difficulty executing trades at desired price levels, hindering position entrance and exit.
How to Start Day Trading Crypto?
Before you start getting into crypto day trading, there are a few bases to cover. They are both theoretical and practical, concerning your knowledge and skills, as well as platforms and markets.
- If you are not familiar with cryptocurrencies and blockchain, it is a bad idea to go into trading crypto blindly. While you are at it, you can learn more about different trading strategies and technical analysis tools commonly used in day trading.
- Choose a reliable cryptocurrency exchange with a sufficient range of markets and robust security measures in place. Ensure that you have a good grasp of its interface and trading features. Trading fees are also a vital factor since you will be making frequent trades.
- Approach trading with a solid plan that outlines your goals, risk tolerance, and trading strategy. This plan should also include rules for entering and exiting trades, managing risk, and setting profit targets.
- Many exchanges offer demo accounts that allow you to practice trading with virtual funds. Do not overlook this feature: gain experience and test your trading strategies without risking real money.
- When you feel ready to trade with real funds, start with a small amount that you can afford to lose. This will help you manage your risk and gain experience without putting too much capital at stake.
- Always stay updated on market trends, news, and events that can impact the cryptocurrency market. Factors such as regulatory changes, technological advancements, and market sentiment can significantly influence prices.
- Technical analysis is a valuable tool in the day trader’s arsenal. Even on a slow news day, it can cause some price action you wouldn’t want to miss — so learn how to spot trends and patterns.
How to Choose Crypto for Day Trading
When picking a cryptocurrency to day trade, consider the following factors. Some of them are mutually exclusive, so you should prioritize them according to your style of trading.
One of the most helpful traits for choosing a cryptocurrency to day trade is the liquidity of the market. It plays into both the asset you choose and the platform you are going to use. Higher liquidity means there are more buyers and sellers in the market, allowing for easier execution of trades at desired prices.
Day trading benefits from the high volatility, and the cryptocurrency market is a gold mine for such markets. Remember that higher volatility can present more trading opportunities, but it also carries higher risks. There is some balance to be found here as well: for instance, larger market-cap coins tend to be more stable and less prone to manipulation.
The tools of a pro trader work with crypto day trading, too. Evaluate the fundamentals of the cryptocurrency, including its use case, technology, team, and community support. A strong fundamental foundation can indicate a higher likelihood of future growth. In turn, technical analysis can help you understand market trends and make informed trading decisions. Analyze price charts, patterns, and indicators to identify potential entry and exit points.
Last but not least, keep the trading fees charged by the exchange in mind. High trading fees can eat into your profits, especially for frequent day traders.
6 Coins and Tokens to Day Trade
Bitcoin (BTC)
The go-to cryptocurrency for all types of trading strategies, Bitcoin (BTC) is likewise a good fit for crypto day trading. It can’t boast extreme volatility like altcoins (“alternative coins”, simply meaning any other crypto asset that is not Bitcoin.) Its strengths are plenty, though: it has a consistently high trading volume, decent liquidity relative to the rest of the crypto market, and some of the strongest fundamentals.
Ethereum (ETH)
The second-largest crypto asset after Bitcoin, Ethereum (ETH) is more than worthy of consideration. Like BTC, it has a market cap large enough to be resistant to anomalies and manipulation. Another major reason for Ethereum’s huge popularity among traders is its decent liquidity. There are almost always buyers and sellers in the markets, ensuring quick entry and exit.
When it comes to day trading in particular, Ethereum can be an even more enticing alternative to BTC. The volatility ETH prices experience is more noticeable, leading to higher returns on successful trades. As you probably already can tell, this also means higher risks, so unless BTC is too much to handle, this is a reasonable next step as you get more experience day trading crypto.
BNB (Binance Coin)
Our list so far has been following the cryptocurrency ranking by market capitalization pretty closely, and BNB in third place (skipping Tether USD) seems to be following this logic. It is also a relatively large crypto asset thanks to its fundamentals and market cap but not as much as BTC and ETH. Therefore, its liquidity, stability, and trading volumes are suitable for crypto day trading.
There is also another reason why you should consider assets like BNB. If you are using the cryptocurrency exchange Binance, BNB is great to have because it is its utility token. With a certain BNB balance, you can avail of discounts on trading fees and other perks. And if you already have some, why not try trading the extra amount? If you are using other crypto exchanges, check if there is a similar program in place and see our guide to exchange tokens.
XRP (Ripple)
The cryptocurrency XRP created by Ripple is an increasingly prominent cryptocurrency, widely used in cross-country payments. It is among the most profitable cryptocurrencies in the top ten by market capitalization to this day. XRP is a nice choice for day traders who are interested in capitalizing on short-term price movements.
From late 2020 to mid-2022, XRP was very popular for crypto day trading for a reason other than its fundamentals. The founders of the company that created XRP Ledger and is its largest adopter, Ripple, were involved in a legal battle with the U.S. Securities and Exchange Commission (SEC). The long and arduous process was accompanied by the steady stream of news that moved XRP’s price. Even today, though, the case is not yet over, and the asset remains a shining example that demonstrates how important it is to stay tuned to the crypto-related news.
Dogecoin (DOGE)
Dogecoin (DOGE) is one of the most interesting entries on our list. On the one hand, like the others, it is a cryptocurrency with one of the biggest market caps in the industry. On the other hand, it is a meme coin, a cryptocurrency that literally started as a joke.
For a long time, it did not have the trading volumes and liquidity to be as valuable as it is today and only the reputation of the friendliest crypto. These days, though, things are different, and day trading DOGE is a great way to generate a profit for beginners and experienced traders alike.
The thing about DOGE and other meme coins is that they are famously volatile. Any positive news, especially having to do with figures as high-profile as Elon Musk, shoots it into the stratosphere (and the opposite is true as well). This makes such cryptocurrencies a risky but rewarding cryptocurrency to day trade. If you followed the tips in our previous section and have a good grasp on the cryptocurrency market trends, why not consider meme coins? If DOGE is too old-school for your liking, there are a ton of those to choose from, and their differences are often not too fundamental.
Solana (SOL)
Last but not least, another asset for crypto day trading worth your attention is Solana (SOL). It may not have the highest volatility but like most of the assets we highlight has decent liquidity and a high trading volume. Moreover, like ETH and BNB, a lot of it comes from decentralized finance (DeFi), which is also a feasible even if unorthodox crypto day trading method.
A big competitive edge of SOL in comparison to other mentioned assets is its speed and low transaction fees. This is especially attractive if you engage with DeFi because unlike with centralized cryptocurrency exchanges, most transactions there happen on-chain. Lower network fees compound to lower expenses and losses, which is crucial to make crypto day trading profitable.
Crypto Day Trading Strategies
Now that we have gone over what you can trade, let’s briefly review how you can do it. There is a great variety of approaches to crypto day trading. We encourage you to read our brief introductions and continue your research and education about the way that catches your eye so you can find the optimal day trading strategy for you.
Copy Trading
The easiest and most beginner-friendly day trading strategy is not about trading but rather, using somebody else’s strategies and skills. We are talking about copy trading: a strategy in which you choose a trader and copy their actions. Some experienced traders offer this service themselves, and it contributes to their income.
The main difficulty in this strategy is the choice of the trader to copy. In addition, there is a noticeable lack of control over the trades and results. Not to mention, by copying trades, especially with trading bots, you will not be gaining any experience for yourself.
Scalping
This trading strategy, on the other hand, is closer to the definition. Scalping is all about quantity over quality: the trades are made frequently, even if the profit is small. Because the amount of trades is high, these profits add up.
If you feel like applying this crypto day trading strategy, don’t forget about trading fees. Trades will need to be executed smoothly, so this method will prioritize high liquidity over volatility.
Arbitrage
The next trading strategy is a little more complex and will involve multiple platforms. Arbitrage, in addition to price movements, capitalizes on the difference in price of an asset on different markets, e.g. in another trading pair or on another exchange.
As a result, arbitrage will require you to have a fair amount of practical knowledge about the crypto market. You will need to account for trading costs across multiple platforms, as well as know how to navigate them. With sufficient knowledge, though, this crypto trading strategy can pay off.
Did you know that ChangeHero can make arbitrage trivial? Under the hood, we scour ten liquidity providers such as crypto exchanges in real time and find the best rate for your crypto exchange transaction. It is a non-custodial platform that won’t require you to register an account or deposit funds before you can start trading crypto.
Range Trading
For day trading with this strategy, you will need to apply technical analysis, so in other words, knowledge of technical indicators is a must. Range trading is done with coins that bounce between two price levels: this is a sign of fine liquidity, as both bulls and bears trade it frequently.
Like with scalping, coins with low volatility are preferable for range trading. Any change outside of the bounds of the barrier would mean price action that becomes unreasonable for day trading. Even though finding a suitable market comes with prerequisites, employing the strategy itself is not very difficult: buy low and sell high!
In addition to all of the above, there is also high-frequency trading. Like copy trading, this is not a strategy per se but rather the way it is performed. In high-frequency trading, trading bots are set up so that transactions are carried out as frequently as several times a second. Since this is a resource-intensive method for advanced traders, we do not dedicate a section to it but it is worth a mention anyway.
Conclusion
When it comes to day trading, crypto is as good as any other financial instrument and even has its perks! If you take it seriously and dedicate time to learning the ins and outs, it might become a profitable self-employment alternative.
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Frequently Asked Questions
Is crypto good for day trading?
Cryptocurrencies, like other types of financial assets, are fair game for day trading. They may even present more opportunities to day traders due to their volatile nature and the fact that cryptocurrency markets are open 24/7. At the same time, they carry drawbacks such as lower liquidity or risks such as being prone to manipulation. All things considered, crypto day trading is as valid as other types of this activity.
Can you make $1,000 a day trading crypto?
It is entirely possible, especially if you start with a large sum. However, day trading is not a way to get rich quickly, as it requires a great deal of knowledge about trading strategies and the market, as well as staying up to date about the news and market sentiment.
Can I trade crypto with $100?
Depending on the asset you pick, $100 can be more than enough worth of crypto for day trading. Keep in mind that some of it will be spent on exchange fees, so you should choose the markets and platforms accordingly.
Disclaimer
This article is not a piece of financial or investment advice. When dealing with cryptocurrencies, remember that they are extremely volatile and thus, a high-risk investment. Always make sure to stay informed and be aware of those risks. Consider investing in cryptocurrencies only after careful consideration and analysis of your own research and at your own risk.
