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The 3 Best Strategies for Day Trading Cryptocurrency

The 3 Best Strategies for Day Trading Cryptocurrency

Day trading is a short-term trading style involving trades that are bought and sold during the same trading day. Day traders attempt to use trading strategies to profit from the price moves of a particular asset or financial instrument.

The term “day trader” is coined from the stock market, where trades generally only happen during regular business hours on weekdays. But a notable difference between the stock market and the crypto market is that the crypto markets stay open 24/7.

Speaking of crypto trading, Bitcoin loophole is a great resource for real-time market analysis and accurate trading signals. Traders use this platform to make effective and profitable trading decisions.

I recommend this to the greenhorns who might be overwhelmed by the market’s complexities, actively using this platform sets a sturdy pace that is sure to maximize profits.

Moving on, it helps to know some day-trading basics along with a few things to know before investing in crypto.

Things to Know About Crypto Day Trading

For day trading to be profitable, there are two market conditions that must be present.

Liquidity

In a market with low liquidity, slippage occurs.

Slippage is when a large position can’t be liquidated at the price a trader desires, this could eat into a trader’s profits.

With slippage, the position must be sold in increments, with each order having a lower price than the previous one, leading to smaller gains overall by the time the whole position has been sold.

That’s why Traders need to be able to enter or exit trades quickly without moving prices too much.

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Volatility

Day traders try to buy and sell during the same day and a lack of volatility means prices aren’t moving, and there’s no chance of buying low and selling high. Hence, the crypto market have to be going up and down on a short-term basis for their strategy to be viable.

Bitcoin mining could also play a role in markets at times. If miners are selling most of their coins as they mine them, this could increase downward pressure on prices for a time. Anyone learning how to day trade Bitcoin could benefit from learning how the technology itself works, too.

3 Best Strategies for Day Trading Cryptocurrency

Simply holding bitcoin or some other altcoins has been a profitable strategy in the long run. The result speaks of volumes. That’s why when considering how to invest in crypto, one strategy might be to just buy and hold. This has proven to be true during crypto bull markets when corrections tend to be short-lived. However, it is also important for investors to remember that Bitcoin and other altcoins are highly speculative investments. Just because an investment has risen in the past, that doesn’t mean it will continue to do so.

Specifically for day trading, there are multiple strategies to try. The most popular strategy is technical analysis, and an entire community of traders have sprung up around this school of thought.

One thing is certain: having a rule-based trading strategy of some kind is a must for short-term traders. Here are 3 best strategies for day trading cryptocurrency.

1. Technical Analysis

Technical analysis involves using mathematical indicators and chart patterns to try and predict which way prices will move next. Some technical indicators are simply generated with a computer program like Trading View, while others must be identified by humans looking at charts.

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One popular technical indicator is the relative strength index. This appears as a single line beneath a chart with a value between 0 and 100. The closer the RSI gets to 100, the more overbought conditions are thought to be, meaning prices could fall. The closer the RSI gets to 0, the more oversold conditions are thought to be, meaning prices could rise. This is one example of how someone day-trading cryptocurrency might use technical analysis.

2. Range Trading

Range trading assumes that prices tend to move within a certain range. Using this strategy involves looking at candlestick charts and support and resistance levels.

Traders might buy when prices reach a support level and sell when prices reach a resistance level. Or they might go short when prices hit resistance and close out the short when prices fall to support.

Pivot points are an example of range-bound trading. Calculating pivot points gives investors an idea as to what price levels are likely to see reversals in momentum.

3. Bot Trading

Bot trading, or high-frequency trading, involves the use of algorithms and trading bots that can be programmed to execute many trades very quickly. Using this method requires knowledge of advanced trading strategies and programming.

While crypto trading bots conduct the trading itself, high-frequency traders don’t simply sit back and let a computer program do all the work. Trading bots involve coming up with a specific strategy, developing the appropriate program to execute that strategy, and then constant monitoring, back testing, and updating of the algorithms to keep up with changing market conditions.

There are some pre-made trading bots available for purchase from certain dealers. One thing to keep in mind when considering such a bot is this: if the bot is profitable and easy to use, why isn’t everyone using it, and why are its creators selling it rather than using it themselves?

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Which Cryptocurrency is Best for Day Trading?

It depends on what’s going on in the crypto markets currently. We stated earlier that, liquidity and volatility are key for any day trading strategy, so any cryptocurrency with sufficient liquidity that is showing high volatility could be a good option.

DOGE is one coin that has enjoyed increased liquidity and a surge of volatility as of early 2021. It was originally created as a joke, this meme-based cryptocurrency skyrocketed from a fraction of a penny to over $0.25 in a matter of months. The market cap exploded by billions of dollars.

DOGE still has high volatility because it is easy to mine and there might be a lot of people holding large amounts of DOGE who sell them whenever the opportunity arises. This as well creates opportunities for day traders.

This is only one potential example amongst many—and this specific coin could be completely irrelevant by the time you are done with this article. Such is the volatile nature of cryptocurrency.

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