Crypto trading has emerged as the fastest-growing class of investments in recent years. Many individuals are looking to get started in this highly lucrative space. Specifically, day trading has become a highly sought-after avenue that involves high risk but also offers sky-high rewards. However, getting started can be daunting as it requires several considerations like trading strategies and picking the right coins.
This guide will help you understand how to day trade crypto and how best to pick your tokens.
What is Day Trading Crypto?
Many traders in the stock market make several trades within a single trading day, hoping to end up with higher holdings than they started with. This is the same in the crypto market, but keep in mind that crypto day trading has a much higher risk and reward than stocks.
In a single trading session, your goal is to take advantage of rapid price changes to extract profits. If done properly, your assets will be worth more than what you started with. This process begins with defining your trading strategies and picking assets. This helps create a simple, repeatable trading process that can be applied in most situations.
How To Pick Crypto For Day Trading?
The “best” options for day trading differ from week to week, making any specific coin recommendations obsolete in just a few days. The better way to pick your investments is to choose based on some well-defined guidelines.
- High Liquidity – Day traders greatly benefit from tokens that have high liquidity. High liquidity implies you can rapidly complete your buy and sell orders. While this is usually correlated with high volume, liquidity is considered a more important metric for day trading.
- High Volatility – As a day trader, your profits come from an asset’s change in price during a trading period. If a token is highly volatile, this means higher highs and lower lows, increasing your potential for profit. Thus, most day traders choose tokens with high intra-day volumes to take advantage of the spread.
Read more: Futures Trading Vs Margin Trading
Common Crypto Day Trading Strategies
Sentiment Analysis
This technique relies on understanding what other crypto traders “feel” about a token. This can be done using social media like Twitter and Reddit to figure out the general sentiment around a token. Other crypto tracking services like coinmarketcap.com also include a section for users to share their thoughts on a token’s performance.
Technical Analysis
This analysis is similar to sentiment analysis but relies on historical price movements to make predictions. This involves processing a lot of data to extract trends in market performance. However, this only works if we assume that past price is a good predictor of future price. This method can be applied by analysing candle stick patterns along with other technical indicators such as RSI, Support-Resistance lines, and volumes.
Read more: What Are Crypto Options
Scalping
Scalping involves making razor-thin profits on individual trades, which add up when you make dozens or hundreds of trades. This process benefits from highly liquid tokens that experience small price changes.
High-Frequency Trades
HFT is a technique that expands on scalping but requires specialised tools. It involves making several trades within a second, taking advantage of minute price changes in that duration.
This is not feasible for any human investor. Instead, you must use crypto trading bots to accomplish this strategy.
Read more: Crypto Trading Strategies
Select the Right Trading Platform
Day trading involves making hundreds of trades in a single day. To do this successfully, you require a platform with a few important features.
Firstly, the platform must have low fees. When you make multiple trades, the transaction fees on each trade can add up and start cutting into your profits. You must pick a platform where the fee does not prevent your trades from being profitable.
Second, it must be fast and offer low slippage. Making many trades within a minute or second requires that the exchange can also execute those trades quickly. Low slippage also implies that the price is close to the expected sale price. In some cases, prices can move in the time between your confirmation and the platform’s execution. This can result in lower profits than expected.
ZebPay is one of the most widely used platforms for day trading. With low fees and plenty of technical support, traders can capitalize on ZebPay’s resources to execute successful trades. Start your trading journey today with ZebPay.
Charting Out a Trading Strategy
As mentioned above, there are many considerations when creating a trading strategy. If you are familiar with machine learning, you can create models for sentiment and technical analysis.
Bot Trading
If you instead wish to generate an income passively, you can use crypto bots for high-frequency or range trading. This can simplify the trading process, where the bot takes care of executing all trades and shifting your capital between profitable investments.
Arbitrage
Another possibility is to practice arbitrage trading. Arbitrage involves taking advantage of the difference in price on two different exchanges. Assume exchange one sells BTC at $16,510. The price on exchange 2 is instead $16,530. For each token you trade, you make a profit of $20. This is risky and requires that you can transact fast enough before the price gap is eliminated.
Either way, day trading is not an easy task. Be prepared to research and see your portfolio hover between red and green as you learn the ins and outs of trading. Soon, you will be able to make incredible profits.
Read more: Crypto Investing vs Crypto Trading
The Final Word
Crypto day trading is a very popular method of profiting from crypto tokens. However, it requires a lot of research and careful attention to your trading strategy and portfolio. It can be daunting, but following this guide can help you understand what to consider when getting started with this process.
You can learn more about the latest events in crypto using ZebPay blogs.
FAQs on Crypto Day Trading
What is Crypto Day Trading?
Day trading is the process of extracting profits from an asset’s price movements in a single day.
What are the Popular Trading Strategies?
The most popular strategies include technical analysis, scalping and high-frequency trading.
How to Pick the Right Tools For Trading?
The first step is to choose the right platform that offers low fees and fast fulfilment. Next, choose a crypto trading bot that offers the trading strategies you intend to use. Alternatively, create your own bot using machine learning and the API of the chosen platform.
